DEALTALK-Smaller pharma deals likely after Q1 blowout
(For more Reuters Dealtalks, please click [DEALTALK/])
* Bankers see more mid-sized drug industry deals
* Giant Pfizer, Merck, Roche buys may not be replicated
* Focus on bolt-on acquisitions to add products, diversify
By Ben Hirschler and Jessica Hall
LONDON/PHILADELPHIA, March 27 (Reuters) - Don't bank on too many more pharmaceutical mega-mergers.
Giant drug deals kept M&A bankers in business in the first three months of the year but the pharma diet for the rest of 2009 is likely to be smaller acquisitions valued from a few hundred million dollars up to possibly $20 billion.
Though mergers offer a quick way to rip out excess capacity, many obvious ones have now been agreed and the poor track record of 1990s mega-deals means potential predators are wary.
"While there have been some recent large pharma transactions announced, we don't expect there to be a huge wave of consolidation that sweeps the big-cap pharma space," said Jeffrey Stute, co-head of North America M&A at JPMorgan Chase.
"In mid-cap pharma, biotech and medical devices we do see continued activity," he added.
Healthcare dominated global mergers and acquisitions activity in the first quarter, with $120 billion of announced deals, according to Thomson Reuters data. [ID:nLQ562067]
Topping the table was Pfizer Inc's (PFE.N) $65 billion offer for Wyeth WYE.N, followed by Merck & Co Inc's (MRK.N) $46 billion buy of Schering-Plough Corp SGP.N.
The figures do not include Roche Holding AG's (ROG.VX) $47 billion buyout of Genentech Inc DNA.N, first initiated in July 2008.
The deal rush has sparked speculation of a further wave of consolidation among the world's top 20 drug companies. But, as the dust settles, many bankers are not convinced.
"I think we could be done for a while," said one healthcare banker at a European bank, who declined to be identified by name because he was not authorised to speak to the press.
OUT OF THE GAME
Some of the obvious players that might follow Pfizer, Merck and Roche have already ruled themselves out of the game.
GlaxoSmithKline Plc (GSK.L), the world's second biggest seller of prescription drugs behind Pfizer, says it is not interested in large-scale M&A, while Swiss giants Novartis AG (NOVN.VX) and Roche are busy digesting Alcon Inc ACL.N and Genentech respectively.
France's Sanofi-Aventis SA (SASY.PA), often tipped as a buyer of smaller partner Bristol-Myers Squibb Co (BMY.N), remains a wild card.
But Sanofi's new Chief Executive Chris Viehbacher says his focus is on deals below $15 billion and his current partnership with Bristol is "sufficient" for now.
That does not mean acquisition departments at Big Pharma companies are idle -- far from it.
Across the sector, top executives are more active than ever in scoping acquisitions that may help them deliver on growth as the industry grapples with the biggest patent expiries crisis in its history.
For owners of potential targets, including some cash-strapped private equity houses, 2009 could be a year in which to realise locked-up value.
Family-owned skincare company Stiefel Laboratories Inc has asked Blackstone Group (BX.N), which owns a minority stake, to seek offers for the company.
And Swiss-based Nycomed, owned by Nordic Capital and three other private equity firms, which had been considering an initial public offering, may also be bought by a larger group.
Rumours abound on other possible tie-ups. Shares in Botox maker Allergan Inc (AGN.N), for example, shot up this week on talk Glaxo might snap up the business for some $20 billion.
Glaxo declined to comment but analysts were sceptical that it would try to buy the company.
"We're expecting more activity," said Simon Friend, global pharmaceutical leader at PricewaterhouseCoopers. "It may not be 'mega' but deals could still reach $10 billion, $15 billion or $20 billion."
The growing threat from generics, deteriorating research productivity and looming healthcare reforms in the United States -- the world's biggest and most profitable market -- have forced top drug companies rethink their strategies.
Mega-mergers are one way to take out capacity for companies like Pfizer, which faces the sector's biggest single loss of sales when its blockbuster cholesterol drug Lipitor loses patent protection in 2011.
Yet companies that tried giant takeovers in the last pharma M&A wave in the 1990s generally received poor scorecards from investors.
"The strategy of getting bigger is a real challenge for those companies embarking on it and I personally don't think they will be followed by lots of others," said Chris Stirling, head of chemicals and pharmaceuticals at KPMG in London. (Editing by Hans Peters)
- Washington, DC city council raises minimum wage to $11.50/hr in 2016
- Winning ticket sold in California for Mega Millions lottery: official |
- India removes barriers to U.S. embassy as anger grows over diplomat's arrest
- UPDATE 5-Mega Millions lottery winning tickets sold in California, Georgia -Officials
- China confirms near miss with U.S. ship in South China Sea