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Pharma Acquistions Expected: J.P. Morgan Healthcare Conference for drugmakers
  Meg Tirrell, Ryan Flinn,Jeffrey McCracken, Bloomberg News

Sunday, January 8, 2012

Amgen Inc. and Celgene Corp. may dive into deal making this year as the biggest biotechnology companies seek to return to the industry's high-growth roots.

The companies are trying to boost investor returns that have lagged behind peers and to do so may have to compete with traditional acquirers from the pharmaceutical industry, such as Pfizer Inc. and Bristol-Myers Squibb Co.

"We expect the large biotechs to be active acquirers in 2012," said Henry Gosebruch, managing director of health care mergers and acquisitions at JPMorgan Chase & Co. "Investors have rewarded strategic acquisitions that enhance long-term growth and companies that continue their history of developing innovative therapies, as opposed to turning into dividend-paying, share-repurchase type low-growth stocks."

Amgen will see a smorgasbord of potential targets this week at the 30th annual J.P. Morgan Healthcare Conference in San Francisco.

The meeting will draw 8,000 participants and 395 presenting companies, according to its host. Bristol-Myers and Pfizer, the world's largest drugmaker, will join Amgen, Celgene and Biogen Idec Inc. in scouting trips that often pack 200 meetings into the week.

"It's certainly a good time to meet not just with investors, but other companies that may become partners," said Patrick Mahaffy, CEO of Clovis Oncology Inc., which will present at the conference for the first time.

The meeting, which Mahaffy described as the health care industry's "Lollapalooza," is a chance for smaller companies to impress the crowd, he said.

Setting expectations

Companies looking to buy assets or forge partnerships attend the conference with new budgets and fresh investment track records, JPMorgan's Gosebruch said. Biotech and medical-device companies use presentations to set expectations for the year, and investor reaction can be a barometer of their ability to stay independent.

"It's always a bit of a temperature check on how people feel about the year," Gosebruch said. "People pay pretty careful attention to what those companies will say at the conference about their objectives and milestones."

Gilead's $10.8 billion purchase of Pharmasset Inc., announced Nov. 21, was the highest valuation on record for drug-industry acquisitions greater than $500 million. Gilead agreed to pay 70 times the net assets of Pharmasset, a maker of hepatitis C drugs, 94 percent higher than the company's 20-day trading average.

"That's what we're starting to see now," said Raghuram Selvaraju, an analyst with Morgan Joseph TriArtisan Group in New York. "There's much more willingness for big companies to pay enormous premiums to get control of high-value assets."

'Our global footprint'

Mary Klem, an Amgen company spokeswoman, said future acquisitions by the company "will be borne out of our growth strategy, including our desire to expand our global footprint."

Companies with market values of $3 billion to $10 billion may be the most likely targets for larger biotechs, Gosebruch said. That's a shift from 2010, when French drugmaker Sanofi pursued Genzyme Corp., the largest maker of medicines for rare diseases, in a deal worth $20.1 billion that closed in April.

While biotechnology stocks outperformed the broader market last year, newly public drugmakers and companies trying to sell new products found conditions more difficult, ripening their takeover prospects.

Eleven of 20 drugmakers to have initial public offerings since 2010 have declined, with six falling 60 percent or more.

"There are a lot of biotech companies that have become public over the years that really were either not prepared, or the kind of companies that weren't well-positioned to be public entities," said Robert Moore, general partner at Frazier Healthcare Ventures. "They were going public because it was their least costly form of capital they could raise."

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