1999 Financial Markets Review: Out with the old
Mergers and acquisitions finally had a significant impact on the biotech sector last year, as for the first time in the history of the group a meaningful number of public companies disappeared. Those companies are being replaced by a new class of IPOs, while at the beginning of the pipeline, new companies continue to be formed. One issue for investors going forward is whether the sector is losing its best companies to M&A, or whether their replacements will be of equal or higher quality.
Biotech M&A traditionally has had a negative connotation, with the conventional view that companies with thin pipelines, low cash or limited technology platforms should combine in an effort to generate critical mass. But the trend in the latter half of 1999 was for many of the strongest companies in the sector to do deals with even larger companies.
BB Biotech's Anders Hove has noticed the paradigm shift. "A year ago we talked about consolidation out of cash needs, now we're seeing mergers of strength," he said. "Bigger companies are accessing the strongest of the smaller companies to get products. The bigger companies can do it because they're profitable and they have flexibility with stock."
By BioCentury's tally, 73 M&A deals were done in 1999, eliminating 33 public biotech companies. The 60 deals with disclosed terms were done for an aggregate $19.1 billion, an average of $317.8 million. However, the average number is skewed, as for every $4.6 billion Johnson & Johnson/Centocor merger, there are several smaller deals. And the big deals represent the lion's share of activity. The top seven deals represent $14.8 billion (77 percent) of the disclosed M&A transactions in 1999. Thus the median value of the 60 deals was $29.8 million.
Interestingly, even with the resurgence of biotech stocks, the pace of M&A seemed to be accelerating by