Bio-Pharma, Diagnostics Buyout Binge Begins

by: Mike Havrilla

With news late Friday that Roche (OTCQX:RHHBY) is prepared to up its bid for complete control of Genentech (Private:DNA) to $95 from a previous offer of $89 per share and a $41M ($1.50 per share) all-stock takeover offer by Sequenom (NASDAQ:SQNM) for EXACT Sciences (NASDAQ:EXAS); 2009 is off to a strong start for M&A activity in the bio-pharma and diagnostic space.

Larger and well funded bio-pharma and diagnostic companies are opportunistically looking to expand their product offerings, pipeline prospects, patent portfolios, and drug discovery technology platforms with the huge declines in the stock prices for the 250 companies included in the following ETF Innovators Indexes:

Emerging Diagnostic Index: Average loss of 63.2%, including 39 companies with average market cap of $50M

Emerging Bio-Pharma Index: Top 40 Rated Companies

Emerging Bio-Pharma Index: 36 Additional Companies

Micro-Cap Bio-Pharma Index: Click to enlarge accompanying table of 130 companies with an average loss of 43.6% in past year and average market cap of $58M.

Some examples of buyouts in these indexes include:

1.) EXAS is up over 140% in the past month and the $41M takeover offer by SQNM represents a 50% premium from the closing price of 99 cents on Friday.

2.) SGX Pharma was acquired for $64M cash by Eli Lilly (NYSE:LLY) for its cancer drug discovery platform.

3.) Kosan Biosciences was acquired by Bristol-Myers (NYSE:BMY) for its cancer drug pipeline.

4.) Pfizer's (NYSE:PFE) $164M cash buyout of cancer drug developer Coley Pharma.

5.) GlaxoSmithKline's (NYSE:GSK) $57M buyout of Genelabs (GNLB) at a 400%-plus premium.

Over the past year, the declines in the indexes outlined above were more severe than the overall market and benchmark healthcare ETFs comprised of larger companies, such as iShares Nasdaq Biotech (NASDAQ:IBB), PowerShares Dynamic Pharma (NYSEARCA:PJP), the Healthcare Sector SPDR (NYSEARCA:XLV), and SPDR S&P Biotech (NYSEARCA:XBI).

Many of the companies in the accompanying table also have pending FDA decisions which will likely have major impacts on the stock prices, including Labopharm (DDSS), BioDelivery Sciences (NASDAQ:BDSI), Advanced Life Sciences (OTC:ADLS), Discovery Labs (DSCO), GTC Biotherapeutics (GTCB), and Northfield Labs (NFLD).

The common theme for the buyouts listed above includes spending a very small amount of money or issuing stock to acquire patents, pipeline compounds, marketed products, or technology platforms which are trading at distressed prices.

Three of the five deals focused on cancer drug development while EXAS is being acquired for its patent portfolio focused on prenatal + cancer diagnostics just one day after announcing that its stool-based DNA screening test was added to the colorectal cancer screening options in 12 more states + Washington DC.