FUNDVIEW-Healthcare M&A to gain pace in 2013 - OrbiMed's Isaly

Thu Feb 7, 2013 1:51pm EST

Feb 7 (Reuters) - Healthcare deals will rebound this year after a weak 2012, with providers of innovative technologies, cancer treatments and diagnostics being the most likely targets, the founder and managing partner of healthcare-focused OrbiMed Advisors said.

Samuel Isaly, who manages and advises healthcare funds including the Eaton Vance Worldwide Health Sciences Fund , named Onyx Pharmaceuticals Inc and Insulet Corp as among the potential takeover candidates.

Onyx markets cancer drug Nexavar with German partner Bayer AG and also has blood cancer drug Kyprolis, which is approved to treat multiple myeloma in patients who have tried at least two other medicines.

"Such a grouping of products is unusual in a single company. The market capitalization of Onyx is bite-sized and it would fit with many larger companies," Isaly told Reuters.

Onyx has a market value of $5.58 billion.

Insulet has developed a tubeless insulin pump that was approved by the U.S. Food and Drug Administration in December. The product, OmniPod, includes a pod that can be attached to the patient's body and a wireless hand-held device that manages the insulin delivery.

"Insulet is not yet profitable - but should turn to profits next year. It would be an excellent strategic fit with any other participant in the diabetes business," said Isaly, who manages assets of $6.5 billion.

"Innovation is the key word," he said, noting this is what the pharmaceutical giants, struggling with blockbusters coming off patent and a lack of new drugs in their pipeline, are looking to tap.

OrbiMed, which also invests through its hedge fund and private equity businesses, holds a 2.12 percent stake in Onyx and a 0.44 percent stake in Insulet, according to Thomson Reuters data.

Global healthcare deal volume fell 9 percent in the nine months to Sept. 30, according to a PricewaterhouseCoopers report. Total value of deals dropped 17 percent.

NICHE VS MASS

Niche drugs, or treatments for rare, orphan indications, is another area that Big Pharma is closely looking at for acquisitions, the veteran fund manager said.

Many industry experts think the days of mass-market blockbuster pills such as Pfizer Inc's cholesterol drug Lipitor are over, and that niche, targeted therapies that can command high prices might become the norm.

"Big Pharma is disappointed with the safety requirements for widely used drugs that treat millions of people," Isaly said.

He mentioned BioMarin Pharmaceutical Inc, in which OrbiMed funds control a 5 percent stake, and Alexion Pharmaceuticals Inc, in which the funds have a 1 percent stake, as companies that have been able to tap the potential of orphan drugs.

Alexion's rare blood disease drug Soliris is sold to just a few thousand patients worldwide, yet Thomson Reuters Pharma estimates sales to reach $1.65 billion in 2013 and $3.58 billion by 2017, thanks to a U.S. list price of $440,000 per patient, per year.

BioMarin, which has a market value of $6.93 billion, has four drugs on the market, two of which treat metabolic disorders caused by the absence of certain enzymes.

However, in a recent interview with Reuters, BioMarin CEO Jacques Bienaime said the company would not consider a buyout offer for even a 25-30 percent premium.

BioMarin, Alexion and Onyxx were also part of eight U.S. biotech companies that Morningstar analysts had flagged as potential targets in 2012.

Isaly's publicly available, long-only funds also include the Worldwide Healthcare Trust and the Biotech Growth Trust .

The Eaton Vance Worldwide Health Sciences Fund, the largest of these with assets of about $950 million, underperformed its benchmark MSCI World Health Care Index last year.

The fund had returns of about 15 percent, while the MSCI index returned more than 17 percent.

Isaly expects a 15-20 percent return on each of the funds in 2013.

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