In the November 2006
issue:
Booming Biotech Market - Fifteen Deals Worth $7.8 Billion Announced in
October
During October witnessed a total of 15 mergers and acquisitions in the
biotech sector. The combined price for this activity was $7.8 billion.
...
CVS and Caremark Rx To Combine - Is This $21.0 Billion Merger A
Prescription for Success?
As we were going to press, retail drugstore giant CVS announced a merger
with lead pharmacy benefits manager Caremark Rx. Read inside to see what is
behind this $21.0 billion deal and how it may shape the future of PBM
mergers and acquisitions.
...
In The Departments
October’s M&A Market
Services
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Health Care Services
-
Deal Summaries
-
Additional Transactions
-
Transaction Updates
Technology
-
Health Care Technology
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Deal Summaries
Additional Transactions
-
Transaction Updates
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Articles Archive
Companies Mentioned in this issue:
November 2006
A
AdvancePCS p2
Albertson’s, Inc. p2
Alnylam Pharmaceuticals p9
Alternative Behavioral Services p3
Alvarado Hospital Medical Center p4
Amedisys p4
AnorMED p10
Aspen Educational Group p4
Axia Health p8
B
Bain Capital Partners p4
Banc of America Securities, LLC p16
Bank of America p16
Baxter International p15
Beckman Coulter p16
Behavioral and Medical Research p8
Biomet p16
Blackstone Real Estate Partners p8
Boehringer Ingelheim p16
Borealis Infrastructure Management p8
Brean Murray, Carret & Co. p10
Bristal Assisted Living p8
Bristol-Myers Squibb p15
C
California Clinical Trials Medical Group p8
Capella Healthcare p4
Caremark Rx p1
Carraway Methodist Medical Center p4
Charles River Laboratories p8
Chartwell Seniors Housing REIT p8
Chattem p16
Chemed Corp. p1
CIBC World Markets p8
CNS p16
Community Health Systems p4
Connetics Corp. p16
Corus Pharma p9
CRC Health Group p4
Credit Suisse p8
CVS Corporation p1
Cytyc p16
D
Danaher Corp. p16
Deutsche Bank Securities p16
Doctors Community Healthcare p4
E
Eckerd p2
Eli Lilly & Co. p9
Emeritus Assisted Living p8
Encysive Pharmaceuticals p9
Evercore Group, LLC p3
F
FHC p3
Fresenius p16
FTI Cambio p4
G
GE Healthcare Financial p8
Genzyme Corp. p10
Gilead Sciences p1
GlaxoSmithKline p9
GP Medical Ventures p7
H
HAPC p16
Harborside Healthcare p8
Healthways p8
Hollywood Medical Center p4
Horizon Health Corp. p4
I
I-Flow Corporation p16
Icos Corporation p9
ImClone Systems p10
Impact Dental Laboratory Limited p8
InfuSystem p16
Investcorp p8
J
J.C. Penney p2
J.P. Morgan Securities p3
Jefferson County Patient Care Services p4
Johnson & Johnson p16
L
Lehman Brothers, Inc. p3
LifeMasters Supported SelfCare p8
Lumigen p16
M
Maverick Capital, Ltd. p15
MDS, Inc. p7
MedAvant Healthcare Solutions p15
Medical Resource, LLC p15
Merck & Co. p9
Merrill Lynch & Co. p9, p16
Millennium Pharmaceuticals p10
Muskogee Regional Medical Center p4
Myogen p1
N
Nabi Pharmaceuticals p16
National Dentex p8
National Provider Network, Inc. p15
Northwest Kinetics p8
Novartis p10
NuScribe p15
P
PAREXEL International p8
Parkway Regional Medical Center p4
Pfizer p16
Plexxikon p10
Plymouth Health p4
Psychiatric Solutions p3
R
RBC Capital Markets p8
Regency Care p8
Roche Holding p10
Rosetta Inpharmatics p9
Roto-Rooter p1
S
Sirna Therapeutics p9
Smith & Nephew plc p16
South Broward Hospital District p4
Stiefel Laboratories p16
Stryker Corp. p16
Sun Healthcare Group p8
T
Tenet Healthcare Corp. p4
Texas Pacific Group p15
The Keller Group p8
The Public Health Trust of Miami-Dade County p4
U
UBS Securities LLC p3
V
Vemics p15
Ventana Medical Systems p16
Vision Systems Ltd. p16
Vitas Healthcare p1
W
Wal-Mart p3
Z
Zimmer Holdings p16 |
Booming Biotech Market - Fifteen Deals Worth
$7.8 Billion Announced in October
Email Editor
The month of October
recorded a
combined total of 15 mergers and
acquisitions in the Biotechnology sector. This represents one-third of the
45 health care technology deals reported during the month, and the
greatest amount of any single health care sector.
Based on revealed
prices, a total of $7.8 billion was committed to fund the month’s
activity. That amount accounts for 64% of the $12.1 billion committed to
fund M&A activity in health care technology and 50% of all health care
dollars committed during October.
The prices ranged from
$2.5 billion to just under $500,000. Included among these 15 deals are
three billion-dollar transactions. Among the top five buyers are three big
pharma companies, one biotech and one biopharma firm.
The Pressure to
Produce. The largest
biotech deal of October involved Gilead Sciences’ (NASDAQ: GILD)
$2.5 billion acquisition of Myogen (NASDAQ: MYOG), a company
involved in developing and commercializing small-molecule therapeutics for
cardiovascular disorders. Under terms of the agreement, GILD is offering
to pay $52.20 per share for each share of MYOG common stock outstanding, a
price that offers MYOG shareholders a 50% premium to the stock’s prior-day
trading price. News of the deal sent MYOG’s stock up 48% to $52.06,
effectively wiping out most of that premium.
To fill Gilead’s development
pipeline, Myogen brings with it two promising drugs, ambrisentan to
treat pulmonary arterial hypertension (PAH), and darusentan for
high blood pressure. Preliminary estimates suggest that ambrisentan
could generate over $1 billion in sales each year, elevating it to the
ranks of a blockbuster drug.
The deal
presents something of a risk since FDA approval for ambrisentan
won’t come until next year; even so, some are already hailing it as a
best-in-class agent. A related risk lies in potential competition from
Encysive Pharmaceuticals (NASDAQ: ENCY), which has been developing its
own candidate to treat PAH; however, a request from federal regulators in
July for more information on its drug before approving it has dealt ENCY a
sharp blow, lowering the threat of competition to ambrisentan.
This deal
does depart from Gilead’s core competency in HIV treatments and infectious
diseases, which is good if you’re a fan of diversification or bad if
you’re not. But the hand-wringing may come too late since with its recent
$365.0 million acquisition of Corus Pharma, which is developing a
treatment for cystic fibrosis, GILD has opted for diversity. GILD also
picks up MYOG’s existing alliance with GlaxoSmithKline (NYSE: GSK)
through which MYOG markets Flolan, an intravenous treatment for
primary pulmonary hypertension, in the United States.
Raising Revenues
and ...
In the second-largest biotech deal, Eli
Lilly & Co. (NYSE: LLY) is acquiring Icos Corporation (NASDAQ:
ICOS) for $2.1 billion. Icos develops and commercializes a variety of
therapeutic products. Importantly, it has had an established relationship
with LLY since 1998, and the two have co-marketed Cialis for the
treatment of erectile dysfunction ever since the drug was launched in
2003. It is that relationship that LLY wants to cement with this deal, so
it will have full control over the impotence drug. The payoff is that
sales of Cialis are projected to grow and surpass $1 billion in
worldwide sales next year.
Lilly is offering $32.00 per
share for each share of Icos common stock outstanding, which offers Icos
shareholders a 32% premium over the stock’s prior-day price. Merrill
Lynch & Co. served as Icos’ financial advisor in this transaction.
Silencing Genes.
The third largest deal involves Merck & Co.’s (NYSE: MRK) proposed
acquisition of Sirna Therapeutics (NASDAQ: RNAI) at $13.00 per
share in cash, or a total value of $1.1 billion. That price offers RNAI
shareholders a 101% premium over the stock’s prior-day price. However, on
news of the deal, RNAI’s price shot up to $12.55, narrowing the
acquisition premium to 4%.
With only $4 million in
revenue and $28 million in losses for the 12-month trailing period,
Sirna’s operating history is not what’s driving this deal. The company
develops therapeutics based on RNA interference (RNAi), a natural cellular
process that combats viral infections by degrading the viral genetic
message before it can produce a protein. In essence, RNAi technology can
"silence" a gene that can cause disease. This general technology has been
in the news recently since this year’s Nobel Prize for medicine was
awarded for its development in the 1990s.
Sirna’s
platform technology focuses on short interfering RNA—siRNA for short.
While RNAI’s current lead product, Sirna-072, is in Phase II trials
for the treatment of certain forms age-related macular degeneration, the
technology holds great promise in other areas such as hepatitis C,
dermatology, asthma and Huntington’s disease. But the Holy Grail lies in
its potential to treat cancer, and once MRK obtains that technology
platform, it is likely to concentrate on the oncology pipeline.
Its
technology is also complementary to the one that MRK acquired when it
bought Rosetta Inpharmatics in 2001 for $620.0 million. The Sirna
deal brings MRK into competition with Alnylam Pharmaceuticals,
another specialist in RNAi technology, but since Alnylam is
20-percent-owned by Novartis (NYSE: NVS), it is unlikely to become
another takeover candidate by MRK.
The real
struggle all of them face, as noted by Nobel winner Andrew Fire of
Stanford University, lies in the delivery of RNAi agents to diseased parts
of the body. So far they are being carried in what Jonathan Aschoff,
analyst for Brean Murray, Carret & Co., characterized as
"unaddressed envelopes." If that hurdle can be overcome—and we hope it
won’t take another Nobel Prize-winning effort to do so—MRK could have
cancer drugs in early stages of testing within two years.
In a
transaction worth as much as $706.0 million, Roche Holding (SWX:
ROCZ.S) is acquiring an exclusive, worldwide license to a drug candidate
being developing by California’s Plexxikon. Roche will pay $40
million in an upfront licensing fee, and $6 million in research funding.
Disbursements of up to $660 million in milestone payments and royalties
are also contemplated under the terms of this deal. The candidate, which
commands such a princely price, is an early-stage cancer therapy which
inhibits B-RafV600E kinase, a genetic mutation that is found only in
cancerous tumors. The mutation it inhibits appears in 70 percent of
malignant melanomas and a large percentage of colorectal and thyroid
cancers, as well as many other tumors.
Because
Plexxikon expects to win orphan drug status for its orally-administered
melanoma drug, it believes the treatment could reach market as early as
2010, if successful. Since this treatment is designed to work specifically
on cancer cells, leaving healthy cells unharmed, its use might avoid the
severe side effects often associated with other chemotherapeutic agents.
Separately, Plexxikon and Roche Molecular Diagnostics will collaborate on
developing an in-vitro assay to screen for the presence of B-RafV600E
mutation in samples taken from patients, balancing diagnostics with
treatment.
Genzyme Corp. (NASDAQ: GENZ) has returned
to the table with a sweetened bid for AnorMED (NASDAQ: ANOR), a
company that is focused on therapeutic products in the areas of
hematology, HIV and oncology. This time GENZ is offering $13.50 per share,
or $580.0 million. Readers will recall that GENZ’s original offer of
$380.0 million was trumped by Millennium Pharmaceuticals’ (NASDAQ:
MLNM) $515.0 million counteroffer. GENZ is sufficiently interested in
ANOR’s pipeline to have raised the bid again, and is focused on Mozobil,
a candidate in Phase III clinical trials for treating hematopoietic stem
cell transplantation.
The drug,
expected to launch in 2008, raises the number of stem cells in circulation
in the blood, which is an important step in preparing the patient for a
stem cell transplant. Mozobil can help patients who were previously
ineligible meet target ranges for a transplant, and it can improve the
viability of transplants in those who are eligible. Approximately 55,000
stem cell transplants are performed each year for multiple myeloma,
non-Hodgkin’s lymphoma and certain other conditions. GENZ plans to
commercialize ANOR’s drug through its existing global transplant business
to hematologists and bone marrow transplant centers in over 50 countries.
Deal or No Deal?
Early October saw a war of words erupt between ImClone Systems
(NASDAQ: IMCL) and billionaire investor Carl Icahn, who owns a 14% stake
in the biopharmaceutical company. In an SEC filing IMCL blamed Mr. Icahn
for blocking a deal from a big pharmaceutical company that had offered
$35.50 per share to take over the manufacturer of the cancer drug
Erbitux, a price to which the financier objected. When the company
declined that proposal in August, the suitor returned with an offer of
$36.00, worth about $3.1 billion. IMCL suggests that when Mr. Icahn
persisted in his objection to the revised deal, he was invited to make his
own offer of $36.00 or better, but declined to do so. Though Mr. Icahn and
three of his associates hold seats on the 12-member board, IMCL chairman
David Kies was recently reelected to the board. While IMCL did not
identify the potential bidder, it is suggestive that Bristol-Myers
Squibb (NYSE: BMY) already holds a 17% stake in the company.
IMCL’s stock has been
trading between $28.00 and $32.00 for the past three months, and a $36.00
offer represents a 20% premium to its average price, just what we have
come to expect from acquisition premiums this year. Erbitux is
projected to generate $1 billion in revenue this year, so a price of $3.1
billion, with a price to revenue multiple of 3.1x, would not be amiss in
this market. But how IMCL is to be valued also hangs on the outcome of a
Phase III clinical trial that begins shortly. Under the
glass-is-half-empty theory, the board may believe that no better offer
will come down the pike. On the half-full side, Mr. Icahn may be
attempting to force the company to see this trial through to the end in
the hope that a positive outcome will increase the value of his
investment. The downside, of course, is that a contraindicated result
would send the stock price plunging. Decisions, decisions.
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