Merger among friends. A joining of equals. Synergy. Complementary technology. Pipeline expansion.
Those were the words companies used in 2000 when asked about their mergers and acquisitions.
In 2000, the biotechnology industry saw more than $14 billion worth of mergers and acquisitions, and more than 108 deals were completed.
Among the biggest was the merger of Life Technologies Inc., of Rockville, Md., and Dexter Corp., of Windsor Locks, Conn. with Invitrogen Corp., of San Diego for $1.9 billion, and the merger of Chiron Corp., of Emeryville, Calif., and PathoGenesis Corp., of Seattle, in a $700 million deal.
Other notables included the $1 billion merger of Geltex Pharmaceuticals Inc., of Waltham Mass., and Genzyme General, of Cambridge, Mass.; the merger of Signal Pharmaceuticals Inc., of San Diego, and Celgene Corp., of Warren, N.J., a $277 million deal; and Coulter Pharmaceutical Inc., of South San Francisco merging with Corixa Corp., of Seattle, in a $570 million deal.
One of the most active companies on the mergers and acquisitions front was Elan Corp., of Dublin, Ireland. Elan acquired both Dura Pharmaceuticals Inc., of San Diego, and The Liposome Co. Inc., of Princeton, N.J., for $1.8 billion and $575 million, respectively.
Internationally, German companies including Evax Technologies AG, of Martinsried; Cardiogene AG, of Erkrath; Evotec BioSystems AG, of Hamburg; DeveloGen AG, of Gottingen; and Morphochem AG, of Munich, snapped up companies from the U.S. and fellow German companies. The goal in some of those cases was to establish a presence in the United States.
Some saw their mergers as a rounding out of their technology platforms. Others called their mergers product acquisition opportunities, chances to broaden their pipelines. But whether the future holds more of the same or a cooling of the industry's tendency toward pairing remains to be seen.
Franklin Berger, senior biotech analyst at J.P. Morgan, and Fariba Ghodsian, the senior biotech analyst and managing director and head of health care research at Roth Capital Partners in Los Angeles, watched the same mergers unfold. But their takes on what they meant are decidedly different.
“To tell the truth I don't see much of a trend,“ said Berger, who said the year was anomalous, a year of mergers and acquisitions that defied traditional logic.
“The industry has raised $60 billion in the last two years, and it's having clinical success. There's a rich pipeline, and it doesn't have much to stimulate being acquired or doing a merger that isn't friendly,“ Berger said.
“The economic theory is that mergers and acquisitions tend to occur in industries where there are declining fundamentals, and right now in biotech fundamentals have been improving over the last few years. The future values of pipelines are going up. The very things that could lead to a merger and acquisitions trend aren't there.“
How, then, could one explain $14 billion-plus in biotech blending?
“Since there is no economic stringency the mergers and acquisitions activity can be seen as, potentially, derived conceptually to create a more powerful technology and infrastructure survivor,“ Berger said.
It's a sort of filling in of the gaps in a company's armor, he continued.
“You could say it's a self-assembling behavior, in that there are very few fully integrated pharma companies or biopharmaceutical companies. There are some, but they are limited. What does exist is a number of different pieces, companies that are stronger in particular areas, preclinical or early stage research, for example. They don't have the entire horizontal or longitudinal gamut in this environment, but that's commodious to put together equals.“
And though valuations for biotech companies rose in 2000, Berger noted he does not expect a rash of large biotechs challenging big pharmaceuticals companies in the coming year.
In fact, he said, pharma and biotech will continue to work together as they did in 2000, for the most part.
“The facts are that the entire biotech industry market cap is about $330 billion now, and the market value for Pfizer Inc. is about $280 billion,“ he said. “You get a sense of proportion there pretty quickly. There are many other pharma companies over $100 billion [in market cap], and that leads one to see this is really still a small industry.“
Pharma, he said, will still use biotech as a sort of research and development farm system.
“What I say is that molecular biology is the victor in both places [pharma and biotech].“ Berger said. “Pharma is acting true to form using its in-licensing capabilities to beef up its own portfolio and poaching in biotech quarters, but the good news is that they're poaching for high prices.“
So who won this year through merger and acquisition? Berger said it was companies that used merger and acquisition to broaden their pipelines, strengthen their technological platforms and gain access to larger markets.
“I think that in terms of intelligently meshing of opportunities and technical skill sets, I'd put Celgene Corp. and Signal Pharmaceuticals Inc.'s merger in there as being distinctive in that it extended the idea of using small-molecule regulators in inflammatory disease while broadening both companies, so the result is a company that addresses some of the largest markets in the world, including cancer and inflammatory conditions,“ Berger said. “This is a company that has several critical-stage candidates and a deep pipeline, important skill sets from discovery to clinical development, and sufficient resources to bring it all forward a considerable distance.“
Ghodsian said a few themes presented themselves in 2000 through the mergers and acquisitions in biotech, including an invasion from electronics companies and a bull run driving valuations before it.
“I think one thing is that we see an increase in the rate of merger and acquisition, and I think that obviously when the public market is strong there tends to be a bit less merger and acquisition,“ Ghodsian said. “I think in 2001, with the public market not as strong, we may see an increased rate of acquisition in the biotech industry, especially because many of the companies have a stronger cash position. What we saw last year is that when the companies have very strong stock position, when the stocks are high and the companies could use that for acquisition, we saw deals, for example, like Maxim Pharmaceuticals and Cytovia Inc.“
She said biotechs took advantage of their strong cash and stock positions to both strengthen their technology and to take on products that could produce big upstream value.
“In some cases what we really see is a rounding off when a technology company buys another technology company,“ she said. “In some cases it was more of an expansion into related areas.“
In 2001, Ghodsian said, expect more acquisitions and higher valuations.
“We will probably see acquisitions a lot on the technology side. I think an example is proteomics and genomics. Right now I think there are a lot of companies in that field, and there is some shakeout in some companies that are more established. Some of the later ones are having a harder time accessing the public market, and I think we may see a lot of acquisition on that side.“
And the rush into biotech assay development by such electronic companies as Agilent Technologies and Motorola, among others, could make more headlines in 2001, Ghodsian said.
“I think another interesting one is the acquisition of Clinical Microsensors by Motorola for $300 million in cash,“ she said. “If you want to talk about trends, the electronic and computer companies racing into this field I think is evidenced by the acquisition of Clinical Microsensors. Companies are looking at companies they like in the whole biotech sector.“
In the end, however, Ghodsian said it's those basics at play in any joining that make for the best mergers or acquisitions.
“I think the best mergers and acquisitions are the merger of companies that have that most important component, and that's the synergy between the companies. That's really the chemistry that makes it work. In many cases the company buys another and the technology is there, but on the personal level, on the cultural level, if the companies don't mix it doesn't work.“