Healthy Skepticism Library item: 8145

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Publication type: news

Zehr L.
Drug giants have Bristol in their cross-hairs
The Globe and Mail (Toronto) 2007 Feb 2
http://www.theglobeandmail.com/servlet/story/LAC.20070202.REDGE02/TPStory/Business

Full text:

France’s Sanofi may have the best shot, analysts say
LEONARD ZEHR

BIOTECHNOLOGY REPORTER

The players are lining up for a possible run at Bristol-Myers Squibb Co. in what is shaping up as the next merger of pharmaceutical giants.

Analysts give the edge to France’s Sanofi-Aventis SA because it and Bristol have a long-standing alliance to co-market the blockbuster blood-thinner Plavix, the world’s No. 2 selling drug after Lipitor. Their union would create the world’s largest drug maker, surpassing Pfizer Inc., with combined 2006 revenue above $51-billion (U.S.). A Sanofi bid could entice Pfizer to fight to retain its No. 1 position, some analysts say.

Next in the running is AstraZeneca PLC, which is desperate to replenish its dwindling pipeline. Though bitter rivals, AstraZeneca and Bristol teamed up last month in a $1.25-billion partnership to develop two highly touted diabetes drugs discovered by Bristol. A bid by AstraZeneca, though, could draw GlaxoSmithKline PLC into the bidding for competitive reasons, analysts say.

This week, a French investment newsletter reported that Sanofi and Bristol had already signed a preliminary merger accord. It didn’t identify any sources for the story and both companies have declined comment. Another published report suggested Bristol has hired three investment bankers to help review any buyout offers it gets.

Takeover speculation has gripped Bristol since last summer when the drug company temporarily lost its grip on Plavix and allowed generic competitor Apotex Inc. of Toronto to flood the market for several weeks. Since touching a 52-week low of $20 last August, the stock rebounded to $26 by the end of December on the New York Stock Exchange.

The stock rose 1 cent to $28.80 yesterday, its highest close since February, 2004. Sentiment is now growing that the stock price is fast approaching the upper limit of a takeover bid. Many analysts have pegged a ceiling price of $34-to-$35 a share to bag Bristol, which would push its value to around $65-billion.

“Bristol has been struggling . . . and shareholders have not seen a meaningful return for the longest time,” which would play into a suitor’s hands, Robbert Van Batenburg, head of global research for Louis Capital Markets of New York, said in an interview this week.

Bristol has had a gut-wrenching history. In 2005, it paid $450-million in fines and was forced to appoint an independent corporate integrity monitor after a $2.5-billion scandal about excess overloading of wholesalers with inventory to meet quarterly sales targets.

Last summer, a bungled deal to delay generic competition from Apotex prompted a criminal investigation and forced the ouster of chief executive officer Peter Dolan. And at the end of the year, it reached a preliminary agreement with the U.S. Justice Department to settle investigations into its drug pricing, sales and marketing practices.

Also fuelling takeover rumours is the board’s unsuccessful search to appoint a permanent CEO. Moreover, the New York-based company is being run on an interim basis by the CEO who oversaw the recent sale of Guidant Corp. to rival Boston Scientific Corp.

All of which makes Bristol vulnerable to a takeover. Mr. Van Batenburg figures the new diabetes deal between Bristol and AstraZeneca could hasten a move by Sanofi. It and other European companies are seeking to expand their sales and marketing, and research and development positions in the United States, where the industry benefits from less regulation, including layoffs as part of a post-merger cost-saving program.

While Sanofi and Bristol could lose as much as 30 per cent of their current revenue to generic competition in the next five years, analysts say Bristol’s attraction is a strong pipeline, including four new drugs launched last year and six more in late-stage clinical trials.

A pressing concern, however, is the uncertainty around a continuing court case about the validity of the Plavix patents, with a ruling likely in midyear. While investors are betting Sanofi and Bristol will prevail against Apotex in the case, analysts are watching daily developments to gauge whether Sanofi’s confidence will translate into a takeover bid or attract another bidder for Bristol.

“There are a lot of moving parts to this story,” Mr. Van Batenburg said, pointing to the risks of bidding for Bristol without a guarantee on Plavix.