Shire bid could be standout deal of the year
Shire — an Anglo-American specialist in hyperactivity and rare genetic diseases — has been tipped as the hottest takeover target in the sector since French drugmaker Sanofi acquired US biotech firm Genzyme early last year, a deal that showed there was appetite for rare disease drug specialists.
Since then Shire, which last week posted a 47% jump in fourth-quarter earnings, has been rumoured frequently as a takeover target.
Shire’s chief executive, Angus Russell, declined to comment when asked about speculation concerning a bid approach when the group presented results on Feb 9.
Bankers expect a steady flow of smaller deals from cash-rich drugmakers in 2012 after Roche kicked off the year with a $5.7bn hostile bid for Illumina. But large-scale deals are expected to be rare. Shire would be one of the bigger prizes, with a market capitalisation of $19.7bn.
The London-listed group is expected to draw attention from seasoned consolidators, such as Israel’s Teva and any cash-rich big pharma companies that have not done a significant deal recently, such as the US-based Pfizer.
Teva, the world’s largest generic drugmaker and a true mergers and acquisitions& machine, is bold enough and would likely have shareholder support for such a large acquisition. Buying Shire would bring it an impressive line-up of marketed and experimental drugs in speciality medicine, bankers and analysts said.
The Israel-based firm committed in 2008 to increase revenues to $31bn by 2015 and is still far below the target with $16bn in 2011.
Teva said it never commented on market speculation.
Unlike some big pharma firms, Teva would likely feel comfortable with Shire’s attention deficit hyperactivity disorder drugs as these treatments are already popular in Israel, its domestic market, and in the US.
Although Teva is still digesting its $6.3bn purchase of drugmaker Cephalon last year, the recent appointment as chief executive of Jeremy Levin — a former Bristol-Myers Squibb executive — emphasises its commitment to building a strong branded pharmaceutical business.
Now may be too soon for action. But in the second half of the year, when Levin has settled in, Teva could start preparing a hostile bid for Shire, a source familiar with the group’s strategy and a sector banker said.
Price could be a sticking point, as any bid for Shire would likely have to include a 40% premium on its already high valuation, bankers said.
Teva would likely wait until a setback sent Shire shares down, repeating opportunistic tactics deployed by Sanofi on Genzyme and by Roche on Illumina, one source added.
Other large potential deals are harder to identify, although heart and lung drug specialist Actelion, with a market cap of $5bn, remains a possible target.
Despite past interest from Amgen, Actelion founder and chief executive Jean-Paul Clozel has so far resisted calls from activist shareholder Elliott Advisers to consider selling the business.
The company’s future now hangs on the results of a decisive trial for lung drug, macitentan, to replace Actelion’s flagship treatment Tracleer, whose patent expires in 2015.
The fortunes of the European sector are diverging, creating different needs for mergers and acquisitions& among players.
An advance guard of big pharma names — Roche, Novartis, and GlaxoSmithKline — are increasingly confident about the future and can do bolt-on deals.
AstraZeneca, by contrast, is trailing the pack badly. In the past that might have made it a takeover target for a tie-up. This time around, its lack of pipeline and investor disillusion with value-destroying combinations of large pharma groups is likely to mean rivals steer clear.
“I can’t see any major pharmaceutical company having the acquisition of AstraZeneca well received by its own investors,” said one industry consultant.
When it comes to making acquisitions itself, chief executive David Brennan is cautious. He says is ready for deals in a “range of $1bn or a few billion dollars”. But few in the industry believe that would be enough to put AstraZeneca back on track.
“AstraZeneca desperately needs to do big mergers and acquisitions& but they are so slow to realise it. This is because shareholders continue telling Brennan ‘don’t do anything stupid, don’t do big mergers and acquisitions’,” a banker who recently approached the company said.
Most other big drugmakers, meanwhile, are sticking with what Bristol-Myers once branded the “string of pearl strategy”.
GSK, which last week set a lower-than-expected buyback plan for 2012, clearly has room for bolt-on deals. It could pick up innovative cardiovascular and anti-infectious specialists, as well as expanding in emerging markets, bankers said.
Novartis is also eyeing bolt-on acquisitions in the range of $1bn to $2bn.
The Swiss company could increase its scale in animal health and is expected to look at Pfizer’s animal health division when it comes to the market, bankers said.
French company Virbac, an animal health specialist with a market value of $1.3bn, would typically be an attractive target for Novartis and Sanofi, bankers said.
But the Dicks family, which has a 47% controlling stake in Virbac, has so far been reluctant to sell and would likely aim for a high price if they were to change their mind.
European Big Pharma could also tap some US biotech firms such as Onyx, Cubist, Celgene or Alexion, bankers and analysts said.
But bid speculation has also inflated the share price of many potential targets in the healthcare space, making it harder for deal-makers to add value with mergers and acquisitions&.
“The problem is everybody looks at the same thing and you’ve got bankers coming in your door every day,” Chris Viehbacher, chief executive of Sanofi, told Reuters. “Now when a banker sits down with the inevitable book, I say ‘if you got this, this or this company, then let’s not even discuss it’.”
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