NEW YORK (Reuters) - No biotech company is too big to be bought, at least according to one veteran healthcare executive.
David Snow, chief executive of Medco Health Solutions MHS.N, sees major drugmakers needing the growth potential of biotech more than ever. So expect more large deals like Sanofi’s (SASY.PA) $20.1 billion purchase of Genzyme, he says.
That runs counter to what drug executives and bankers are willing to say publicly. They often describe modest deal goals, with price tags under $5 billion, for fear of inflating already lofty valuations.
“Large brand manufacturers are going to be acquisitive when it comes to biotech companies. You’re going to find all the big manufacturers are going to have deep capability in biotech,” Snow told the Reuters Health Summit on Tuesday in New York.
“Literally it’s possible for any biotech manufacturer that’s a pure play today” to be a takeover target at the moment, Snow said. “You have to become awfully large to be unaffordable — there’s lots of cash, lots of capital out there for acquisitions.”
Pure play biotechs range in value from the likes of Human Genome Sciences Inc HGSI.O, which has a market capitalization of about $5.2 billion, to Biogen Idec (BIIB.O) at $23.6 billion and Amgen Inc (AMGN.O) at $54 billion.
Executives from biotechs including Sanofi, Biogen and Celgene (CELG.O) told the Reuters Health Summit they were looking only at small deals or partnerships.
But Medco has a unique perspective on the pressures the drug industry faces to boost revenues. As a pharmacy benefits manager, or PBM, it administers drug benefits for employers and health plans and also runs an extensive mail-order pharmacy. PBMs profit particularly from low-cost generic medicines rather than branded drugs.
The risk for drug manufacturers will jump next year, which will be the biggest year for the introduction of generic drugs, Snow said. And he expects biotech drugs to account for 50 percent of the spending his company oversees by 2020, up from 17 percent today.
Sanofi said the acquisition chase is getting more competitive as industry players face the same set of problems.
“You have to look long and hard to find assets where you can really create value. ... where we have been successful in the past is that we have gone after assets before other people have gone after the same area,” Sanofi Chief Executive Chris Viehbacher said.
Viehbacher said Sanofi was early to target India and Brazil, before takeover valuations got high.
Viehbacher said that it will focus on deals in the range of 1 billion to 2 billion euros per year. The idea of “bolt-on acquisitions” and small-to-mid-sized deals tends to be the motto for pharmaceutical companies — even those that eventually pull the trigger on large, mega-deals.
So far this year, the healthcare industry has seen $84.8 billion in deals worldwide, nearly double the $44.8 billion in the same period last year, according to Thomson Reuters data.
Biogen said it doubts it will be a takeover target, given its nearly $24 billion market capitalization. It plans to focus its energy on collaborations, licensing or acquisitions of early-stage drugs that are in Phase One or Phase Two trials.
“Our Phase Two and Phase One pipeline is thinner than it should be. It doesn’t mean we have to acquire companies .... we could license them,” Chief Executive George Scangos said.
Biogen may look at areas such as multiple sclerosis, Parkinson’s, Alzheimer’s and hemophilia.
GlaxoSmithKline (GSK.L) also said it does not see much value in large deals, but instead it will focus on commercial collaboration and partnerships.
“On broad, big-scale M&A — we have been very clear for some time that we don’t see a lot of value in that. And there’s nothing I’ve seen since I’ve got here to change that view,” Chief Financial Officer Simon Dingemans said.
“The M&A strategy remains very consistently smaller scale and bolt-ons that we can integrate into our network and add some value to, rather than paying all that value away to the selling shareholders,” Dingemans said.
GlaxoSmithKline is currently trying to sell its over-the-counter (OTC) business and has gotten interest from other corporations and private equity firms.
Viehbacher said Sanofi could be a bidder for that over-the-counter business, which markets medicines primarily in Europe and the United States with combined sales of around 500 million pounds ($797 million).
Meanwhile, AstraZeneca (AZN.L) said it would look at small deals, but has no plans for large, transformational acquisitions.
“I don’t think we would engage in any deal-making activity to create additional scale ... we are of sufficient scale to compete globally and so we would look at deals in the context of product opportunities, licenses, intellectual property, patents,” AstraZeneca’s Chief Executive David Brennan said.
“Our view on the acquisition front is where we are looking to bring in small opportunities. I don’t know what that is, but we are not looking to do big, big deals. I think we’re looking to improve the quality and strength of our pipeline and try to get a few more products into the market,” Brennan said.
Reporting by Jessica Hall; Editing by Michele Gershberg, Phil Berlowitz