Re­form spurs deal­mak­ing

Pro­vi­sions, clar­ity in law clear path for part­ner­ships

Modern Healthcare - - THE WEEK IN HEALTHCARE - Beth Kutscher

Nearly $7.1 bil­lion in new drug and de­vice deals are a har­bin­ger of things to come now that deal­mak­ers have more cer­tainty about the fu­ture of health­care re­form. The phar­ma­ceu­ti­cal, di­ag­nos­tics and med­i­cal equip­ment in­dus­tries have seen sev­eral new big deals. Last week, Hill-Rom paid $400 mil­lion to buy Aspen Sur­gi­cal Prod­ucts, whose prod­uct lines in­clude scalpels, spe­cialty nee­dles and other in­stru­ments and sup­plies used in oper­at­ing rooms.

That ac­qui­si­tion fol­lowed Glax­oSmithK­line’s sweet­ened $3.6 bil­lion of­fer for Hu­man Genome Sciences, pri­vate eq­uity firm TPG’s $1.9 bil­lion bid for Par Phar­ma­ceu­ti­cals, Steris’ $270 mil­lion play for US En­doscopy Group, and Thermo Fisher Sci­en­tific’s $925 mil­lion move on One Lambda.

While the deals them­selves—which in­clude some peren­nial tar­gets and ag­gres­sive ac­quir­ers—each had their own driv­ers, taken to­gether they show ev­i­dence of an in­creased ap­petite for tie-ups in the health­care space.

“I def­i­nitely see the logic of the ac­tiv­ity pick­ing up now,” said Alex Moro­zov, di­rec­tor of global health­care eq­uity re­search at Morn­ingstar. He added that last month’s U.S. Supreme Court de­ci­sion up­hold­ing the key el­e­ments of the Pa­tient Pro­tec­tion and Af­ford­able Care Act “re­ally lim­ited the un­cer­tainty.”

He pointed to, for in­stance, the con­tro­ver­sial med­i­cal-de­vice ex­cise tax, which now looks prob­a­ble and is no longer a ques­tion mark for the sec­tor.

Terry Hisey, vice chair­man and U.S. life sci- ences leader at Deloitte, also noted that clar­ity on re­form has paved the way for deals, such as the in­creased in­ter­est in com­pan­ion di­ag­nos­tics be­cause of pro­vi­sions in the law that ex­pand fund­ing for com­par­a­tive-ef­fec­tive­ness re­search.

“Some of the ques­tions that were out there have been an­swered and there’s less un­cer­tainty than there has been,” he said. “The transactions

“Some of the ques­tions that were out there have been an­swered.” —Terry Hisey, Deloitte

we’re see­ing are con­sis­tent with the ac­tions that we’d ex­pect them to be tak­ing.”

Of course, deal­mak­ing has al­ways been strong among phar­ma­ceu­ti­cal and biotech com­pa­nies, which rely on ac­qui­si­tions, li­cens­ing deals and part­ner­ships to plug holes in their pipe­lines.

Glax­oSmithK­line, for in­stance, has been pur­su­ing Hu­man Genome Sciences since April, when it first tabled a $2.6 bil­lion hos­tile of­fer. The two com­pa­nies also have a long his­tory as Glax­oSmithK­line is Hu­man Genome Sciences’ part­ner on its sole com­mer­cial­ized prod­uct, lu­pus drug Benlysta, as well as two com­pounds for heart dis­ease and type 2 di­a­betes.

That deal, as well as Bris­tol-My­ers Squibb’s $5.3 bil­lion bid to ac­quire Amylin, which was also an­nounced in the af­ter­math of the Supreme Court de­ci­sion, are both “some­what in­de­pen­dent of health­care re­form,” Moro­zov said.

Thermo Fisher, mean­while, is a “se­rial ac­quirer,” Moro­zov said, and the $925 bil­lion price tag for One Lambda, which makes transplant di­ag­nos­tics, is rel­a­tively small change for a com­pany with a $20 bil­lion mar­ket cap­i­tal­iza­tion.

“Noth­ing that Thermo is do­ing right now is any dif­fer­ent than it has been do­ing,” he said.

How­ever, Moro­zov cat­e­go­rized TPG’s pro­posed takeover of Par, a drug­maker that de­vel­ops spe­cialty phar­ma­ceu­ti­cals as well as hard-to-pro­duce gener­ics, as one of the more un­usual deals from the past two weeks. “We still haven’t fig­ured out what drove TPG,” he said. “We’re a lit­tle puz­zled by the value of the of­fer,” which rep­re­sents a 37% pre­mium over Par’s clos­ing share price the pre­vi­ous trad­ing day. Still, he noted, “Par has had a tremen­dous run over the past sev­eral years.”

A news re­lease an­nounc­ing the deal did not men­tion health­care re­form but gave a nod to the chang­ing health­care en­vi­ron­ment. Par “is po­si­tioned to ben­e­fit from the strong macro trends of a greater fo­cus on cost-ef­fec­tive health­care so­lu­tions and the in­creas­ing de­mands from an ag­ing pop­u­la­tion,” Todd Sisit­sky, a part­ner at TPG, said in the re­lease.

Hisey noted that pri­vate-eq­uity firms have gen­er­ally been hes­i­tant about in­vest­ing in phar­ma­ceu­ti­cal com­pa­nies, be­cause the prob­a­bil­ity of suc­cess is un­cer­tain and the time needed to see a re­turn on in­vest­ment of­ten ex­ceeds the length of time they typ­i­cally in­vest in a com­pany.

But he expected buy­out firms to take a look at other parts of the ther­a­peu­tic space. “I think there’s a bet­ter chance of pri­vate eq­uity get­ting in­volved in med­i­cal tech­nol­ogy,” he said.

Moro­zov noted that while the tim­ing of these par­tic­u­lar deals may be co­in­ci­den­tal, col­lec­tively they speak to a some­what brighter out­look for the space.

“We are see­ing a lit­tle bit of uptick in health­care uti­liza­tion,” he said. “The growth prospects are look­ing a lit­tle bit bet­ter.”

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