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A patch of Pharma M&A to boost R&D

Last week saw the first real M&A activtiy of the year from the pharmaceutical industry. In a couple of days, hidden among the rash of earnings releases, Roche made a hostile bid for gene-sequencing technology company, illumina. The bid of $5.7bn was made by the drug maker after the company refused to enter into ‘constuctive dialogue’ with the Roche management. illumina, a competitor with Life Technologies and with the Roche’s diagnostics arm, is a market leader in the high-potential sector of gene sequencing. This strategic acquisition would bring the San Diego company under the Roche umbrella and add genetic sequencing and microarrays to Roche’s suite of personalised medicine approaches. These capabilties are important in bringing highly targeted medicines to market, as proven by their recent FDA regulatory approval for vismodegib in oncology.

On the heels of this acquisition was the announcement that Amgen would be moving for Munich, Germany based biotechnology and antibody company, Micromet. The deal, announced at $1.16bn is a direct acquisition for Blinatumomab, a leading oncology product indicated in various types of acute lymphoblastic leukemia, as well as the strongly touted platform technology BITE. These will further strengthen Amgen’s presence in the cancer category and make perfect strategic sense for the company as it looks to take advantage of its prominence as the world’s largest biotechnology company.

With two other leaders in the supply and treatment of cancer medicines (Amgen and Roche) making announcements totalling some $7bn, Celgene, an emerging leader in the haematological and solid tumor cancer area, got in on the act too. They announced their intent to complete the acquisition of Avila Therapeutics Inc., a clinical-stage biotechnology company with a pipeline of products based on its platform technology, Avilomics(TM), focused on oncology and autoimmune diseases. Avila Therapeutics was funded by some market leading venture capital companies in the biotechnology, Abingworth, Advent Venture Partners, Atlas Venture and Polaris Venture Partners. Celgene has valued the company at $350m in cash, $195m in milestone payments linked to lead candidate AVL-292, as well as a further $380m in further milestones linked to candidates coming from the platform.

These deals announced only last week follow an acquisition announced by Bristol Myers Squibb earlier in January to acquire Inhibitex, a biopharmaceutical business who have been developing a product in hepatitis C. The deal was announced at $2.5bn and signifies the activity in the (HCV) product area following Gilead’s planned acquisition of PharmAsset for $11.2bn, seen as a high value deal by many analysts.

So, with all this activity in the past few weeks, are we seeing the start of a very busy period for the M&A market. Otherwise subdued, M&A is being given a life-line by pharma with these deals mounting a sustained effort to build out drug development pipelines and consolidate therapeutic and technology positions. The challenging equity market of 2011 began to find some strength in late 2011 and the stability in equity prices may have signalled to Pharma-CEOs the time was right to put their cash piles to work on strategic acquisitions, having earlier staged share buy-backs in most cases (e.g. Amgen, Celgene). Are companies concerned that sitting on their hands (and cash), might in fact mean they come to market looking to make deals in a climate of rising valuations and asset prices. Does this recent avalanche of deals mean that we’re about to see a very agressive upturn in deal making by the cash-rich companies across the sector and the improved liquidity for investors as the acquiring dollars flow back into the segement. Whatever the mid-long term trend, this is an interesting boost to pharma mergers and we’ll watch as 2012 unfolds.

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