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* 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 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
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
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
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
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
"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)