Can Merck Defeat Biotech Leaders? (MRK, RDY, DNA, GILD, GENZ, CELG, AMGN, BIIB)

December 9, 2008 · Filed Under General · Comments Off 

This morning was an interesting bit of pre-release data on Merck & Co. Inc. where the company gave its full financial forecasts the same as last week and where the company laid out its full pipeline and R&D plans for 2009 and into the next decade.  There are a few key observations here and you can see the full summary to the company’s pipleline.  The first observation is that it may be a wonder how Merck thinks it can actually be a major competitor to biotech companies.  We have long argued that biotech companies are just future drug and pharmaceutical companies.  But it is very difficult to argue that entrenched drug companies can become biotech leaders in the same manner.

Merck is launching Merck BioVentures, a new division to make both new, follow-on, or generic biotech drugs. Some generic biologic drugs have been in Europe but have for the most part absent to outlawed in the U.S.  Generally speaking, these have longer patent exclusivity and in many cases are allowed to exist without competition.

This issue is not just one of humane aspects. It also has political aspects that could come full circle in the coming months.  With a new administration and a new regime, it is unknown just how much competition these biotech operators will have.  They have well over a decade of established case law in their favor, so any changes may require legal maneuvering on top of just the regular lobbying efforts.

But, back to Merck.  Its BioVentures unit is supposed to utilize new science to speed up drug development.  Merck acquired a technology called glycoengineering to more rapidly create antibodies and proteins for drugs in yeast rather than the traditional mammal cells used by many other companies.

What is interesting is that Merck said the unit will build a commercial factory by 2012 and will invest some $1.5 billion in research by 2015.  The unit’s goal is to launch six or more generic biotech drugs between 2012 through 2017.  The company’s dates are somewhat targeted at patent expiration dates for several big biotech drugs.

Merck has a market cap of roughly $56 billion and is expected to have somewhere around $24 billion in 2009 sales according to research estimates.  Below are the major biotech players whose market capitalization rates are greater than $10 billion.  We have also included the Thomson Reuters (First Call) estimate (rounded down) for the next fiscal year (2009).  Here is that list:

COMPANY (TICKER)                                 Mkt Cap    2009R~
Genentech (NYSE: DNA)                           $81.6 B    $14.4 B
Amgen Inc. (NASDAQ: AMGN)                  $61.6 B   $15.4 B
Gilead Sciences, Inc. (NASDAQ: GILD)      $43.0 B   $6.3 B
Celgene Corporation (NASDAQ: CELG)     $24.1 B   $2.9 B
Genzyme Corporation (NASDAQ: GENZ)   $17.3 B   $5.2 B
Biogen Idec Inc (NASDAQ: BIIB)                $14.1 B   $4.4 B

Merck may be able to pull a rabbit out of the hat at the magic show.  And it might not.  The company is slashing and burning right now as it gears for a slower and more competitive 2009.  Dr. Reddys (NYSE: RDY) has been able to make some biotech copies and many AIDS drug patents have just been outright stolen or broken in some countries.  This is an argument over “patent law” and “intellectual property” versus what is humane or what many consider as a God-given right under the humanitarian front.  Regardless of any personal positions in that argument, there are many who argue that generic biotech drugs will by and large be failures and far less effective than their base-biotech.

Wall Street gave it a thumbs-down vote.  Shares closed down about 2% today with a weak market.  Having big blockbuster plans is one thing, but he time frame seems to be a reach based upon the cuts it has been making.  This sales pitch also requires a bit more meat to it.

If Merck wants to be the biotech leapfrog shop, it might have to go do it the old fashioned way.  It might have to acquire companies.  It has before.

Jon C. Ogg
December 9, 2008

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Are Generic Drug Makers Entering Merger Frenzy After Teva/Barr?

July 18, 2008 · Filed Under General · Comments Off 

Barr Phamaceuticals Inc. (NYSE: BRL) actually turned out to be a real merger.  Teva Pharmaceutical Industries (NASDAQ: TEVA) has agreed to acquire the generic US-drug maker in a merger valued at $7.46 Billion in cash and stock.  The breakdown is $39.90 cash and 0.6272 shares of TEVA for total of $66.50 before any dilution.  This is after the stock closed up more than 23% yesterday on reports that Teva was interested in buying the company.

Teva is a huge generic drug makers and it has some of its own brand name drugs.  What you have to wonder is just how many other mergers are out there that could actually come to pass in the generic sector.  Generics are likely to do well in sales as a sector because of medical and health care cost containments and because so many key blockbuster drugs are coming off of patent in 2009 to 2011.

On an individual basis these companies are essentially stepping on each others’ toes as they frequently get FDA approvals for the same drugs as other generic companies after the brand drugs come off patent.  It also doesn’t help when brand drug Big Pharma companies decide to sell their brand drug for the same price as generics after they come off of patent.

So maybe mergers in the generic drug sector are inevitable.  Here is a list of some of the larger generic drug companies:

  • Mylan, Inc. (NYSE: MYL) $3.9 Billion market cap,
  • Watson Pharma (NYSE: WPI) $3.1 Billion market cap,
  • Par Pharma (NYSE: PRX) $610 million market cap.

As a reminder, there was a time period where King Pharmaceuticals Inc. (NYSE: KG) was trying to merge with Mylan, Inc. (NYSE: MYL).  All of these stocks are trading up marginally so far this morning as of 10:00 AM EST.

Jon C. Ogg
July 18, 2008

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Teva & Barr… Possible Generic Super-Giant Merger (TEVA, BRL)

July 16, 2008 · Filed Under General · Comments Off 

Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA) is reportedly in talks to buy Barr
Pharmaceuticals Inc. (NYSE: BRL).  This report is out of Globes, which labels itself as Israel’s Business Arena if you are not familiar with it.   The deal terms are listed as “Assuming Teva pays a premium for the firm, its price would be over $5 billion.”

Barr Labs closed up 1.6% today at $46.82, but its market cap at that price is already $5.06 Billion.  Shares popped 15% to $54.11 in late after-hours trading after the report came out.  That gives a new implied market cap of about $5.8 Billion.  Barr’s 52-week trading range is $37.40 to $58.38; and shares were nearly $70.00 at the start of 2006.

The trick to determine is just how much of an “assuming.. above the $5 Billion mark” Teva would be willing to go.  Teva’s market cap is nearly $33 Billion based upon a $42.41 close Wednesday.

Stay tuned on this one.

Jon C. Ogg
July 16, 2008

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