Staff Writer

VANCOUVER, British Columbia - It's no secret that partnering activity in the life science industry is on the rise, and that increased competition for fewer compounds has driven higher valuations for ever-earlier stage deals. Significant buzz at the BioPartnering North America conference centered on the next step in the progression of these trends: the increase in mergers and acquisitions.

From panel discussions to conversations snatched in hallways or lingered over during dinners, conference-goers discussed what the rise of M&A means to the industry.

Gregory Wade, senior research analyst with Pacific Growth Equities LLC, said M&A generated $69.3 billion among public biopharma companies alone in 2006, and that "most pundits continue to anticipate a robust M&A market moving forward."

Ivan Csendes, head of drug delivery and technology licensing with Novartis AG, agreed, particularly in regard to pharmaceutical companies "acquiring junior partners as a product comes to market."

Such a strategy has been demonstrated by Amgen Inc.'s acquisition of Abgenix Inc., Eli Lilly and Co.'s acquisition of ICOS Corp., and Genentech Inc.'s acquisition of Tanox Inc. (See BioWorld Today, Dec. 15, 2005, Oct. 18, 2006, and Nov. 13, 2006.)

As for the reasons behind the uptick in M&A activity, conference attendees pointed to many contributing factors. For privately-held biotechs, the M&A exit often offers a more attractive valuation than can be currently achieved in the IPO market. But acquisitions also appeal to the buyer - be it big pharma or mid-sized biotech - on many levels.

While collaborations can take many forms, the acquisition is the only one in which the buyer "achieves full control," said William Kridel Jr., managing director of Ferghana Partners Group of New York. Additionally, as competition for deals increases and drives prices higher, buyers may see acquisitions as a way to beat out the competition and get more value for the price paid.

The increasing complexity of deals may also push buyers toward acquisition. James Watson, head of merchant banking at San Francisco-based Burrill and Co., led a panel that discussed the increase in co-promotion deals for Phase II or earlier products. There were 37 such deals in 2006, up from 25 deals in 2005, Watson said.

That leads to the simple matter of bandwidth, which Barbara Kosacz, partner and head of the life science practice at Cooley Godward Kronish LLP, touched on during her panel. Pharmaceutical companies need lots of new products to fill their pipelines. "If you've done 50 deals in a year, how many joint committees can you sit on?" she asked.

If the pace of M&A continues, as many predict it will, what impact will that have on biotech?

Kosacz said that, when asked, most biotech executives will admit they do not actively solicit M&A offers in the same way they would collaborations. But whether the company is private or public, boards of directors may have a fiduciary duty to be proactive in their explorations of what an M&A deal could bring them, she said.

As companies explore their M&A options, David Woodhouse, vice president of investment banking at Goldman, Sachs & Co., advised biotechs to remember that "the first offer is rarely the last." He pointed to Genzyme Corp.'s highly public acquisition of AnorMED Inc. as a situation in which "the drive to win turned into a fear of losing," resulting in a 168 percent premium paid. (See BioWorld Today, Oct. 18, 2006.)

Although M&A activity seems to be on the rise, it's not the right strategy for everyone. Watson pointed out that, of the 225 M&A deals completed in 2006, only 20 were in the range of $250 million to $499 million. Most M&A deals in the industry are still below the $50 million mark, which he described as a "sobering" fact.