GlaxoSmithKline ($GSK) has shown in a series of M&A and investment moves that the London-based drug giant prefers to bet on known commodities--existing biotech partners. Bloomberg analyzed GSK's strategy and speculates that the company could pick one of its collaborators as a future buyout target.
Opinions will vary about whether GSK's preference for buying partners is a good thing. At Human Genome Sciences ($HGSI), GSK's long-time partner, the board has been fighting off GSK's $2.6 billion hostile takeover bid amid efforts to attract higher offers. But GSK's deep interests in key HGS assets such as Benlysta could discourage outside bidders from entering the fray. However, other biotech companies enter collaborations with pharma giants such as GSK in hopes of being acquired.
GSK scooped up Cellzome in a £61 million ($96 million) deal earlier this month, having already owned a significant stake in the drug-discovery outfit. And GSK's practice of picking up partners in M&As follows the logic that drugmakers can reduce the risk of an acquisition when buying familiar assets. As Bloomberg noted, GSK wasn't an investor in Sirtris Pharmaceuticals before buying the early-stage drug developer for $720 million in 2008, and the deal was blasted as a stinker after development of one of the biotech's lead compounds was halted and investigators called Sirtris' anti-aging science into question.
Expect GSK to continue down the road of partner-focused buyouts, UBS analyst Gbola Amusa told Bloomberg. "This is one of the smartest things that can be done with M&A strategy," Amusa told the news service. "As innovation-based M&A is sometimes a market for lemons, a buyer is typically at an information disadvantage to a seller. When there is a collaboration, however, there's the potential to have the same information or more than the target."
In general, biotech companies have had to cozy up to pharma partners to survive a drought in venture dollars and the high bar for going public. And industry watchers say there may never be another Genzyme, which was able to raise ample amounts of money from the public markets and remain independent for decades until Sanofi ($SNY) acquired the biotech powerhouse last year. With many biotech companies relying on pharma partnerships to survive, large drugmakers could have the upper hand in M&A negotiations down the road.
- read Bloomberg's article