Biotech Blossoms Anew
4/29/2008 4:47:53 PM
Biotech Blossoms Anew
by Karl Thiel (from the BioSpace Inside Recruiter)
A month ago, things looked bleak in the biotech sector. So bleak, in fact, that I suggested investors might want to go against the herd and start nibbling away at stocks in the sector, because sour sentiment can turn on a dime. After all, any sector where product development moves this slowly, costs this much, and the companies mostly lose money along the way is naturally going to be subject to occasional bouts of pessimism. But the extremes are always short-lived. Biotech remains the engine of innovation for many large pharma companies, and some companies were--and still are--sitting on assets that look very undervalued by the traditional standards of the life sciences industry.
Things look a lot rosier today, and we can thank Big Pharma's deep pockets for a good portion of the turn in sentiment. Last year, and into the first part of this year, the biotech sector was fueled by the prospects of large, profitable biotech companies being snapped up by Big Pharma at healthy premiums. MedImmune was bought out at a staggering price, and when Biogen Idec put itself on the block, investors smelled a trend (and saw the seasoned hand of Carl Icahn pushing these sales). Icahn's interest in Genzyme looked like the genesis of another potential acquisition.
Well, it turns out that most of the shotgun weddings envisioned by activist investors didn't take place. But the announced acquisition of Millennium Pharmaceuticals by Takeda this month opens up a whole new area of speculation: consolidation among mid-cap biotechs, brought about not by disgruntled outsiders, but by mutual agreement among management teams without guns to their backs.
There's reason to think Millennium won't be the only beneficiary. According to the Wall Street Journal, Merck CEO Richard Clark is on the hunt for the "perfect" biotech acquisition: "a company with a mid-sized market cap, some products already for sale, and a research focus that would complement Merck's research efforts." Given the 53% premium Takeda just paid for Millennium, investors are eager to determine who that might be--whether it's Merck doing the shopping or another large company. Might Eli Lilly want to snap up Amylin at only about 4 times projected sales? Or maybe Cubist Pharmaceuticals? Might Astellas decide it wants all of CV Therapeutics, not just a piece of Lexiscan? Will someone snap up Alnylam now that Sirna and Sirtris are taken?
I'm not going to make any formal predictions, but I can tell you there's a lot of speculation circulating. And it's speculation of this sort that builds rallies.
Ah, but will it last? I actually doubt there will be a slew of high-profile acquisitions in the coming months. Still, it doesn't take many investments by Big Pharma to support the idea that many small-to-medium sized biotechs are sitting on approved or advanced products that can, in the hands of the right partner, be turned into very valuable assets. Investors take note.