DEALTALK-Foreign drugmakers set sights on U.S. deals
By Toni Clarke
BOSTON, April 14 (Reuters) - For foreign drugmakers seeking to expand in the United States, the prospects could hardly look better.
The weak U.S. dollar is a boon to those seeking U.S. pharma assets, and it is particularly beneficial at a time U.S. drugmakers are mired in cost-cutting efforts and drug safety concerns.
"It's like the Manhattan real estate market," said David Webster, president of Webster Consulting Group, which advises pharmaceuticals companies. "What keeps it afloat are the Japanese and Europeans or whoever seems to be making money worldwide and whoever has a strong currency."
Last week, Takeda Pharmaceutical Co Ltd (4502.T), Japan's biggest pharmaceuticals company, agreed to acquire Millennium Pharmaceuticals Inc MLNM.O, one of the few profitable U.S. biotechnology companies, for $8.8 billion.
The deal is the latest in a series of transactions by foreign drugmakers.
Japan's Eisai Co Ltd (4523.T) recently acquired MGI Pharma Inc for $3.9 billion. Anglo-Swedish drugmaker AstraZeneca Plc (AZN.L) bought biotechnology company MedImmune Inc for $15.6 billion.
Switzerland's Roche Holding AG (ROG.VX) acquired Ventana Medical Systems Inc VMSI.O for $3.4 billion; GlaxoSmithKline Plc (GSK.L) of Britain bought Reliant Pharmaceuticals for $1.65 billion; and Swiss drugmaker Novartis AG (NOVN.VX) just agreed to pay up to $39 billion for a 77 percent stake in eye care company Alcon Inc (ACL.N).
CURRENCY BENEFIT
Currency is in their favor. The dollar has fallen about 17 percent against the euro and about 15 percent against the yen since the beginning of 2007.
"Clearly there's a currency benefit for the foreign buyers right now and that's going to be a common theme this year," said Bihag Patel, Senior Portfolio Manager at Fort Washington Investment Advisors. "Overall I think it is going to be a good year for health care M&A, and the foreign companies have the upper hand right now."
The response of the Europeans and Japanese to the problems facing the industry as a whole -- particularly increased generic competition and a dearth of new products in the pipeline -- stands in contrast to that of the U.S. drugmakers, which are steering clear of big acquisitions.
"Big pharma in the U.S. is being more driven by niche acquisitions rather than gobbling up an entire company, which they can't do because they don't have the money on the balance sheet," said Aparna Krishnan, senior health care analyst at Global Insight, an economic analysis company based in London.
And while the Europeans are diversifying into consumer health, generics and other therapeutic areas such as vaccines, many of the big U.S. drugmakers are hunkering down and sticking to their knitting.
Over the past three years, only two of the top 15 deals involving pharmaceutical and biotech companies saw large U.S. drugmakers buying companies to boost their prescription-drug lines, according to Dealogic.
SELLERS
Pfizer Inc (PFE.N) sold off its consumer health business in 2006; and the Financial Times reported recently that Bristol-Myers Squibb Co (BMY.N) is sounding out buyers for a possible sale of its Mead Johnson baby formula food business.
GlaxoSmithKline, by contrast, says it has no plans to spin off its own consumer health business, and in fact wants to expand it with more acquisitions.
"U.S. pharmaceuticals companies are in a bad position now," said Mike McCully, an analyst at Recombinant Capital. "The strategy for them now is not new products but new product indications."
One notable exception is Schering-Plough Corp SGP.N, which agreed to pay $14.4 billion for Organon BioSciences NV.
Whether or not big acquisitions make sense over the long term is a matter of debate -- some argue that at the end of all the integration and cost-cutting, what is left is not worth the price.
And even European companies have shied away from megamergers between large drugmakers as management and investors question the wisdom of such giant tie-ups.
Even so, big acquisitions are still likely to occur, analysts say, especially by international investors.
"What else are they going to do?" says Steve Brozak, an analyst at WBB Securities. "Buy U.S. Treasuries that will be worth barely more than they are today?"
Webster agrees.
"I think that for foreign companies U.S. pharma is a more guaranteed income stream than T-bills. The government would more likely default on T-bills than let the pharmaceutical industry go down the tubes." (Additional reporting by Ransdell Pierson in New York; Editing by Brian Moss)
