Against a backdrop of falling stock prices, Pfizer Inc. (NYSE: PFE) and Bristol-Myers Squidd company (NYSE: BMY) have bucked the trend of the day and both are seeing a rise in their share prices after reporting that “apixiban” has tested as being superior to and safer than the generic drug “warfarin.” Both drugs are intended to aid in preventing strokes in patients with dangerously irregular heart rhythms. “Apixiban” is the experimental blood thinner being developed by both Pfizer and Bristol Myers. “Warfarin” is the generic version of Coumadin, whose patent expired more than 10 years ago.
The hope is that this will lead to another blockbuster drug with more than $1 billion in sales. The timing couldn’t be better for the two companies as Big Pharma companies are generally facing an industry-wide patten cliff, where a number of significant pattens will soon expire. As a result, less expensive and far-less-profitable generics will soon displace proprietary pharmaceuticals along with much off the revenues these products generate. This has so far not managed to keep these companies from being able to offer extremely high dividends.
The news of apixiban’s successful tests negatively impacted the prices of companies manufacturing competing blood thinners. Bayer AG (BAYRY.PK) and Johnson & Johnson (NYSE: JNJ ) are seeking FDA approval for “xarelto,” their own blood thinner, traded lower. In mid-day activity, Bayer traded at $77.15, down 7.26%, while Johnson and Johnson traded at $64.85, down 1.85%. Sanofi-Aventis (NYSE: SNY) who partners with Bristol-Myers in co-marketing, the hugely successful blood thinner, “Plavix” traded down over 2% at $37.08. “Plavix” will lose its patent protection in the near future.
The successful tests of “apixiban” effectively make Bristol-Myers a double winner by compensating for the impending expiration of its proprietary position with a promising new blood thinner. In mid-day activity, shares of Bristol-Myers traded up 5.4% at $29.25, while Pfizer traded up 2.1% at 20.72. Shares of both companies are near their highs for the day.
Before today’s announcement, the consensus price target for Pfizer was $23.37 per share, giving the shares an implied upside a tad less than 13%. With today’s gains, Bristol-Myers Squibb has essentially surpassed its posted consensus target price. Keep in mind that unforeseen and significant new product introductions like “apixiban” have the potential of powering upside adjustments in consensus price targets, earnings and revenue estimates, and even in the overall bias. The question is, how much of a game changer will “apixiban,” prove to be . . . not merely in “targets” but in realized revenues and profits.
Morgan Stanley has now boosted its rating on Bristol-Myers Squibb to Overweight and said they win from this much more than Pfizer due to relative size.
JON C. OGG
M&A Bonanza For Drug & Biotech in 2011 (MRK, PFE, ALXN, DNDN, HGSI, CEPH, UTHR, CADX, AMAG, SNY, GENZ, AMGN, BEC, TEVA, SGMO, LLY, ALTH, CBST, VVUS, AUXL, VRTX)
The game of predicting mergers and acquisitions in the biotech and in pharma sectors is not a new one. The talk heats up, then it dies down. A deal comes, followed by another deal, and the activity goes quiet. This next week is likely to have at least more chatter in the biohealth sector for possible mergers and acquisitions after Barron’s gave a cover story called “The New Doctor in the House: Consolidation.”
Barron’s noted that “as big drug firms buy up smaller, specialty outfits and their most innovative products, better pipelines and sales-force efficiency will boost profits.” Here is the thing to consider: Barron’s did not really offer anything new or ground-breaking this weekend. It will have rekindled some hope that M&A is coming in the space. At issue: pipeline fatigue. A note we’d throw in as well, dead-dead stocks. We are going to at least address some of the Barron’s roster, but we want to show you many others which are just as or even more likely acquisition targets. Some of ours have even been in-play before.
Barron’s threw in Merck & Co. (NYSE: MRK) and Pfizer, Inc. (NYSE: PFE) as the largest of the Big Pharma players and it threw out biohealth names with stock-market values below $10 billion:
- Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) with a $7.5 billion value after a hueg run-up;
- Dendreon Corporation (NASDAQ: DNDN) for Provenge for prostate cancer (and future cancers) with a $5 billion market value today;
- Human Genome Sciences, Inc. (NASDAQ: HGSI) for its Benlysta in patients with severe active lupus nephritis and CNS lupus and a $4.5 billion market cap;
- Cephalon, Inc. (NASDAQ: CEPH) is one we have rarely looked as since things quieted down there;
- United Therapeutics Corporation (NASDAQ: UTHR) for its treat pulmonary arterial hypertension and an almost-$4 billion value;
- Cadence Pharmaceuticals Inc. (NASDAQ: CADX) was noted for its pain medication without the addiction aspects of morphine and its value is only $369 million;
- AMAG Pharmaceuticals, Inc. (NASDAQ: AMAG) was called a value stock despite its recent weak sales and despite its cash burn with a $368 million market cap.
Much of the biotech M&A game hinges on Sanofi-Aventis (NYSE: SNY) in its chase to acquire Genzyme Corporation (NASDAQ: GENZ). The latest talk is that a work-out could come to $80 all-in if certain milestones were achieved but the deal is still south of there officially. As noted above, we have our own opinions on which biotech companies and drug companies could find their way into the hands of a larger acquirer.
Amgen Inc. (NASDAQ: AMGN) is likely to continue being an acquirer. The company recently announced a deal worth potentially $1 billion to acquire privately-held BioVex. Last year the company said it was aggressively looking for new targets and its $52 billion market cap is the largest of all the independent biotechs in America. The company has more tricks up its sleeve.
Beckman Coulter Inc. (NYSE: BEC) went into play in early December with private equity firms being the likely acquirers of the portfolio of biomedical testing equipment and supplies. We argued at the time of the premium that it seemed shares fully reflected that value, and shares are actually lower now.
And don’t forget Sangamo Biosciences Inc. (NASDAQ: SGMO), where shares rallied in November on rumors of a potential bid interest from Eli Lilly & Co. (NYSE: LLY). It had good news on ZFP Therapeutic program to develop SB-509, a zinc finger protein transcriptional activator (ZFP-TF) of the vascular endothelial growth factor (VEGF)-A gene as a treatment for ALS and the news flow has continued to propel shares higher. It went above $4.50 on the rumors but now shares trade at $7.39. The market cap is still low here at $334 million.
Allos Therapeutics, Inc. (NASDAQ: ALTH) has been another name floated out there for M&A possibilities, but things are looking less and less bright for the company. Shares hit a 52-week low just on Friday.
Cubist Pharmaceuticals Inc. (NASDAQ: CBST) has not really gone anywhere as it is deemed a mature company, but it is one we thought for sure that would find its way into being part of a larger company. Its Cubicin is on the market and it fights severe hospital-induced infections and the market cap is $1.3 billion here.
VIVUS Inc. (NASDAQ: VVUS) remains a wild card due to the FDA. Diet and weight-loss pills have not been given any real love by the FDA. The exception here is that Qnexa does have serious benefits. There are side effects, particularly in cases of pregnancy. We would ask this though: How many pregnant and soon-to-be-pregnant women really diet? Most doctors don’t even want pregnant women taking supplements, let alone drugs. IF the FDA approves Qnexa, that $680 million market cap may be worth far more.
Teva Pharmaceutical Industries Limited (NASDAQ: TEVA)… We have also noted Teva’s mega-cap ambitions, and making more acquisitions would generally get there.
Last year, Morningstar put out a list of three favorites that it sees as acquisition targets in the biohealth space: Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL), Human Genome Sciences Inc. (NASDAQ: HGSI), and Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX). FULL ARTICLE
This should at least give you a better and more concise list of possible deals and deal-makers for 2011. Just remember this, regardless of what Barron’s or other media outlets try to tell you: not all biotechs have to be acquired, not at all.
JON C. OGG
Genzyme Corporation (NASDAQ: GENZ) could be interpreted as cutting its own nose off just to spite its face if you have followed the merger and share price drama over the last few months. While the company is trying to maximize shareholder value and perhaps hoping for rival bids above the $69 offer from Sanofi-Aventis (NYSE: SNY), the company is making noise again that may act to actually drive shares lower rather than higher as it hopes.
Chief Executive Officer Henri Termeer has been quoted saying in an article in the French daily Le Figaro that Genzyme has a list of defenses to fend off the $69.00 cash buyout of Sanofi-Aventis. Among these defenses named is the use of the “poison pill.” The company has not made any formal decision there on that front, which is effectively a delaying tactic from the company by saying and can take an action but not actually taking an action.
The official stance from Termeer in his interview is that the company is looking to maximize shareholder value, but the company is not for sale. Termeer is still taking a risk. If no rival buyers emerge and if Sanofi-Aventis forced away, the value is south of today’s share price.
Ultimately that intrinsic share price value can go higher on its own, but the company cannot afford any more missteps. Its Campath in multiple sclerosis is a promising candidate from studies and those results are due next year.
The full translation of the Le Figaro article is here.
JON C. OGG
Genzyme Corporation (NASDAQ: GENZ) may have some signs of life. On what felt much like a directionless Friday, the biotechnology company under a turnaround and under an M&A tree may actually have some interest.
The company rose Friday on news that it expects to meet the November 28, 2010 deadline to move the finishing and filling operations out of its Allston, Massachusetts plant for U.S. products.
Genzyme has suffered as a result of a virus and contamination at its Allston plant, which is one of the key factors that bruised the stock over the last year before Sanofi-Aventis (NYSE: SNY) stepped in with a buyout offer.
Reports were out this week that GlaxoSmithKline plc (NYSE: GSK) wasnit interested in making a competing bid for Genzyme.
While a $1.00+ gain might not be out of the ordinary, this stands out like a sore thumb for M&A investors. Genzyme wants more than $69 from Sanofi-Aventis and the news flow on other potential bidders has been fairly mum.
The $1.04 gain to $71.31 is the highest closing price since November 5 when it closed at $71.69. The trading volume of 4.583 million was also the highest since November 5.
The $72.50 NOV10 CALLS expired worthless on Friday and we saw more than 10,000 of those contracts trade. Here was the action in the DEC10 CALLS:
Strike Volume OpInt
70.00 3,613 20,711
72.50 6,999 22,428
75.00 4,020 8,934
Even the JAN11 $75 CALLS traded 3,202 contracts versus an open interest of over 81,000 contracts.
This might not seem like much to major screening efforts, but for M&A and special situation and turnaround investors, it feels like something may be coming down the pipe soon. Stay tuned.
JON C. OGG
We have previously outlined how the bull market is leaving biotech in the dust. With a lack of exponential growers in 2010 compared to 2009, there is a sad state of affairs that may be the most crucial element of all for biotech in 2011. Genzyme Corporation (NASDAQ: GENZ) could be the one critical element for the whole biotech sector. We would pay particular attention to Biogen Idec Inc. (NASDAQ: BIIB), Life Technologies Corporation (NASDAQ: LIFE), Illumina Inc. (NASDAQ: ILMN), Dendreon Corp. (NASDAQ: DNDN), and Human Genome Sciences Inc. (NASDAQ: HGSI), depending upon the outcome of the Genzyme situation.
Genzyme shares have slid after the Sanofi-Aventis (NYSE: SNY) offering peak and the larger company has asked Genzyme to come to the bargaining table. So far, Genzyme is looking for and hoping for a higher bid. So far, Henri Termeer’s stance has been that the offer undervalues the company and that the offer is opportunistic. So far, the stock has remained above the $69.00 offer. If Genzyme shares fall under that $69.00 offer, more shareholders may just decide to tender their shares to Sanofi-Aventis and call it a day.
So, why is Genzyme key to the whole sector?
Again, biotech has lagged the market and the sector has headwinds from patent issues, to cost controls out of D.C., to a more harsh FDA when it comes to drug approvals. Goldman Sachs issued very cautious research on the sector as a whole, with one exception. The biggest issue is that this tender or a rival deal could unleash more than $17 billion that would have to find a new home. For institutions and for many investors alike, it is not an unheard of event that money in one sector has to now find a new home inside the stock of another company in the same sector. At $70.23, Genzyme has a market cap of roughly $17.9 billion.
Unlocking $17 billion or more could create significant interest in the biotech and biohealth players that are smaller than Genzyme. Our data shows that there are more than 20 biotechs smaller than Genzyme which are valued at $1 billion or more by market capitalization. The next closest smaller companies tied to biotech are Biogen Idec Inc. (NASDAQ: BIIB), Life Technologies Corporation (NASDAQ: LIFE), Illumina Inc. (NASDAQ: ILMN), Dendreon Corp. (NASDAQ: DNDN), and Human Genome Sciences Inc. (HGSI).
This is giant for US biotech, and it is number four by market cap in US-listed biotechs as the table shows:
|Amgen Inc. (AMGN)||54.0B|
|Gilead Sciences Inc. (GILD)||30.7B|
|Celgene Corporation (CELG)||26.9B|
|Genzyme Corp. (GENZ)||18.2B|
|Biogen Idec Inc. (BIIB)||13.6B|
|Life Technologies Corporation (LIFE)||8.9B|
|Illumina Inc. (ILMN)||6.2B|
|Dendreon Corp. (DNDN)||6.1B|
|Human Genome Sciences Inc. (HGSI)||5.4B|
|Qiagen NV (QGEN)||4.2B|
|Abraxis BioScience, Inc. (ABII)||3.1B|
|Amylin Pharmaceuticals, Inc. (AMLN)||3.1B|
|Talecris Biotherapeutics Holdi (TLCR)||2.8B|
|BioMarin Pharmaceutical Inc. (BMRN)||2.3B|
|Techne Corp. (TECH)||2.3B|
|Regeneron Pharmaceuticals, Inc (REGN)||2.2B|
|Charles River Laboratories Int (CRL)||2.1B|
|Incyte Corporation (INCY)||1.8B|
|Medicis Pharmaceutical Corp. (MRX)||1.8B|
|Onyx Pharmaceuticals Inc. (ONXX)||1.7B|
|Savient Pharmaceuticals, Inc. (SVNT)||1.5B|
|Theravance Inc. (THRX)||1.4B|
|Acorda Therapeutics, Inc. (ACOR)||1.3B|
|Seattle Genetics Inc. (SGEN)||1.2B|
|ViroPharma Inc. (VPHM)||1.2B|
|XOMA Ltd. (XOMA)||1.0B|
JON C. OGG
Genzyme Corporation (NASDAQ: GENZ) is pursuing an interesting and outright dangerous strategy in its ongoing merger offer saga from Sanofi-Aventis (NYSE: SNY). The company (Genzyme) and Laboratory Corp. of America Holdings (NYSE: LH) have entered into an asset purchase agreement where Laboratory Corporation will acquire Genzyme Genetics for $925 million in cash.
LabCorp will purchase the business in its entirety and this sale includes testing services, technology, intellectual property rights, and its nine testing laboratories.
LabCorp claims that it will offer employment to all 1900 employees, including senior management, of the unit. The goal is to close the deal before the end of the year with appropriate regulatory approvals.
Genzyme CEO Henri Termeer noted, “… shows how our management team is uniquely positioned to unlock the under-appreciated value of Genzyme’s diverse businesses for shareholders. The completion of this sale allows us to focus our resources on core growth areas and create stronger returns on invested capital.”
Genzyme did announced back in May that it would seek strategic alternatives for three units as part of a five-part plan to increase shareholder value. The company also noted that the plan to divest the two other Genzyme business units (Diagnostic Products and Pharmaceutical intermediates) remain on track.
Proceeds from these transactions may be used to finance the second half of the company’s $2 billion stock buyback to be completed by May 2011.
Genzyme was advised by Credit Suisse and Goldman Sachs & Co on this transaction. The company’s legal adviser was Ropes & Gray.
Here is the uncertainty in the entire equation: Sanofi-Aventis wants the company. The question boils down to whether or not the divestment strategy will ultimately help or wreck the process. Each sale in theory leaves less and less of the company that Sanofi is bidding on.
JON C. OGG
Genzyme Corporation (NASDAQ: GENZ) is getting close enough in the head on trucker game of chicken that either Sanofi-Aventis (NYSE: SNY) is going to flinch or Henri Termeer and the board of Genzyme need to flinch. It just seems that there are not any of the other buyers out there. Maybe it is the manufacturing woes, maybe it is that the cause of the virus was unknown or not fully explained, and maybe it is just that Termeer and others can recall a $80.00 share price before things went south.
If Genzyme lets this bid from Sanofi-Aventis get away and if it the woes allowed competitors to up their own sales very much, Henri Termeer could face a black mark on what could be the crest of a great career as he took this company from the ground up. Being the early-on CEO does not mean he is the best man for the job on a day to day operation, even if he would be chairman of the board.
The bid stands at $69.00. The WSJ said no higher bid is apparent from the company and its spokesperson said that no other offer has been made nor discussed with the Genzyme board, management and its holders of the common stock. There had been some loose reports that a $71.00 offer was being made.
The notion that the company wants more means nothing to a buyer. It does not appear to be anyone’s fault other than that of Genzyme about its woes.
Shares are down 0.1% at $70.40 today and the 52-week trading range is $45.39 to $71.01.
JON C. OGG
For the past several months, rumors and reports have flown about French pharmaceutical behemoth Sanofi-Aventis (NYSE: SNY) devoting heavy resources to acquiring American research company Genzyme Corporation (NASDAQ: GENZ). The firms have gone back and forth on offers since early last month. Today, the Genzyme rejected Sanofi’s latest effort. Genzyme CEO explained his company’s actions, decrying an “unrealistic starting package” and said their offer “dramatically undervalues our company.”
Shares of GENZ are up 3.77 today on much higher than average volume. SNY is up .24% on average volume.
-Michael B. Sauter
Sanofi-Aventis SA (NYSE: SNY) has raised it’s final offer for the purchase of Genzyme (NASDAQ: GENZ) to $70 a share, up one dollar from their initial offer of $69. The price is certainly not one to thrill those at Genzyme, however insiders report that Sanofi holds concerns over manufacturing setbacks at the company.
“Sanofi doesn’t want to overpay and is being very reasonable,” reported Jerome Feronis from Banque Martin Maurel in Marseille, who helps manage Sanofi shares. “There are real issues tied to Genzyme. They want to pay a fair price. It’s good management.”
As activist directors seek to drive up the price, however, Sanofi may end up having to pay as much as $80 a share. Alternately, Genzyme does not currently have any other offers from American companies, and may eventually settle for Sanofi’s lower price.
-Michael B. Sauter
We have cautioned about the value of Genzyme Corporation (NASDAQ: GENZ) if Sanofi-Aventis (NYSE: SNY) either doesn’t raise a bid or if it walks away. The wild card is that Genzyme is taking its sweet time and it could be pushing Sanofi away.
We have heard and read that the implied original offer around $69 has not gotten the greatest reception from Genzyme’s board. How quickly they forget that their shares aren’t there because of their own woes.
Now it appears that Sanofi-Aventis might not budge. Report from Bloomberg, Reuters, and CNBC indicate that a peak of the offer is around $70 per share. This probably won’t drive the board of Genzyme to pounce all over the offer.
Bloomberg also reported that Sanofi-Aventis may decide to look elsewhere for other acquisition targets. If Genzyme stays aloof for too long, it could find itself hanging out in detention hall.
Pride is a curse in some instances. It seems that many investors, and more importantly management and the board of Genzyme, are trying to go back to when Genzyme traded above $80 during two different waves back in 2008. The problem is that Genzyme’s virus and manufacturing woes hurt the company. Whether those issues have truly been corrected in the entirety is still something up for debate.
Genzyme shares were down as low as $65.51 this morning but the stock has climbed back to $68.00 in early afternoon trading and there have already been more than 7.5 million shares traded before 1:00 PM EST.
Henri Termeer is caught between a rock and a hard place here. He grew this business massively. He could have a significant capstone for his career here in a sale. If the bid fizzles and if no other buyers surface over due diligence or over concerns of a harder economy, Mr. Termeer runs a risk that his great career is coming to a less pleasant end.
JON C. OGG