Drug giant Sanofi-Aventis SA's (SNY) purchase of biotech concern
Genzyme Corp. (GENZ) for at least $20.1 billion is the latest
landmark deal in a pharmaceutical industry merger-and-acquisition
spree that's unlikely to ease.
The agreement also comes as broader health-care M&A activity
has picked up significantly following a slump linked to the credit
crisis, weak stock valuations and uncertainty--now significantly
diminished--over the U.S. health-care overhaul.
"We're in a multiyear boom of M&A activity" in the
pharmaceutical industry, said Adam Berger, managing director and
head of M&A at health-care investment bank Leerink Swann. Even
in 2008 and 2009, generally a slower time for health deals,
pharmaceutical purchases kept a brisk pace, he noted.
The French drug maker's purchase of Massachusetts-based Genzyme,
expected to close early in the second quarter, is the largest U.S.
health-care deal since Merck & Co.'s (MRK) $49.6 billion merger
with Schering-Plough in 2009. The Merck-Schering deal closed weeks
after Pfizer Inc. (PFE) acquired Wyeth for more than $68
billion.
As blockbuster brand-name drugs lose their patent protection and
face competition from lower-cost generic copies, drug makers have
scrambled to pump up their pipelines by merging with smaller
pharmaceutical and biotechnology companies.
"There's been a real anxious desire on the part of pharmas to
replace that revenue" with small to large deals, Berger said.
"You can't start (developing a drug) today and hope it'll be on
the market in a couple of years," as pharma research and
development takes about a decade, noted Dimitri Drone, who leads
pharma-industry deal services for PricewaterhouseCoopers. Drug
companies need to buy therapies if they want a shorter pipeline, he
said.
Drone said he expects to see an "off the charts" flow of U.S.
companies buying foreign pharma businesses.
U.S. drug makers have moved much manufacturing and intellectual
property overseas because of favorable tax rates, so a great deal
of their cash is overseas, he noted. One of the best ways to put
that cash to work "is to buy something outside of the U.S.," he
said.
Big pharma also will look overseas because the U.S. market is
fiercely competitive and developed, with reimbursement pressures
and limited growth potential, he said.
Developing countries where people are getting wealthier and want
more Western goods, such as medicine, make "very attractive
markets," Drone said.
In 2009, there were 963 U.S. health-care M&A deals announced
totaling nearly $185 billion, with a few big pharma deals,
including Merck-Schering and Pfizer-Wyeth, accounting for the bulk
of the dollar amount, according to Dealogic.
Last year, there were 1,220 deals totaling $125.6 billion.
Dealogic includes the Sanofi-Genzyme deal in that number because
the drug maker made public its unsolicited bid, then at $18.5
billion, in August.
So far in 2011, health-care companies have announced 156 U.S.
deals totaling more than $15.4 billion. And that doesn't include
the $2.9 billion private-equity buyout announced this week for
ambulance and physician-services concern Emergency Medical Services
Corp. (EMS), which Dealogic classifies as a transportation
deal.
Globally, including the U.S., 2009 saw 2,220 deals totaling more
than $232.7 billion; last year, there were 2,742 deals at $240.8
billion.
"In general, I think health-care M&A is picking up" across
most industries, and this year should bring more deals than last
year, Leerink's Berger said.
Jones Day law firm partner Toby Singer, who specializes in
health-care mergers, noted that "there is a real push toward
consolidation of hospitals." Health systems anticipate more limited
reimbursement, with or without the health overhaul, she said.
"They believe that they must become more efficient and must
squeeze unnecessary costs out of the system, and consolidation is
an important vehicle for becoming more efficient," Singer said.
"There is also a trend toward more combinations of physicians and
physician organizations with each other and with hospitals."
Hospital operator Community Health Systems Inc. (CYH) has made a
$3.3 billion hostile bid for Tenet Healthcare Corp. (THC), which
would create the largest U.S. hospital company in number of
facilities. The nation's largest for-profit hospital chain, HCA,
plans to go public next month.
Last week, hospital- and rehab-center operator Kindred
Healthcare Inc. (KND) announced plans to acquire long-term
acute-care and rehab-hospital concern RehabCare Group Inc. (RHB)
for about $900 million, excluding debt assumption.
Activity in the health-services space started increasing
significantly in early 2010, PricewaterhouseCoopers partner Steven
Elek III said. He predicts more big health-services mergers, and
notes valuations have started to inch up lately.
By Dinah Wisenberg Brin, Dow Jones Newswires, 215-656-8285;
dinah.brin@dowjones.com
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