By Karen Pihl-Carey

The value of mergers and acquisitions (73 deals) soared to $19 billion in 1999, as compared to $5.8 billion the year before (87 deals), and a scant $2.3 billion in 1997 (73 deals).

With dwindling pipelines, large pharmaceutical companies seemed to have one place to turn in 1999, and many took full advantage of the opportunities before them.

They turned to companies that could supply them with promising therapeutics, ones to replace those soon coming off patent, or with promising technologies that could lead to the development of new drugs. They turned to biotech companies, many of which had been looking for ways to support their clinical programs.

And so when need met need, what resulted was a number of mergers and acquisitions.

¿Traditionally, throughout the ¿90s, we hadn¿t seen a whole lot of mergers between big pharma companies and biotech. We saw a few, but most were on the platform level,¿ said Alex Zisson, senior analyst and managing director at Chase H&Q in New York. ¿But with the huge skew in valuations that we saw at the start of 1999, really that changed.¿

If it wasn¿t Merck & Co. Inc. buying Sibia Neurosciences Inc. for $87 million, it was Warner-Lambert Co. buying Agouron Pharmaceuticals Inc. for $2.1 billion. While Abbott Laboratories failed at its attempt to purchase Alza Corp. for $7.3 billion, Johnson & Johnson succeeded in purchasing Centocor Inc. for $4.9 billion.

¿Actually, it became cheaper to buy, rather than rent, or license a product,¿ Zisson said.

Albert Rauch, senior vice president and biotech analyst at Everen Securities Inc. in Chicago, also noticed the incline of pharmaceutical interest in 1999.

¿There were certainly some pharmaceutical companies stepping up and buying biotech companies. Sugen was taken out by Pharmacia & Upjohn, and Agouron was taken out by Warner-Lambert,¿ Rauch said. ¿This probably happened right when the biotechs were at their cheapest last year.¿

In the Merck/Sibia deal, Merck acquired Sibia by purchasing 69 percent of the biotech company¿s outstanding common stock at $8.50 per share. The rest of the stock was converted into the right to receive $8.50 in cash. The deal closed in November.

Warner-Lambert exchanged .8108 to .93 shares of its stock for each share of Agouron, closing their deal in May. Johnson & Johnson acquired Centocor, offering shareholders .6390 of a share of J&J common stock for each share of Centocor, based on a price of $95.47 per share. That deal closed in October. And Pharmacia & Upjohn Inc. acquired Sugen Inc. for $650 million in a deal that closed in August.

Abbott terminated its deal to acquire Alza in January 2000 because the companies were unable to reach an agreement with the Federal Trade Commission that would satisfy antitrust concerns.

Sushant Kumar, a biotech analyst with Mehta Partners LLC in New York, said there was another kind of merger and acquisition occurring in 1999, aside from large pharmaceutical companies taking over smaller biotech firms. That was ¿larger biotech companies acquiring smaller biotech companies,¿ he said.

Kumar cited LeukoSite Inc. as an example. In July, the company acquired ProScript Inc. for $2.7 million in what Kumar called a ¿pipeline-based acquisition.¿ Then three months later, Millennium Pharmaceuticals Inc. announces plans to acquire LeukoSite in a stock deal then valued at $635 million. The acquisition closed in December.

¿Unlike large pharma, it¿s hard to predict merger and acquisition activity in the biotech area,¿ Kumar said, ¿but in general, we feel that activity in all these fronts will probably go on.¿

Zisson said only two pharmaceutical companies¿ stocks, Johnson & Johnson and Warner-Lambert, were up in 1999, indicating the industry¿s need to think about mergers and acquisitions of biotech companies.

¿The pharmaceuticals seem to go out and buy products, whereas I think a lot of small biotechs were going for technology,¿ Rauch said.

Rauch said biotech companies started ¿rocking and rolling in August,¿ when SuperGen Inc. acquired Sparta Pharmaceuticals Inc. and GelTex Pharmaceuticals Inc. completed its acquisition of SunPharm Corp. for $16.5 million. Affymetrix Inc. also announced its plans to acquire Genetic MicroSystems Inc. by the second quarter of 2000.

¿These M&As really [caused an increase] in biotech stocks. When large pharma saw value in there, that¿s when the people saw value,¿ Rauch said.

In 2000, Rauch said the industry might see more deals such as one that closed in January 2000 between PE Biosystems and privately held Third Wave Technologies. The two companies merged in an all-stock transaction worth about $330 million. The merger gave PE Biosystems access to Third Wave¿s DNA analysis method called Invader to speed the discovery and understanding of single nucleotide polymorphisms.

¿We might see more private companies being taken out,¿ Rauch said. ¿But there¿s certainly a more open window, so people are going to be dealing from a stance of strength rather than weakness.¿

Kumar said the industry may see more mergers and acquisitions involving genomics companies in 2000.

¿One thing to speculate about is some of the genomics companies, whether they will end up making more and more deals, or whether with some of them it makes sense to be acquired. It hasn¿t happened yet, but they would bring tremendous genomics capabilities to a company that is purely drug development,¿ Kumar said. ¿It makes sense to bring the two together.¿