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Biotech buyers getting aggressive: Buyouts ‘cheap, efficient’ way to cut both time, costs



By Patriot Ledger staff and news services

Who will be the next biotech takeover target? That’s the question Wall Street was asking as a year of innovative developments and heated competition in several of the industry’s markets came to an end.

It was the sector’s second active year in a row in terms of buyouts, as large biotechnology and pharmaceutical companies went beyond licensing agreements to fill out development and product pipelines. In 2006, there were at least 15 M&A transactions with biotech companies - a similar activity level as in 2005.

‘‘The huge premiums that ‘Big Pharma’ is willing to pay for biotech innovation reflects their pipeline problems,’’ said G. Steven Burrill, chief executive of San Francisco-based Burrill & Co., a life sciences venture capital firm.

Drugs typically cost from $1.2 billion to $1.8 billion to bring to market and can take as long as 15 years to develop, Burrill said in a Dec. 1 report reviewing the sector. Buyouts are a ‘‘cheap and efficient’’ way for companies to cut both time and costs.

The biotech deal-making had a major impact on Massachusetts last year.

Topping the list of biotech acquisitions in 2006 was German drug giant Merck KGaA’s $13 billion-plus bid to buy Swiss biotech Serono, which has its U.S. headquarters in Rockland.

Merck plans to keep the U.S. headquarters of its new Merck-Serono Biopharmaceuticals unit in Rockland, where about 450 people work. The deal is expected to be completed early this year, and the companies expect to achieve cost-savings of $128 million a year over a three-year-span from the merger.

Also, Cambridge-based Genzyme beat out crosstown rival Millennium Pharmaceuticals in a competition to buy Canadian drug developer AnorMed Inc. for $584 million. Abbott Laboratories, which is based in Illinois but has major operations in Worcester, agreed to pay $3.7 billion for Kos Pharmaceuticals Inc.

Other 2006 deals included Foster City, Calif.-based Gilead Sciences Inc.’s plan to buy Westminister, Colo.-based Myogen for $2.5 billion, and a proposal from New Jersey-based Merck & Co. (which is not affiliated with Merck of Germany) to buy San Francisco-based Sirna Therapeutics Inc. for $1.1 billion.

The hefty prices suggest buyers are becoming more aggressive, said Merrill Lynch analyst Eric Ende, in a note to investors. Venture capitalists are pushing deals harder, he said, and licensing agreements are becoming more expensive, prompting partners to become potential suitors.

‘‘The capital markets have become increasingly accessible for biotech companies,’’ Ende said, ‘‘which has allowed large-cap biotech companies to build war chests for cash for acquisitions.’’

Ende believes the acquisition trend will continue in 2007, due to increasingly expensive licensing deals, strong balance sheets at biotech companies, shifting management philosophy, and continuing pressure from venture capitalists.