In response to the pending Sanofi $20+ B acquisition of Genzyme, Seeking Alpha went back in (recent) time to analyze how the $47 B from the Roche/Genentech deal was invested back into biotech as a predictor of how Sanofi money can be expected to flow from Genzyme investors who get paid off.
The Roche/Genentech deal occurred in March 2009. At the time, Seeking Alpha hypothesized investors would look for similar companies to Genentech in terms of size/liquidity - basically the 30 largest companies within NASDAQ biotech.
The companes were divided into three tiers: tier 1 - market cap > $10 B, tier 2 - market cap between $2 B and $10 B, and tier 3 - market cap < $2 B. How did it turn out? Did investors go to tier 1 as predicted. In short, NO. All 6 tier 1 companies actually underperfomed the NBI.
Tier 2 companies did best. More than 50% beat the NBI. Four of these showed triple digit gains, including: Alexion Pharmaceuticals (159%), Perrigo Company (239%), Shire plc (142%), and Warner Chilcott (241%).
Tier 3 was next best with 50% besting the NBI. Again 4 companies showed triple digit growth, including: BioMarin Pharmaceuticals (145%), Endo Pharmaceuticals (108%), Regeneron Pharmaceuticals (178%) and United Therapeutics Corp (114%).
The autors conclude that Genzyme funds that are freed up will also tend to flow to the tier 2 companies this time around too. Fierce Biotech also published other analysts "guesses" as to where the money might flow. The consensus is to midcap companies in very early stages of their growth trajectory. A few of the companies mentioned by name include: Biomarin Pharmaceuticals (see above), Alexion Pharmaceuticals (see above), Human Genome Sciences, and Dendreon.
Posted by Bruce Lehr Feb 19th 2011.
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