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Pressure on premiums in M&A push biotech prices higher

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Every week, it seems, a new biotech deal hits the radar screens. GlaxoSmithKline ($GSK) went after Human Genome Sciences ($HGSI), hoping it could tempt investors whose shares had dropped precipitously over the past year. Bristol-Myers Squibb ($BMY) reportedly tried to tackle Amylin ($AMLN). But none of those deals have gone very far. And one--Roche's ($RHHBY) bid for Illumina ($ILMN)--collapsed when the sequencing company dug its heels in and demanded a better offer.

What's stopping the buyouts? Reuters' Ben Hirschler concludes that a handful of big shareholders at each of the target companies simply aren't interested in catering to Big Pharma's appetite for a bargain. When a few key investors like Fidelity, Wellington Management and T. Rowe Price control big chunks of stock, it's easy to brush off anyone with a low-ball offer. And unless the buyers start coming to the table with offers that are too good to refuse, the next round of offers is likely to be just as ineffective.   

"There is a lot of concentration of power in the hands of certain shareholders, which basically demands more negotiations and more convincing arguments before deals get done," Index Ventures' Francesco De Rubertis tells Reuters.

Case in point: HGS, where shareholders have turned a cold shoulder to GSK's $13 per share offer. That's a big premium over its battered price, but far from the heady heights reached after Benlysta succeeded in helping lupus patients in clinical studies. And unless GSK starts rethinking the numbers, investors say they'll keep saying no.

More bids are certainly expected. Bayer has reportedly come close to announcing a multibillion-dollar offer, though reports of an "imminent" deal has so far been met with silence. And Pfizer ($PFE) has made it clear that it intends to be in the market for single-digit billion dollar buyouts, just like a hungry AstraZeneca ($AZN). With more buyers crowding into the market, the pressure to pay a premium is just going to go higher. And that's a trend that the big biotech investors are keenly aware of.

- here's the story from Reuters

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