Piper Jaffray Sees Pharma M&A Activity Continuing
November 13, 2009 - The Wall Street Transcript has just published Pharmaceuticals Report offering a timely review of the Pharmaceuticals sector. This 76 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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David Amsellem is a Principal and Senior Research Analyst at Piper Jaffray who covers specialty pharmaceuticals. Prior to joining Piper Jaffray in 2008, Mr. Amsellem spent five years at Friedman Billings Ramsey, where he was a Senior Research Analyst covering small- and mid-cap pharmaceuticals from 2006 to 2008, and a Senior Associate on the biotechnology equity research team from 2003 to 2006. Mr. Amsellem was recognized as the number one-ranked analyst in North America for accuracy of earnings estimates in the pharmaceuticals sector in the 2008 Financial Times/StarMine "Best Brokerage Analyst" survey. He graduated from Cornell University with a bachelor's degree in industrial relations.
TWST: How is the economy affecting business? Is it creating a lot of upheaval?
Mr. Amsellem: I think it's created upheaval pretty much everywhere you look. I think that is the world that we're living in, at least for pharmaceuticals, is that managed care certainly is not nearly as generous as it has been in the past with reimbursement. So companies that are developing products that are not necessarily differentiated, that are more "me-too" type products, that are not necessarily addressing major unmet medical needs, are finding it more and more difficult to get adequate reimbursement. I think that's a function of escalating health care costs, and certainly the economy plays a role in that. So that's number one.
Number two is consumer behavior. I would argue that in the case of lifestyle drugs and even non-lifestyle drugs, where you're talking about treatments for diseases that are non-life-threatening, like depression or neuropathic pain, for instance. In those contexts, you have seen patients more sensitive to paying higher copays. In this economic environment, patients are looking to save more, and that is also an issue. So I think there has been some impact on prescriptions. Certainly, the reimbursement world has changed and for pharmaceuticals not for the better. That being said, I think those kinds of headwinds are largely reflected in the share prices of these companies. It is a big, overarching issue in terms of the multiples that these companies trade at.
TWST: Are acquisitions especially difficult today?
Mr. Amsellem: I think that M&A activity actually continues to be brisk. I think deals are getting done. Access to capital, at least recently, has not been an issue. I think there have been a number of offerings and there will continue to be a number of capital raises in the space. So I think that those kind of issues, the concerns over the credit markets, access to capital, I think those concerns have largely abated. I think we're seeing established companies being able to access capital.
TWST: What types of deals are you seeing?
Mr. Amsellem: I think there are deals that kind of fall all over the spectrum - ex-U.S. companies looking to gain a commercial footprint in the United States. A recent example of that is the Japanese pharma company Sumitomo, which recently announced that it's purchasing Sepracor for more than 2.6 billion. And that's an easy way for a deep-pocketed Japanese company to access a sales force so they can readily establish a commercial infrastructure here. That's one such example.
Certainly, we're seeing consolidation in Big Pharma. In terms of the mid- and small-cap companies, you are seeing more in-licensing and product acquisitions. Certainly, companies in my space, such as Forest (FRX) and Cephalon (CEPH) continue to be active in acquiring specific products, acquiring small companies to add to their pipeline. So I think that in the case of pharma M&A, activity is varied and it continues to be brisk.
Note: Opinions and recommendations are as of 10/09/09.
DAVID AMSELLEM
Principal & Senior Research Analyst
Piper Jaffray & Co.
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