Underscoring just how much big pharma will depend on biotech acquisitions for future revenue, an analysis published by Evaluate Pharma today suggests half of the top 100 drugs worldwide by 2014 – and all of the top six — will be biotechs.

Three in the top six – the anticancer drugs Avastin, Rituxan and Herceptin, — are all made by Roche, which recently moved to acquire even more biotech drugs with its plans to acquire Genentech.

It begs the question: Which biotech company could be the next to be taken over?

One that frequently makes the list is Amylin Pharmaceuticals (ALMN). It’s drug Byetta could be used to treat Type 2 diabetes as a once-a-week treatment, instead of daily. Some potential safety concerns had been raised with the drug, but earlier this month, it and partner Eli Lilly announced that a meta-analysis of the data showed no increased risk of cardiovascular events associated with its use. The relative risk between risk between Byteta and a group of competing drugs was found to be small, and the unadjusted rate at which patients experienced at least one cardiovascular event was slightly lower with Byetta. Given the very large market for diabetes and its existing drug company partnerships, there would appear to be meaningful takeout potential.

Another biotech on the list with a drug that reaches a large potential market and existing partners is Onyx Pharmaceuticals (ONXX). It has a joint venture with Bayer for Nexavar, used to treat kidney and liver cancers. There was increased call volume in the options market for ONXX back in early May, despite some apparent friction between the partners over the rights to a next-generation Nexavar compound that Bayer reportedly was developing without Onyx’s knowledge. A legal battle could ensue. But if that happens and Onyx gains the upper hand in court, it could be the catalyst that forces Bayer to become more than just a partner, and buy its biotech partner.

One more biotech takeout candidate to watch is Vertex Pharma (VRTX), which makes a potential product called Telaprevir, which might help cut the time it takes to treat hepatitis C. Conventional treatment currently takes about 11 months. With a seemingly promising product in a large addressable market, Vertex options spiked last month on two separate instances, amid chatter that it could be a takeout target by either GlaxoSmithKline (GSK) or Johnson&Johnson (JNJ). There are more than 150 million people worlwide infected with hepatitis C,  and more than 3 million of them in the U.S.

Mike Tarsala

Reuters reports that a bankruptcy for GM (GM) and Chrysler could be a long, drawn-out process.

Reuters writes that activists want to push out the AIG (AIG) compensation chief.

Reuters reports that the IMF sees the global economy shrinking 1% this year.

Reuters reports that Asia banks see opportunities as Western rivals retreat.

Reuters reports the RIM (RIM) has opened a software store for the Blackberry.

Reuters reports that one potential bankruptcy plan for GM would split the company into parts.

Reuters reports that H-P (HPQ) is looking at using the Google (GOOG) operating system for small PCs.

The Wall Street Journal reports that the head of GM said that he was willing to take the company through bankruptcy if necessary.

The Wall Street Journal reports that Ford (F) is worried that its two US rivals could get better deals with the unions because of their precarious financial situations.

The Wall Street Journal reports that global M&A fell in the first quarter.

The Wall Street Journal reports that the plan to change mark-to-market accounting could hurt the Treasury plan to have a public/private program to buy toxic assets.

The Wall Street Journal writes that the G-20 is debating which nations should be on a tax haven list.

The Wall Street Journal reports that trade rhetoric and actions are still at odds.

The Wall Street Journal reports that Honda (HMC) will cut US production and salaries.

The Wall Street Journal reports that a tweak in the bailout program will make bank stocks pricier.

The Wall Street Journal writes that rising crop prices could raise food prices.

The Wall Street Journal reports that there is no relief from drops in home prices.

The Wall Street Journal reports that the prize-winning Chevy Malibu shows that many consumers still want Japanese cars from Toyota (TM) and Honda (HMC).

The Wall Street Journal reports that the rise in homeowners skipping mortgage payments is putting new pressure on Fannie Mae (FNM) and Freddie Mac (FRE).

The Wall Street Journal reports that the head of Gannett’s (GCI) USA Today is leaving amid a drop in circulation.

The Wall Street Journal reports that the slump is hitting venture capitalists.

The Wall Street Journal reports that auto sales may have bottomed.

The Wall Street Journal reports that access to cheaper capital gives China an edge in global markets.

The Wall Street Journal reports that a recovery in the IPO market is a long way off.

The Wall Street Journal reports that the UAW is facing a tough opponent in the US government.

The Wall Street Journal writes that a program giving credits to people who trade old cars for new ones is gaining steam.

The Wall Street Journal reports that doctors are being urged to be careful about taking drug company money.

The Wall Street Journal reports that the parent of the Chicago Sun Times filed for Chapter 11.

The Wall Street Journal reports that airlines have started to hedge fuel costs again.

The Wall Street Journal reports that the CFO of Facebook left.

The Wall Street Journal writes that Sony (SNE) cut the price of the PlayStation 2.

The New York Times reports that the US may go with a plan to break GM into two pieces.

The New York Times reports that Fiat may find a tie-up with Chrysler helps its US sales.

The New York Times reports that four small banks paid back TARP funds.

The New York Times report that data from South Korea, Japan, and China shows Asian economies falling further.

The New York Times reports that Avastin, a drug from Genentech (DNA), has been approved for treating brain tumors.

The FT reports that the SEC may enlist third parties to help enforce fraud statutes.

The FT reports that GE (GE) will pitch its vision for world healthcare.

The FT reports that a monitoring group for TARP is launching fraud investigations.

Bloomberg reports that Obama thinks Chapter 11 is the best option for GM and Chrysler.

Douglas A. McIntyre

Reuters reports that AIG (AIG) executives in Europe are resisting returning bonuses.

Reuters reports that Obama will begin to tighten the screws on Wall St.

Reuters reports that the backlash against Wall St. could spread to the bank bailout plan.

Reuters reports that Twitter will seek more revenue from businesses.

Reuters reports that a house panel approved the $3.45 trillion budget.

Reuters reports that IBM (IBM) is on the short list to bid for Satyam.

Reuters writes that the US toxic asset plan should help big banks.

Reuters reports that Roche has picked up 96% of the shares in Genentech (DNA).

Reuters writes that Rio Tinto (RTP) will sell more assets if its deal to sell equity to a Chinese firm fails.

Reuters reports that Treasury is preparing a plan to take control of troubled non-bank firms.

Reuters reports that bond spreads are creating a new bank crisis measurement.

The Wall Street Journal reports that the auto task force will suggest more federal loans to GM (GM) and Chrysler.

The Wall Street Journal reports that Barclays shareholders are losing patience with management as it tries to keep the bank from government ownership.

The Wall Street Journal reports that gas prices could rise going into the summer.

The Wall Street Journal reports that the Administration wants to eliminate certain oil and gas company tax credits.

The Wall Street Journal reports that IBM (IBM) will cut 5,000 jobs.

The Wall Street Journal reports that Volvo bidders are talking to Ford (F).

The Wall Street Journal reports that commercial real estate loan failures are picking up.

The Wall Street Journal reports the the commodities rally lacks underlying demand.

The Wall Street Journal reports that trading in credit markets does not back the stock rally.

The Wall Street Journal reports that Intel (INTC) has big hopes for its new chip.

The Wall Street Journal reports that Nintendo’s new game platform is coming to the US.

The Wall Street Journal reports that PetroChina’s (PTR) profits dropped and its may curb output.

The New York Times reports that a number of firms getting government money will pay employees retention bonuses.

The New York Times reports that the latest Treasury auction showed weak demand.

The New York Times reports that Geithner reaffirmed the dollar’s role in the world of global finance.

The New York Times reports that a senior European leader attacked the US stimulus plan.

The New York Times reports that the IMF has announced a financial rescue for Romania.

The FT reports that US retail investors put large amount of money from the stock market into bank accounts.

The FT reports that debt holders are slowing the US car company bailout.

The FT reports that there has been a surge in short sellers.

Bloomberg repors that Morgan Stanley (MS) and Mitsubishi UFJ will form a large Japanese brokerage operation.

Bloomberg reports that Geithner want more power to regulate hedge funds and derivatives.

Douglas A. McIntyre

Allergan has now just crossed over the 10 million share mark and shares are up 11.7% at $48.23.  In today’s world of the market whip-around and the world of M&A, we won’t be shocked if Allergan denies the rumors saying they would rather be an acquirer.  Nor would we be shocked if the company halts or just says “No Comment!” in response to this.

Jon C. Ogg
March 24, 2009

This was based upon allegations that the special committee’s decisions to enter into the merger agreement and recommend the buyout offer be accepted was a breach of fiduciary duties.  These allegations also noted that Roche aided and abetted the breaches, and noted that SEC filings included false, misleading or omissive disclosures.

Now, today, comes the detail that counsel to the parties to the consolidated action pending, entered into a settlement stipulation to resolve the actions.  The Delaware consolidated action will be dismissed with prejudice on the merits, while the plaintiffs in the California Actions will voluntarily dismiss with prejudice the California Actions, and all defendants will be released from any claims relating to the merger and any disclosure made in connection with the merger.

The settlement is subject to approval but this will not affect the offer price.  Shares closed up 0.5% at $94.25 today, so there is already less than a 1% arbitrage spread left in the merger.   This may not be the last hurdle to the deal closing, but the hopes for any more money coming are looking slim to none.  And “slim” may have left town.

JON C. OGG

A few very large deals have been done recently. Most were first proposed several months ago. They were likely to work because they were what investment bankers call “strategic.” Usually that means that the two companies involved are in the same business. They see “synergies” which involve things like taking the R&D geniuses from the acquiring company and putting them in the same room with their counterparts from the firm being acquired. Working together may set off the creative sparks that drive new discoveries. Or, they may not. The real but hidden definition of the word “synergy” is firing lots of people. The recently closed marriage between Dow Chemical (DOW) and Rohm and Haas (ROH) was about firing people. Pfizer (PFE) bought drug company Wyeth (WYE) for the same reason. Being in the pharmaceuticals business is not what it used to be. Blockbuster drugs face competition. Keeping hundreds of research scientists around is expensive.

Roche recently bought Genentech (DNA), a company in which it was already the largest shareholder. That deal was not just about firing. Biotech operations like Genentech are the next generation of pharma companies. Roche wants in on that action. It had the tremendous advantage of only having to buy part of the shares in Genentech. Aside from getting customers and new products, Roche got control of the whole company and merely had to acquire 44% of the shares.

M&A may be coming back. Not the kind of M&A that is about firing but the kind where the excuse for the buyout is more positive than layoffs. And, the impetus for the move up in M&A activity is probably that the stock market has been going higher recently.

IBM (IBM) is in talks to buy server company Sun (JAVA). Sun has had a difficult time making it all alone. It sits in fourth or fifth place in terms of market share. Giants like Hewlett-Packard (HPQ) top that list. Sun has no chance of ever making it to one of the top three spots. The company has already fired thousands of people, so it is lean, maybe too lean to grow. IBM has been watching Hewlett-Packard become a more formidable competitor. And, Cisco (CSCO) recently said it would get into the high-end server business. The number of huge companies that want a piece of IBM’s business seems to be growing.  IBM gets new technology by buying Sun, but, more importantly, it gets Sun’s market share.

Sun’s stock is way down. Before the rumor about an IBM deal hit the news, Sun traded at $5, less than a third of its 52-week high. What was lost in the commotion about the buyout was that Sun’s shares had moved from $3.84 to $5 in just six trading days. Most of that increase was due to the rally in the overall market. And, if the market keeps going up, the price of potential acquisitions is going to get more expensive, even if the underlying businesses of the targets has not changed.

Companies that want to get bigger or round out their portfolios of businesses have probably been on the phone with their investment bankers in the last two weeks. It may be the first time that some bankers have gotten a client call in a year. There is a rush to look at targets now, because if the market moves up another 10% or 15%, a lot of companies that were cheap will get expensive.

Time Warner (TWX) may not be planning to buy CBS (CBS), although it would make some sense. If a deal like that was on Time Warner’s mind, CBS has gotten 29% more expensive in the last five days. If Exxon Mobil (XOM) wants to buy Chevron (CVX), the price is up 9% in five days.

Cheap is getting expensive. The environment for M&A may not be as safe as it was two years ago, but the targets have begun to cost more.

Douglas A. McIntyre

After months of bargaining, Genentech got a price of $95, a 26% premium over where it traded before the first offer was made. What is more extraordinary is that, while the bickering over price went on, the DJIA dropped 40%. A big premium became, by comparison to the markets, a huge one.

So, the Genetech board hung on to get a better deal and Roche  gave in and will write a check for $47 billion.

Genentech played a good game. The firm always knew that Roche desperately needed to buy it. Genentech has a number of very valuable drugs, and they are biotech products which are hard to re-engineer. Roche, like most other Big Pharma operators, has products which will lose patent protection soon. Generic drug companies will step in and offer must less expensive versions of those treatments.

Big Pharma is dying. Biotech has become the future of the industry. Last year, Genentech made $5.3 billion of profit on $13.4 billion in sales. It has more than $9 billion in cash and long-term investments and adds to that pile each quarter. That speak volumes.

Douglas A. McIntyre

Reuters reports that the world economy is shrinking as the G20 meeting approaches.

Reuters reports that US foreclosure filings were up last month.

Reuters writes that Ford’s (F) deal with the UAW cut hourly wages to about $55.

Reuters reports that Twitter is not seeking a merger.

Reuters reports that Cuomo says Merrill may have mislead Congress.

Reuters reports that the World Bank says the global economy will shrink 1.2% this year.

The Wall Street Journal reports that the next big decision is whether insurance companies get bailouts.

The Wall Street Journal reports that Nigeria’s growth is being hurt by lower oil prices.

The Wall Street Journal reports that Obama and Geithner got low grades for running the economy according to a survey by the paper.

The Wall Street Journal reports that the US is seeking a bigger war chest for the IMF.

The Wall Street Journal reports that Ebay (EBAY) is moving back  from online retailing.

The Wall Street Journal reports that Nortel is in talks to sell units to rivals.

The Wall Street Journal writes that Japan’s economic contraction was less than originally thought.

The Wall Street Journal reports that Freddie Mac (FRE) posted at $24 billion loss.

The Wall Street Journal writes that Google (GOOG) will tie ads to web behavior.

The Wall Street Journal reports that Apple (AAPL) introduced a talking iPod.

The Wall Street Journal reports that National Semiconductor will cut staff.

The Wall Street Journal reports that mortgage lenders want a change in the homeowner bailout plan.

The Wall Street Journal reports that joblessness rose sharply in several states.

The Wall Street Journal reports that jobless claims are a good proxy for the recovery.

The Wall Street Journal reports that the recovery will weigh on China’s four big banks.

The Wall Street Journal reports that Fidelity is launching funds for investors who want to avoid some of the market turmoil.

The Wall Street Journal reports that TALF investors are worried about collateral damage.

The Wall Street Journal reports the the government is considering giving Boeing (BA) and Northrup each a part of a US tanker deal.

The Wall Street Journal reports that Toyota (TM) is worried about the health of parts suppliers.

The Wall Street Journal reports that global demand for smartphones is down.

The New York Times reports that Google (GOOG) will release a free phone manager.

The FT writes that the US wants IMF funds to triple.

Bloomberg reports that “Libor creep says credit markets risk freezing on distrust of policy making.”

Douglas A. McIntyre

Reuters reports that some economists believe that the US economy will start to rebound in the second half of the year.

Reuters says that the Dow Chemical (DOW) merger with Rohm and Haas (ROH) will now go through.

Reuters reports that Eli Broad who invested in AIG (AIG) has given up hope that the company will recover.

Reuters reports that the US is weighing future aid for Citigroup, if needed.

Reuters reports that Moody’s (MDO) has listed those companies at greatest risk for default.

Reuters reports the Manpower says the global downturn in the job market is continuing.

Reuters reports that the US auto task force met with GM (GM), Chrysler, and the UAW.

The Wall Street Journal reports that Roche is near a deal to buy Genentech (DNA).

The Wall Street Journal reports that the UAW has agreed to concessions to Ford (F).

The Wall Street Journal writes that central bankers in Europe are beginning to see signs of hope that the economy will recover.

The Wall Street Journal reported that oil is rising putting $50 in sight.

The Wall Street Journal reports that airlines are hitting trouble as customers flee.

The Wall Street Journal reports that Sun (JAVA) is seeking new customers for flash-based storage.

The Wall Street Journal reports that the head of IBM (IBM) says that the company will “go on the offensive”.

The Wall Street Journal reports that China consumer prices fell causing concern about deflation.

The Wall Street Journal reports that Bank of America (BAC) keeps saying it is not Citigroup.

The Wall Street Journal reports that US firms in China are bringing down their expectations.

The Wall Street Journal reports that TI (TXN) narrowed its forecast for this quarter.

The Wall Street Journal reports that Palm (PALM) moved to raise cash.

The New York Times reports that investors in biotech companies are losing patience.

The New York Times reports that ‘quants” tried to out smart Wall St.

The New York Times reports that EADS made a profit for the year.

The New York Times reports that short sellers are showing a knack for deals.

The FT reports that Europe rejects a US call for additional stimulus.

The FT reports that Citigroup did well in the first two months of the year.

The FT reports that more concerns have hit the credit markets.

The FT reports that Barclays (BCS) has been warned about toxic asset dumping.

Bloomberg reports that hedge funds may cut 20,000 jobs this year.

Bloomberg reportd that a survey of economists says joblessness will reach 9.4% this year.

Douglas A. McIntyre

The offer’s deadline has been extended to midnight on March 20.  Shareholders have to agree to the deal, which is subject to the original conditions. The company has raised $36 billion in capital and  Roche says in an SEC filing that  it can raise the rest.

As of March 5, Roche said that only about 500,000 shares have been tendered in favor of the offer.  Many still feel that Genentech is worth more than $100 per share.  But this is a bird in the hand in a very tough climate.  This new offer might represent much more than two birds in the bush.

Genentech shares are now trading up 10% at $89.90 on the news.

Jon C. Ogg
March 6, 2009