European biotech hurting but lucky few to win big
* Reuters, Friday January 9 2009
By Ben Hirschler, European Pharmaceuticals Correspondent
LONDON, Jan 9 (Reuters) - It promises to be a lousy year for many of Europe's cash-strapped biotechnology companies, but a lucky few stand to hit the jackpot in deals with 'Big Pharma'.
Wyeth's plan to scoop up Crucell -- followed by unconfirmed reports of a possible counterbid by France's Sanofi-Aventis -- sent shares in the Dutch vaccine specialist soaring more than 40 percent on Thursday.
Shares in rival vaccine makers Intercell and Bavarian Nordic also rose.
Analysts and fund managers predict more such acquisitions in 2009, as large drugmakers look to biotech to refill product pipelines at a time when sales of old blockbusters are falling to generic competition.
In contrast to many other sectors, large drugmakers enjoy relatively stable revenue and remain flush with cash despite the downturn. Companies like Pfizer, Glaxo and Merck & Co have all said they are shopping for assets at the lower prices now on offer.
"Pharma-to-biotech deals are clearly a central and natural part of the healthcare industry and are likely to increase given the current structural issues within the industry," Credit Suisse analyst Ravi Mehrotra said.
Perennial takeover targets include Danish antibody specialist Genmab and Switzerland's Actelion, both of which have major drug licensing deals with Glaxo.
Olav Zilian of Helvea also tips Basilea as a potential candidate to be acquired, possibly in the second half of 2009.
Irish-based Elan, meanwhile, has seen its shares rally strongly in the past two days on talk of bid interest from Pfizer.
Andy Smith, an analyst at Axa Framlington, has further potential prey on his radar screen.
"I expect Shire to be acquired, though I don't know who (by) ... and I expect Novartis to acquire Morphosys at some point," he said.
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But for biotech firms with limited cash reserves and no immediate prospects of finding a suitor, the outlook is bleak.
"Life looks pretty Darwinian. If you are leading a small company, if you've been around four to five years, if you've had clinical trial failures and if you don't have two years of cash then I'd brush up your CV," Smith said.
Canny investors looking to ride the deal-making wave need to hunt out biotechs with both cash and promise, according to Samir Devani of Nomura Code Securities.
He says European companies with a market capitalisation above $150 million, excluding Actelion, have on average seen a 19 percent fall in share price over the past year, while those below this threshold have fallen 57 percent.
Actelion itself -- which relies almost entirely on one drug, Tracleer, a billion-dollar seller for treating a rare heart and lung disease -- was actually the only stock on Switzerland's blue-chip SMI index to gain last year.
Its 14 percent advance outperformed even traditionally defensive drug stocks like Novartis and Roche and the world's largest food group, Nestle. Looking to the year ahead, Devani sees fewer major licensing transactions overall, although big deals are expected for key experimental drugs from companies such as NicOx, Karo Bio, MediGene, Alizyme, Transgene and Neurosearch.
Not all analysts agree on the merits of the drugs on offer. NicOx's naproxcinod, in particular, divides opinion with some seeing its benign blood pressure profile as a major advance but others questioning whether it will be preferred over older, cheaper painkillers.
What is not in doubt is that big drug firms are scouring the marketplace as never before and have a big revenue hole to fill. "There is a lot for sale and there is certainly interest but even if Big Pharma were to buy every biotech out there they still wouldn't plug the revenue gap that they have from all the upcoming patent expirations," said one healthcare banker. (Additional reporting by Sam Cage in Zurich; editing by John Stonestreet)
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