The Source puts its analytical skills to the test in trying to suss out who might be the next logical takeover targets in the pharma industry once the Sanofi-Genzyme deal gets done. Their conclusion is the picking are getting slim and there likely won't be much more activity in the offing.
Their concensus middle-size US candidates are trimmed down to three companies: Allergan, Biogen Idec and Celegene.
- Allergan - offer diversification opportunities with its eye care products but its valuation is too high given its growth expectations
- Biogen Idec - has a reasonable portfolio of biologicals in the MS treatment area and is more reasonalby valued. But, its Tysabri has some well publicized risks potentially.
- Celegene - very good growth numbers expected in the mid-term but has high valuation and is one-drug heavy with its Revlimid providing most of the revenue. Could be attractive to Pfizer and GSK though.
- Shire - Was identified as a fourth candidate that lies outside the US. It has good gowth potential and a diversified product line - but is relatively small at under $10 B.
Other than that, the authors name Eli Lilly, AstraZeneca and Novo-Nordisk as potential Big Pharma companies that might be pursued. They state this wold require heavy borrowing and it woudl amount to swapping expensive equity for much cheaper bonds.
Beyond that, there doesn't appear to be any other likely candidates in a big purchase merger. Big Pharma values will tend to decline until R&D productivity improves. "Drug companies, as it turns out, must make drugs in order to prosper."
Posted by Bruce Lehr October 7th 2010.