The best seat in the house for a healthcare dealmaker has to be across the table from Elan CEO Kelly Martin. With his stock price in a coma and his two most promising drugs locked up in joint ventures, it’s hard to see what kind of bargaining power the long-time Wall Street veteran can muster to sell the Irish drug maker at a price shareholders will be happy with. Investors seem to think a deal is possible, or at least that the prospect for a deal is better than the company turning the corner on its own. They bid up the stock 16 percent on news that Elan had hired Citigroup to strategically review the company. The stock has lost nearly 70 percent since mid-July. Though the company says a sale is not its preferred strategy, this is what M&A folk tend to mean when they say strategic review.
Generally, investors have had little reason to feel confident about Elan. It is not currently making any money, a common condition for biotechs, and has $1.7 billion in debt coming due within the next five years. Though there is M&A activity in the sector, Elan is looking particularly anemic. Last month, it said it would cut 114 jobs and close its Tokyo and New York offices. With a market cap around 3.2 billion euros ($4.3 billion) it’s hardly too big for a Pfizer, Merck or Wyeth to swallow. There were rumors that Pfizer was sniffing around last week, but Elan has distanced itself from the talk.
Big pharma’s strategy of using marketing joint ventures to allow them to win big returns on successful drugs without taking on the bigger risks associated with Biotech failures has proven to be more valuable than buying biotechs outright. And many of the biotech sector’s big prospects are spoken for by way of joint venture. With the economic crisis having forced private equity to the sidelines, M&A is now a strategic buyers’ market. Elan is probably counting on a current flash of merger activity to cloud any negatives for potential buyers.
Elan’s existing big drug partners – Wyeth and Biogen – might seem like the best fits, or at least the least messy. They both have agreements allowing them to buy the drugs they co-market. But Biogen has been under pressure from none other than Carl Icahn to sell itself, so a big acquisition looks challenging. That leaves Wyeth, which said recently just last week its strong cash position could enable it to make new biotech acquisitions. If Wyeth makes a move, it should expect to get excellent terms.
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* Deutsche Bank is in talks with Deutsche Post about the timing of its planned takeover of retail lender Postbank, sources with direct knowledge of the matter told Reuters.