Will Biopharma Acquisitions Never Cease?

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In both the size and quantity of proposed deals, the past 24 months have been busier than ever for biopharma dealmakers. From industry giants like Genentech and Biogen Idec (Nasdaq: BIIB) to tiny players such as Mirus Bio, nearly every such drugmaker has generated at least rumors of a takeover. 

Why now?
There are many factors coming together to make biopharmaceutical drugmakers attractive acquisition targets right now, but two particularly stand out. First, big pharmas like Pfizer (NYSE: PFE), Bristol-Myers Squibb, and Eli Lilly (NYSE: LLY) are currently flush with cash. However, they're also facing patent expirations and rising generic competition against some of their best-selling flagship drugs.

These drugmakers' cash has to go somewhere, either through acquisitions, share buybacks, dividend payments, or paying down debt. Some of these options don't make very much sense right now; with interest rates at historical lows, for example, now's not the time for big pharma to pare down their debt levels. In addition, some drugmakers park a good portion of their cash outside the U.S. for tax reasons, making foreign biopharma acquisitions more attractive.

Given their complex molecular nature and manufacturing processes, many biologically derived drugs and vaccines have innate natural protections against generic competition. In many cases, it can be nearly impossible to make a generic copy of a biopharmaceutical drug, even after its patents have run out.

There are plenty of smaller variables at work, too:

• The weak dollar means foreign large-cap pharmaceutical firms can acquire U.S. drugmakers more cheaply.
• The biopharma industry has matured in the last 10 years.
• Biopharma technologies enjoy increasing validation.

All in all, the the environment for biopharma deals has never been stronger.

What does Big Pharma want?
As with many previous deals for small-molecule drugmakers in the past, big pharma has generally offered its biggest premiums and juiciest deals to mid-sized biopharmaceutical firms with mature assets.

Here's a chart of some of the biggest biopharma acquisitions or proposed deals in the past 24 months:

The deal	Share-price premium*	Main reason for offer
Genentech acquired Tanox for $919 million.	47%	To gain rights to Tanox's share of the asthma drug Xolair
AstraZeneca acquired MedImmune for $15.6 billion .	21%	To get Synagis and vaccines
Takeda acquired Millennium Pharmaceuticals for $8.8 billion.	53%	Multiple-myeloma drug Velcade plus biologics pipeline
Bristol-Myers proposed to buy ImClone Systems (Nasdaq: IMCL) for $4.5 billion.	30%	Cancer drug Erbitux plus biologics pipeline
Roche proposed to buy Genentech for $43.7 billion.	8.8%	To gain more control over Genentech

*Compared to the day before the offer was made.

In addition to heated acquitision activity, drugmakers have forged a slew of record-breaking partnership deals for biopharmaceutical assets. For example, in 2006 GlaxoSmithKline struck a deal with Genmab, worth as much as $2.1 billion, for one of the latter company's late-stage monoclonal antibody drug candidates.

Many of these deals involved drug developers working with technologies that competitors have previously validated, but in recent months, large-cap pharma has even started to bite on new unproven technologies like Cell Genesys' GVAX cancer vaccine. However, these deals have generally drawn smaller amounts of up-front cash (and some bad outcomes, too).

What tempting targets remain?
Even as the biopharmaceutical sector grows by leaps and bounds in the 21st century, with drugs like Millennium's Velcade, Genentech's Avastin, and ImClone's Erbitux entering the market, there are still very few independent pure-play biopharmas. This fact alone boosts these companies' attractiveness to would-be acquirers.

Here's a partial list of some of the juiciest biopharma assets potentially still up for grabs:

Company	Current market capitalization	What they have to offer
Seattle Genetics (Nasdaq: SGEN)	$880 million	2 compounds in later-stage testing, antibody-drug conjugate technology
Alexion Pharmaceuticals	$3.5 billion	One drug already approved to treat a rare genetic disorder, multiple label-expanding studies under way
Medarex	$950 million	Seven compounds in at least phase 3 testing that could generate royalties, fully human monoclonal antibody technology
Momenta Pharmaceuticals (Nasdaq: MNTA)	$530 million	Technology to potentially develop a range of biosimilar drugs
Regeneron Pharmaceuticals	$1.7 billion	One approved compound, another that could compete broadly with Genentech's Avastin

Other drugmakers also have interesting biopharmaceutical assets, like Biogen Idec, Elan (NYSE: ELN), and Genzyme. But for a variety of reasons, including their large size or the nature of their existing partnership agreements, they'd be more difficult for a potential buyer to acquire.

A year from now, I'll be very surprised if every drugmaker on the above list remains independent. There are only so many mature biopharma assets to go around, and as the past months have shown us, big pharma isn't afraid to snap them up.