Big Pharma set for costly shopping spree

Screening for acquisitions will be high on the 8216;to do8217; list of newly appointed Sanofi-Aventis Chief Executive Chris Viehbacher, when he takes the helm at the French drugmaker on Dec. 1, industry analysts and bankers say.

He is not alone. GlaxoSmithKline 8212; the company Viehbacher is leaving 8212; is also expected to strike one or more significant deals to boost its consumer health business as part of a new growth strategy.

Roche and Bristol-Myers Squibb, meanwhile, are locked in multibillion-dollar battles for two prime biotech assets, Genentech and ImClone Systems.

News this week of a second bid for ImClone, topping an earlier offer from Bristol, suggests competition is fierce.

The identity of the new bidder is unknown but analysts said ImClone could attract the likes of Pfizer, Novartis, Glaxo and Sanofi 8212; but it might be too big a bite for Merck KGaA, its partner on cancer drug Erbitux.

8220;I think it8217;s the natural way of things that Big Pharma is going to take over the biotech world sooner or later,8221; Carl Icahn, ImClone8217;s billionaire chairman, told the company8217;s annual shareholder meeting on Wednesday.

Japanese companies, too, are flexing their muscles on the global scene, with Takeda splashing out for US biotech firm Millennium earlier this year and Daiichi Sankyo 4568.T: Quote, Profile, Research buying India8217;s Ranbaxy.

SHAKING UP SANOFI

8220;The large guys worldwide are looking really aggressively for assets wherever they can find them, and diversification is a strong theme,8221; said one banker, speaking on condition of anonymity.

The ousting of Gerard Le Fur as Sanofi8217;s CEO after less than two years in the job and the appointment of an outsider signals radical change inside a group that has suffered worse than most from an inability to get enough new drugs to market.

With shareholders demanding action, dealmaking is an obvious way forward.

8220;We see this option as a practicable way to shake things up quickly,8221; said Morgan Stanley analyst Andrew Baum.

Just what Viehbacher might decide to buy is less clear. A brief statement from Sanofi announcing his appointment on Wednesday highlighted overhauling drug research, growth in emerging markets and diversification as key priorities.

The last two both imply acquisitions, according to Amit Roy and colleagues at Citigroup.

French financial daily Les Echos reported that Sanofi was planning to diversify even more widely than most of its peers into health foods, vitamins and mineral supplements.

And Deutsche Bank analyst Michael Leuchten thinks a mega-merger could also be back on the cards for Sanofi, with its powerful chairman, Jean-Francois Dehecq, likely open to the idea.

Sanofi has long been tipped as a buyer for its US partner Bristol-Myers, which has a market value of around 43 billion.

RISK FOR INVESTORS

The risk for investors in all these cases is that drug company executives, desperate to reinvigorate anaemic sales, may end up overpaying.

Roche stock has been capped in the last two months by worries it will have to offer substantially more than 44 billion for the rest of Genentech, while Bristol-Myers fell on Wednesday on fears of a costly bidding war for ImClone.

In the case of Sanofi, Citi8217;s Roy said likely competition for assets with other pharmaceutical or consumer companies clearly raised the risk of overpayment.

So far, though, the biggest player in the pharmaceutical industry has been surprisingly quiet. Pfizer8217;s failure to buy another big rival has surprised many, given its need to find new products to offset the 2011 loss of US patent on its 13 billion-a-year blockbuster Lipitor.

The combination of growing generic competition, major research problems for particular drugs, and fears of a tougher U.S. regulatory and political climate mean drug stocks have been a poor investment overall this year.

Yet since June, the American Stock Exchange8217;s pharmaceutical index, which includes leading US and European companies, has outperformed the broader market by some 13 per cent as fears for the global economy have fuelled demand for defensive stocks.