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CCCA_V2No2_Col-IntelProp-FIN.qxd:CCCA_V1No2_Col-IntelProp-V1.qxd 4/30/08 10:07 AM Page 52 Intellectual Property Biotech buying binge M&A activity in life sciences is taking off. onsider these Canadian examples of the sector has been particularly noticeable revival in the U.S. (but not in Canada) Cmergers and acquisition activity. in Europe, although North American deal over the past three years. As QLT illus- volume has also increased.Despite the U.S. trates, the public markets, particularly in • Vancouver-based life sciences company recession and M&A slump, this trend has Canada, have also not been kind to QLT Inc., which produces the eye drug continued in 2008. biotech companies in recent years. It is Visudyne , is trying to sell its U.S. opera- Life sciences M&A has not been led by difficult to attract investor interest in pub- ® tions as part of a comprehensive restruc- private equity funds which have shied away lic offerings. Perhaps even more signifi- turing. Once a high flyer among Canadian from the riskier, longer-term horizons of cantly, the valuations in the public mar- public life sciences companies, QLT has the biotech sector. kets are often lower than those offered by seen its share price drop from a high of $45 The principal buyers of biotech com- potential acquirers, making a sale of the in 2000 to a recent low below $3. panies are strategic investors, particularly company financially attractive. the big pharmaceutical companies that M&A activity in the life sciences sector • Last fall,Aspreva Pharmaceuticals, which have shifted strategic direction and are will likely continue its upward trend.The specializes in developing evidence-based looking to fill their product pipelines with recent contraction in the credit markets medicines for patients with less common the acquisition of biotech assets. Many of and the weaker economy, especially in the diseases,was sold to Swiss-based Galenica big pharma’s blockbuster drugs will be U.S., has slowed the global M&A boom in for US$915 million,a 24% premium over coming off patent over the next few years, general as purchasers, particularly the buy- its share price. and they do not have sufficient replace- out funds,find debt financing more expen- ments in development. Increasing pricing sive and restrictive. • Axcan Pharma, which specializes in gas- pressure from customers also fuels consol- However, big pharmaceutical companies troenterology disorders, was sold recently idation. Buying biotech companies, with are likely to continue to search out attrac- to a U.S. private equity fund for US $1.3 young, entrepreneurial developers and tive acquisition targets to help them address billion,a 30% premium over its share price. promising technologies, provides access to their strategic and competitive challenges, a broader range of potential new products and many biotech companies will find it Global M&A activity surged dramatical- at a reasonable cost. easier and more profitable to sell, rather ly in the past five years. According to In particular, U.S. companies were given than go public or search out other ways to Thompson Financial, the global M&A the opportunity in 2005 to repatriate off- fund their needs. market set a record set in 2007, with shore profits at an extremely low tax rate, These companies will continue to be announced deal value of US$4.8 trillion, putting more than US$100 billion in big attracted to each other.Whether,once com- up 23% over the prior year. The M&A pharma’s coffers, a significant war chest for bined, they will get the results they want frenzy was driven by factors such as growth acquisitions and other investments. from a merger or acquisition is a separate, in private equity buy-out funds, low-cost On the other hand, biotech companies albeit essential, question which deserves and easily available credit financing, a have become more willing to sell, princi- careful consideration by both buyers and strong global economy and, more recently, pally because of their difficulties accessing sellers. privatization of public companies escaping funding to complete the development and the regulatory burdens and short-term production of their new products. Biotech Michael Herman is a partner in Gowling earnings focus of the public markets. companies generally rely on venture capi- Lafleur Henderson LLP’sToronto office with The life sciences sector has recently tal early in their development. more than 20 years of experience in all areas joined the M&A party in earnest. Global Although the venture capital market of corporate and commercial practice,including life sciences M&A activity increased signif- slumped dramatically after the tech bub- mergers and acquisitions, private equity, icantly in 2006 and 2007.Consolidation in ble burst in 2001, it has shown signs of financings and strategic advice. 52 CCCA Canadian Corporate Counsel Association SUMMER 2008