Dealmakers: 2011 should see surge of new M&A pacts

NEW YORK - Now that Big Pharma companies like Pfizer, Merck and Roche have had time to digest an M&A feast of historic proportions, the dealmakers in the biopharma industry are gearing up for a surge of new licensing pacts and acquisitions in the first half of 2011. And the burst of buyouts and licensing agreements may well be accompanied by a big round of spinouts.

That was the consensus of one financial roundtable discussion at the BIO CEO & Investor Conference in New York, which featured Chris Swindle, managing director of Wedbush PacGrow Life Sciences, Demetrios Kydonieus, who runs the strategic transactions group at Bristol-Myers Squibb, Scott Smith, a partner at Covington & Burling, and Don Elsey, the CFO at Emergent BioSolutions.

To set up the conversation, Swindle offered a look back at the deal-making pace of the last two years, which had dropped off significantly in terms of total dollars in 2010. While the overall number of public and private M&A pacts remained relatively flat, the dollar values plunged from $139.8 billion for public biopharma companies in 2009 to $78.3 billion in 2010. Private M&A deals, meanwhile, had seen overall values drop from $34.6 billion to $15.2 billion.

"I think it's going to gear back up," said BMS's Kydonieus, who noted that the numbers had flagged as mega-mergers consumed the bulk of many buyers' time and attention.

"2011 has started out much more active than it was," agreed Smith, who observed that four pharma clients had come to his firm with substantial prospective acquisitions early in the year. And Smith added that he wouldn't be surprised to see more of these new deals include a contingent value right, a tradable security that could be used to reward investors when an experimental product works out over time. Sanofi is reportedly including a CVR as part of its proposed acquisition of Genzyme, giving Genzyme investors the chance to reap a windfall if the biotech's MS drug Lemtrada works as well as Genzyme CEO Henri Termeer has predicted--and saving Sanofi some money if it doesn't.

"I think you're going to see CVRs as a very popular tool," noted Elsey, adding that the security has to be contained along a fairly tight time horizon to work. "CVRs can't stretch over decades."

That comment drew a nod from Kydonieus and Smith, who observed that even though large pharma has the money on hand to complete an all-cash transaction, many people are more comfortable having a CVR deal in place to cover experimental programs.

After a significant spike in deal activity in the first half of this year, Kydonieus noted that he expects it to slow somewhat in the second half, with a sudden stall possibly chilling activity at the beginning of 2012.

This should be a solid year for deal-making, said Smith. But nothing lasts forever. "Next year," said Smith, "may be very different."

In the meantime, Kydonieus added, look for pharma companies to do more spinouts, pulling apart programs and technology and putting them into new company structures that look a lot like ViiV Healthcare, a specialized HIV/AIDS company which combined programs from GlaxoSmithKline and Pfizer. - John Carroll (twitter | email)