Foreign drug makers set sights on U.S. deals

By Toni Clarke

BOSTON (Reuters) - For foreign drug makers 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. drug makers 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 drug makers.

Japan's Eisai Co Ltd (4523.T) recently acquired MGI Pharma Inc for $3.9 billion. Anglo-Swedish drug maker 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 drug maker 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. drug makers, 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. drug makers 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. drug makers buying companies to boost their prescription-drug lines, according to Dealogic.

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