Archive

from Breakingviews:

Hostile drug deal gets too clever for its own good

By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Royalty Pharma is suffering from some self-inflicted wounds in its hostile pursuit of Elan. The finance firm tried to use the drug maker’s $1 billion stock buyback to swoop up the entire company. But it devised a puzzlingly complex tender offer that was too clever for its own good. The scheme ended up replacing a long-term shareholder with other investors far more likely to demand a chunkier premium.

Elan is largely a cash shell after selling most of its share in multiple sclerosis drug Tysabri earlier this year for $3.25 billion. Royalty lobbed in a $6.6 billion bid, or $11 a share, in February. Elan’s decision to buy back $1 billion of stock and return 20 percent of its remaining royalties from the drug to shareholders helped push the stock above the offer price.

Elan chose what’s known as a reverse Dutch auction for the buyback, offering $13 a share and then going lower until enough investors bit. Royalty responded with a revised, complicated bid: if the investors settled on $11.75 to $12 a share in the auction, Royalty would offer $12 a share for the entire company. If the strike price was more than $12.25, it would pay $11. If it was lower than $11.75, it would offer less on a sliding scale.

from Breakingviews:

$6.6 bln won’t be enough to end Elan’s rash dreams

By Robert Cyran

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Royalty Pharma’s $6.6 billion indicative offer for Elan probably won’t be enough to end the latter’s ambitious dreams. The biotechnology company has grand M&A plans after selling most of the rights to its blockbuster drug, Tysabri, for $3.25 billion earlier this month. Royalty Pharma may well use that cash more wisely than Elan’s current bosses, but a 4 percent premium won’t seal the deal.

from Alison Frankel:

FDA confirms: It’s considering rule change for generic labels

Last month, when I wrote about the Obama administration's apparent flip-flop on the question of federal pre-emption of product liability claims against generic drugmakers, I mentioned a curious footnote in the Justice Department's Supreme Court amicus brief in Mutual Pharmaceutical v. Barrett. All the wrangling over liability for generics, which are required by law to use the same labels as the brand-name drugs they replicate, could be unnecessary, Justice hinted. "This office has been informed that Food and Drug Administration is considering a regulatory change that would allow generic manufacturers, like brand-name manufacturers, to change their labeling in appropriate circumstances," the brief said. "If such a regulatory change is adopted, it could eliminate pre-emption of failure-to-warn claims against generic-drug manufacturers."

I should have given the footnote more attention. In the last couple of weeks, it has prompted speculation by a number of pharma websites about whether the FDA really intends to upend longstanding policy barring generics from altering their labels, and, if so, what that portends for their product liability exposure. On Wednesday, I emailed the FDA to ask. In an email response, an FDA representative confirmed what the Justice Department footnote suggested: "FDA is considering a regulatory change that would allow generic manufacturers, like brand-name manufacturers, to change their labeling in appropriate circumstances," the agency said. "FDA intends to provide an opportunity for public comment with respect to any such proposed changes to its regulations."

from Breakingviews:

Pharma lands one-two punch on government finances

By Robert Cyran and Reynolds Holding

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Pharma has landed a double blow against the American government. The U.S. Court of Appeals in New York has ruled that a drug salesman was exercising his right to free speech by pitching a narcolepsy drug as effective against insomnia, chronic fatigue and other conditions the Food and Drug Administration had not approved. If the Supreme Court upholds this decision, companies will pay fewer multi-billion dollar fines and useless healthcare spending will increase.

from The Great Debate:

Thalidomide’s big lie overshadows corporate apology

A lie wrapped in an apology is still a lie. It is a big lie, a particularly offensive lie, coming as it does from the German company Chemie Grünenthal responsible for inflicting its notorious drug thalidomide on hundreds of thousands of women in 52 countries. Some 90,000 babies are calculated to have died in spontaneous abortion, but at least 10,000 mothers are known to have given birth to malformed babies between 1958 and 1961; the most damaged survive today as limbless trunks, others whose legs and arms were reduced to digital “flipper” extrusions from the shoulder, and thousands have severe internal injuries as well.

Grünenthal (now GmbH) was a small private company set up after World War Two as an offshoot of an old family firm that made soaps and detergents. Its first pharmaceuticals were produced under foreign license, but thalidomide (which it called Contergan) was its own, a sedative discovered by accident in the spring of 1954 by a 32-year-old chemist and doctor, Heinrich Mückter. To exploit the postwar sleeping-pill boom, Grünenthal marketed it massively from October 1957 as “completely safe,” “completely atoxic,” and free of the unpleasant side effects of barbiturates. The sales department called it “the apple of our eye” because it was so profitable. From 1958 to 1961 they zeroed in on promoting it for use by expectant mothers.

from Breakingviews:

Purge likely after U.S. obesity drug binge

By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Two U.S. biotech firms are bingeing on obesity drugs. Their concoctions for weight loss have both been approved by the Food and Drug Administration in the last month. With American obesity rates rocketing, analysts are eyeing fat sales and bankers are weighing mergers.

from Breakingviews:

Bristol-Myers and Astra make fat bet on obesity

By Robert Cyran

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Bristol-Myers Squibb and AstraZeneca have made a fat bet on obesity. The U.S. and UK drug giants are teaming up in the $7 billion purchase of Amylin Pharmaceuticals. Seven times estimated sales is a hefty price to pay for a biotech whose main drugs face stiff potential competition. But Amylin’s focus on diabetes, a sadly expanding market across the globe, makes this a healthier financial endeavor.

from Breakingviews:

KKR gets rich prescription for top-of-market LBO

By Robert Cyran and Quentin Webb
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

KKR has found the right formula to exit Alliance Boots, its top-of-the-market drugstore deal. Walgreen’s two-stage acquisition of its European rival should more than double the investment KKR and its partners made at the peak of the leveraged buyout frenzy. What the U.S. drug chain’s investors will get for their money - as much as $16.2 billion - is harder to fathom.

The first stage sees Walgreen pay about $6.7 billion in cash and stock for 45 percent of Boots. The firm’s ownership is currently split fairly equally between KKR funds, Boots Executive Chairman Stefano Pessina and outside investors. Pessina, who will become a Walgreen director, takes proportionately more stock than the financial investors.

from Global Investing:

Trading the new normal in India

After a ghastly 2011, Indian stock markets have't done too badly this year despite the almost constant stream of bad news from India. They are up 12 percent, slightly outperforming other emerging markets, thanks to  fairly cheap valuations (by India's normally expensive standards)  and hopes the central bank might cut rates. But foreign  inflows, running at $3 billion a month in the first quarter, have tapered off and the underlying mood is pessimistic. Above all, the worry is how much will India's once turbo-charged economy slow? With the government seemingly in policy stupor, growth is likely to fall under 7 percent this year. News today added to the gloom -- exports fell in March for the first time since the 2009 global crisis.

So how are fund managers to play India now? According to David Cornell, who runs an India portfolio at specialist investor Ocean Dial, they must simply get used to the "new normal" -- subpar growth and high cost of capital. In this shift, Cornell points out, return on assets in India has fallen from a peak of almost 14 percent in 2007 to less than 10 percent now. While that is still higher than the broader emerging asset class, the advantage has dwindled to less than 1 percent as companies suffer from margin compression and falling turnover. Check out these two graphs from Ocean Dial:

from Breakingviews:

Pharma saga shows bad lending’s long half-life

By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Deutsche Bank’s unhappy Actavis saga shows just how long bad lending decisions can reverberate. Finally a $5.6 billion-plus cash takeover by generic drugmaker Watson Pharmaceuticals offers an exit.