9 Possible Pharma Deals for 2009

With everyone reporting and blogging over the past few weeks that Pharma M&A activity should heat up in 2009, we've decided to make nine bold predictions on deals that could get done -- or that at least make sense to us -- in 2009.

1) Pfizer Ltd. (PFE) is sitting on over $30 billion in cash and the Lipitor patent expiration in 2012 is bearing down like a freight train. Management needs to find new areas of growth. Pfizer has also mentioned in the past that they are keen on expanding the biologic business.

With "all deal sizes" on the table, the best move we see for Pfizer in 2009 is to acquire big-cap biotech firm Biogen Idec (BIIB). We have heard rumors of a Pfizer-Amgen (AMGN) combination, but Biogen would be a lot easier to swallow. The deal would give Pfizer several new revenue drivers and an enormous biologic pipeline for about a fourth of the price of Amgen. Biogen's core focus in central nervous system disorders, oncology, and inflammatory disease is just what Pfizer is looking for. Biogen also bring a massive biologic manufacturing footprint that will help Pfizer commercialize its next-generation portfolio.

2) Johnson & Johnson (JNJ) and Vertex Pharmaceuticals (VRTX) have been collaborating on potential blockbuster hepatitis-C product telaprevir for the past few years. Vertex licensed the ex-U.S. rights to the drug to Tibotec, J&J's anti-viral biotech division back in 2006. With the data on telaprevir continuing to look very impressive, and the rest of Vertex's pipeline coming along, including VX-770 for cystic fibrosis and VX-702 for rheumatoid arthritis, we think it makes sense for J&J to acquire the entire company in 2009.

3) Bristol-Myers Squibb (BMY), who very well may be an acquisition candidate themselves, is sitting on nearly $9 billion in cash and looking to do a number of small strategic deals in 2009. We just recently saw Bristol strike a licensing deal with Exelixis (EXEL) in December 2008.

Also, don't forget that Bristol got out-bid by Eli Lilly (LLY) in its move to acquire ImClone late last year. Management is clearly looking.

ViroPharma (VPHM), a mid-cap biotech with two approved products and another in phase III, would be an excellent strategic pick-up for Bristol. ViroPharma's recently approved Cinryze, an orphan drug for hereditary angioedema (HAE), and maribavir, another orphan drug for cytomegalovirus (CMV) infection in solid organ and stem cell transplant patients, fit nicely in Bristol's renewed and focused specialty pharma effort.

4) Merck & Co. (MRK) has had a number of pipeline setbacks over the past few years, specifically in the areas of cardiovascular disease, insomnia, and obesity. At the very least, we expect Arena Pharmaceuticals (ARNA) to license the rights to phase III obesity candidate lorcaserin in 2009. With Arena trading at a market value of only $280 million, Merck can pick up all of lorcaserin, along with early-stage development programs in insomnia, cardiovascular disease and diabetes. If Merck doesn't acquire Arena in 2009, someone else very well might.

5) Genzyme's (GENZ) enormous $1.4 billion licensing deal for stem cell products, Prochymal and Chondrogen, was a transformational event for Osiris Therapeutics (OSIR). Phase III data on Prochymal in graft vs. host disease (GvHD) and Crohn's disease is expected in 2009. Once this data is out, Genzyme should acquire all of Osiris instead of sharing the profits with them. Osiris is trading with a market value of only $650 million, and Prochymal could be a blockbuster drug by 2012.

6) Fibromyalgia syndrome (FMS) is an enormous market opportunity for pharmaceutical companies. The competition is low and the medical need is significant. Forest Labs (FRX) is currently waiting for FDA approval of milnacipran, a potential blockbuster drug with key differentiating characteristics for the treatment of FMS. If approved, Forest Labs will owe an estimated 15% royalty plus milestones to Cypress Biosciences (CYPB). Once milnacipran gets rolling, Forest should look to acquire Cypress later in 2009.

7) Did we mention that Pfizer is sitting on $30 billion in cash? Well, after Pfizer makes its move to acquire multiple sclerosis (MS) heavy Biogen Idec, they will still have $15 billion left over. We think it makes perfect sense for Pfizer to continue its MS push and acquire Acorda Therapeutics (ACOR). Picking up Acorda will bring in the U.S. rights to Fampridine-SR, a potential blockbuster drug for MS walking disability. Acorda has been looking to out-license the EU rights to Fampridine-SR, but for about $1 billion, Pfizer can have the entire thing.

8) Almost every big pharmaceutical company has increased their focus on oncology over the past few years. The opportunity is significant, and new scientific breakthroughs are leading to the development of some really improved drugs. Regeneron (REGN), with its VEGF-Trap technology, would make an excellent acquisition target for just about any big name.

However, two companies, Bayer AG (BAYRY.PKI) and Sanofi-Aventis (SNY), already have collaboration deals with Regeneron for VEGF-Trap -- Bayer AG in eye disease and Sanofi in oncology. As more data on VEGF-Trap comes out in 2009, a bidding war between Bayer AG and Sanofi could reward Regeneron shareholders.

9) The final deal we expect to get done in 2009 could end up being a three-way love triangle of sorts between Roche, Genentech (DNA) and OSI Pharmaceuticals (OSIP). Roche has a standing $44 billion ($89/share) offer for the rest of Genentech on the table, which Genentech rebuffed late last year.

Financing issues, however, seems to be holding up Roche from raising its bid, or even moving forward with the offer. In the meantime, OSI Pharmaceuticals is sitting nicely in the middle. OSI sells lung and pancreatic cancer drug Tarceva with Genentech in the U.S. and Roche in the EU. Either Roche or Genentech could turn their sights on OSI in 2009. In the end, all three may get together by the end of the year.

Jason Napodano, CFA, Senior Pharmaceutical and Biotechnology Analyst
Grant Zeng, CFA, Senior Biotechnology Analyst

Comments

[Furd Turgeson:]

Is someone could explain to me why BIIB is the best target for PFE, I'd love to hear it. Tysabri is really the future growth driver of BIIB, and it's future looks questionable at best. Rituxan is going to start losing major steam, so is Avonex.

Jan 08 05:30 PM

[Furd Turgeson:]

GENZ or CELG, That's the way to go PFE.

Jan 08 05:31 PM

[Furd Turgeson:]

The brilliant people at Zacks also fail to realize that BIIB won't sell out at the current market price, it will take just a little bit of a premium ya think?

Jan 08 05:35 PM

[Furd Turgeson:]

My god, after reading this article it looks as if Zack's thinks cash is just play money. What a horrible piece. Pathetic on all counts.

Jan 08 05:40 PM

[nova:]

Last year, PFE got away IMCL with huge oncology potential.

The bottom line: PFE has no clue what they are doing.

Jan 09 12:12 AM

[kharrin49:]

It appears you have completly missed the point. Do to future cash flow constraints it would greatly benifit PFE to aquire one of these companies who have products with the same blockbuster cash flow potential . they use cash to buy company responsible for delivery of same. Win Win all around for them.This is how these buisnesses work. If they can't produce cash rich drugs in their R&D they use saved capital to do it for them.Zacks read is right on money.


On Jan 08 05:40 PM User 314852 wrote:

> My god, after reading this article it looks as if Zack's thinks cash
> is just play money. What a horrible piece. Pathetic on all counts.

Jan 09 08:46 AM

[Furd Turgeson:]

And exactly how much is this revenue generation going to cost? Not the 14 billion market cap that BIIB has right now. More like 20 plus billion. Tysabri could easily get a wave of PML over the next 12-18 months and put the entire franchise in jeopardy. Genentech could buy Rituxan rights, CD20 competition is right around the corner, Avonex price increases will only go so far, Emerging MS competition, Where does Elan fit into the game, will the pipeline pan out? ....I'd say that's a hefty price tag for the risk it assumes. But maybe I miss the point as you say...time will tell. I still say Genz or Celg is the way to go.

Jan 09 11:16 AM