Rapid Pace of Oncology Industry Consolidation Continues: Pfizer's Sights on Bayer, ImClone Runs from BMS to Eli Lilly

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Despite the rocky global economy—or perhaps because of it—consolidation in the oncology biotechnology industry continues to race forward. Over the past several quarters, we have seen a trend toward increased mergers and acquisitions, and this shows no signs of slowing down. A number of firms recently announced plans to join forces.

The French company bioMérieux, self-described as a world leader in the in vitro diagnostics field, has acquired full ownership of AviaraDx Inc, a privately held firm in San Diego, California. The deal is valued at over $60 million. bioMérieux has a presence that spans more than 150 countries and posted revenues in 2007 exceeding 1 billion Euros. Analysts report that the AviaraDx acquisition gives bioMérieux ownership of validated cancer biomarkers and new capabilities in gene expression profiling of tissues that have oncology applications.

CytRx Corporation, Los Angeles, California, completed its buyout of Innovive Pharmaceuticals Inc, New York City. This gives CytRx ownership of the cancer drug tamibarotene and 3 other products in late-stage development that show promise as oncology treatments.

Another instance of recent acquisition activity in the sector involves Bayer AG, Germany’s largest drug maker, which reportedly plans to purchase Direvo Biotech AG, another German-based company, for $299.4 million. Bayer released a statement in September announcing that the transaction would be finalized by year-end 2008. Bayer’s absorption of Direvo will give Bayer an approximate market value of $61 billion.

In addition to the deals that have already been inked over the past few weeks, intriguing rumors have been flying through the marketplace. Reuters reported that a vice president affiliated with a major investment house, speaking on condition of anonymity, said that Pfizer is seriously considering a takeover of the aforementioned Bayer AG. There has recently been a marked increase in Bayer’s per-share price. Bayer spokesperson Guenter Forneck declined to comment, and Oliver Stohlmann, a spokesperson for Pfizer, said the company does not comment on market speculation. The rumor mill also mentions MediGene, a German company with US headquarters in San Diego, California, as a potential target for a Pfizer takeover.

Then there is the ongoing saga of mergers; many companies have received proposals but few of these potential marriages have been consummated. October’s installment of Physicians’ Financial News announced 2 potential major deals—Roche’s bid to acquire Genentech and Bristol-Myers Squibb Company’s (BMS’) attempt to take over ImClone.

In October, it was assumed that the completion of these unions were only a matter of time. In both cases, however, the acquisition targets felt that their suitors were undervaluing them. Despite Genentech’s reluctance to accept Roche’s offer, the industry tends to believe Roche will eventually win out and the deal will come to fruition, albeit at a higher price than what Roche offered originally. Still, recent turmoil in the financial markets has started to shake investors’ faith in the deal. Shares of Genentech have since fallen below Roche’s initial offer of $89 a share to acquire the rest of the company, and the value of Genentech’s stock is roughly 12% off its mid-August peak.

The second of these potential mergers included a far greater degree of unpredictability and several unexpected plot twists. ImClone rebuffed BMS’s initial offer for the 83.4% of the company it did not already own. BMS then raised the offering price from $60 a share to $62 (for a total bid of $4.7 billion). ImClone chairman Carl Icahn rejected the second offer as well, branding it “absurd” and said that a “mystery” bidder was offering ImClone $70 per share (for a total of $7.1 billion). The bidder later was disclosed as Eli Lilly and Company, which plans to secure a $3 million loan to help finance the takeover.

After ImClone agreed to Lilly’s price, Lilly made a formal tender, scheduled to conclude November 20. Lilly said it expected to complete its acquisition of ImClone in fourth quarter 2008 or first quarter 2009. As part of the buyout agreement, BMS received $1 billion from Lilly for its shares of ImClone.

The latest plot twist came when ImClone shareholders filed suit in an attempt to halt the Lilly- ImClone marriage, claiming the price ImClone accepted was too low; this is contrary to the views of industry analysts, many of whom speculate that Lilly may be overpaying. A judge rejected the stockholders’ request to expedite the lawsuit, and Lilly continues to move forward with the purchase plan.

The very latest speculation is that BMS may soon find itself subject to an acquisition attempt by Sanofi-Aventis or even Pfizer. Sanofi-Aventis inked an agreement in October to buy Zentiva, a Czechoslovakian company that manufactures generics, for $2.6 billion.