Successful Pharmaceutical Company Mergers: Abbott Labs Is Leader

• On 2:31 pm EST, Monday November 9, 2009

67 WALL STREET, New York - November 9, 2009 - The Wall Street Transcript has just published its Pharmaceuticals Report offering a timely review of the sector to serious investors and industry executives. This 76 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Small-Cap Specialty Pharma - Patent Expiration - Pending Health Care Reform - Cultivating And Expanding R&D Pipelines - Chinese Drug Manufacturers - Brisk M&A Activity - Indian Pharma VS. U.S. Pharma - Competition From Generics - FDA Approval Process - Clinical Research Outsourcing Market - Stem Cell-Based Technology - Cancer Radiation Therapy - Expansion Into Asian Markets - Traditional Chinese Medicine VS. Western Medicine In Chinese Pharma

Companies include: Aeolus Pharmaceuticals (AOLS.OB); Nutra Pharma (NPHC.OB); Quick-Med Technologies (QMDT.OB); Abbott Labs (ABT); Alexza Pharmaceuticals (ALXA); AmexDrug Corporation (AXRX.OB); Aurobindo Pharma (AUROBINDOP.BO); BioClinica (BIOC); BioPharm Asia (BFAR.OB); Biocon (BIOCON.BO); Cephalon (CEPH); China Sky One Medical, Inc. (CSKI); Claris Lifesciences (CLARICH.BO); Cortex Pharmaceuticals (COR); Daiichi Sankyo (DSKYF.PK); Dr.Reddy's (RDY); Elan (Elan); Eli Lilly (LLY); Forest (FRX); GeoPharma (GORX); Glaxo (GSK); Glenmark (GLENMARK.BO); Johnson & Johnson (JNJ); Lupin (LUPINSL.BO); Mannatech (MTEX); Matrix Laboratories (ATRIXLAB.BO); Medical Nutrition (MDNU); Merck KGaA (MKGAY.PK); Mylan (MYL); NeoStem (NBS); Novartis (NVS); Pfizer (PFE); Piramal Healthcare (PIRAMALHE.BO); Provectus Pharmaceuticals (PVCT.OB); Ranbaxy (RANBAXY.BO); Salix Pharmaceuticals (SLXP); Shire (SHPGY); Telik (TELK); Winston Pharmaceuticals (WPHM.OB).

In the following brief excerpt from just one of the in depth interviews in the 76 page report, an industry expert discusses the outlook for the sector and for investors.

Damien Conover is the editor of Morningstar's Healthcare Observer as well as a healthcare strategist for Morningstar. Mr. Conover has been covering the healthcare industry for close to a decade with a primary focus on pharmaceutical and biotechnology companies. Before joining Morningstar in July 2007, he held equity analyst positions at Raymond James, Bank of Montreal, and Tucker Anthony. Mr. Conover is a recognized authority in healthcare investing, appearing regularly on Bloomberg TV, CNBC and CNN. Mr. Conover holds a bachelor's degree as well as master's degree in finance from the University of Wisconsin, where he was a member of the Applied Security Analysis Program.

TWST: Has this been a successful model, have the acquisitions worked for these companies?

Mr. Conover: Some acquisitions have worked phenomenally well and some just haven't worked at all. I think that's probably the volatility that we'll see going forward, meaning the payoff could be extremely robust and much higher than the acquisition price or the licensing fees or could fizzle and come out to be nothing. But I think that's the risk you face with drug development in general. I don't see those rates changing much going forward. I still think there is going to be a very high spread between successful and unsuccessful partnerships.

TWST: What's been the kind of determining factor here, is it management or is it luck?

Mr. Conover: I think luck plays a major role in it, but I also believe in the phrase "The harder you work, the luckier you get". There are a few firms that have had fantastic track records of acquisitions. I would note Abbott Laboratories as one of those firms. A lot of their acquisitions in the past gave them the very strong pipeline that they currently have. On the other hand, Pfizer (PFE) and others haven't been as successful in the past. That doesn't necessarily mean that these firms will continue down the same path as they have had in the past, but I think it does kind of signal a little bit, if you had to handicap the ability of certain companies to do acquisitions and partnerships, certain ones are a little bit more likely to be successful than others. But I do think luck is probably one of the more important factors within these partnerships.

TWST: The management necessarily doesn't count?

Mr. Conover: Well, it counts, but I think you have to realize that a lot of these partnerships start off at a very early stage where you don't know a lot about the science. As understanding grows, that understanding then kind of sheds light on whether or not it was a good decision to partner or acquire.

TWST: Is partnership still kind of a dominant way that they are going here?

Mr. Conover: It's interesting. I would say we are starting to see more partnerships and maybe a little bit less acquisitions, just in the recent year here. I think some interesting examples of that are Johnson & Johnson's partial acquisition of Elan (Elan). Instead of making a full acquisition of Elan, they decided to do an 18% acquisition of Elan as well as get maturity rights to some of their Alzheimer's drugs, which are still going to split with Pfizer. But as far as gaining more access than the 18%, they were able to get more than that for their Alzheimer's rights. So it shows that JNJ decided, instead of doing an all out acquisition for Elan to do more than stick their toe in the water, they went ahead and put their foot in the water and joined with Elan in a partnership rather than an acquisition. I think that does a couple of things. I think it was shown with the Genentech relationship with Roche. It really allows the biotech to have the freedom, the entrepreneurial spirit that's really needed to continue drug development, while also giving them some of the funding that they need and their parent partner can really share in the upside if the drug does reach the market.

TWST: So it's kind of a best of all worlds?

Mr. Conover: It is. The only downside is that you don't have complete control of the biotech. But I think that that is more than offset in certain circumstances by increasing their entrepreneurial spirit.

TWST: Where is pricing at this point, is it at levels that makes it interesting for big pharma that do deals?

Mr. Conover: I would say a lot of the biotechnology firms look pretty pricey. I wouldn't say there is a lot of great buys out there. However, that being said, I would say that biotech firms are very motivated to sell in the current environment than where they were maybe a couple of years ago. That primarily relates to some of the smaller biotechs, which haven't had the access to capital that they traditionally have had in the past. Since the majority of these biotech firms just burn cash because they don't have a product, it's important for them to raise capital. Without that ability to raise capital in this very risk-averse market, they are going to have to look for partnerships. I think they are more willing to strike those partnerships and that, I think, is a benefit for big pharmaceutical firms and should probably bode well for an increasing trend of partnerships and acquisitions going forward.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 76 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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