28 Jan 2007: M&As and IPOs continue in the Midwest life science sector
2007 was a year of mergers and acquisitions that thinned the ranks of some of our most promising Midwest Life Science companies. MGI Pharma got acquired by the Japanese Pharma giant Eisai, and Dade-Behring, likewise, was acquired by German electronics and medical imaging giant Siemens. The Indiana medical device company Biomet also was acquired, and Abraxis Bioscience reconfigured itself becoming (or reconverting back to) APP Pharmaceuticals.
As you drive north from O’Hare airport towards Milwaukee and run through the heart of Chicago’s life science belt, gone already is the Dade-Behring name, replaced by the Siemens logo. At least Siemens decided to leave its growing diagnostics business in Chicago. In the case of Eisai, it remains to be seen what will happen with MGI Pharma, as most of Eisai’s U.S. operations are on the East Coast (MGI also has some operations in Baltimore as a result of its acquisition of the biotech company Guilford). Abraxis Bioscience deconstructed into two separate companies with the specialty generic injectables business becoming APP Pharmaceuticals and remaining headquartered in Schaumburg.
But it was not all about M&A: Monsanto soared on its agri-biotech business around the world coupled with the international push towards biofuels from key crops.
An interesting year to say the least, but let’s see what this meant in terms of stock performance. The end of the year melt-down affected everyone (or so one would think) if you were connected to either real estate or banks, which has further continued to suffer in the first few weeks of 2008. The U.S. banking crisis seems to be contagious, with the U.K. also suffering from the decompression of its real estate sector. The French crisis last week with Societe General, the venerable French banking institution, based on lack of trading controls (Baring redux), didn’t help matters.
The Dow Jones turned in a respectable performance for 2007 with six percent growth, with the NASDAQ National Index outperforming it. The various biotech indices underperformed both the Dow Jones and the NASDAQ in what was a volatile year for biotech (but a strong one in terms of raising money and doing deals with Big Pharma) but still showed growth.
Big Pharma’s turbulent times are reflected in the AMEX’s Drug Index outcome which shows a decline of two percent. It is probably going to get worse before it gets better for a number of Big Pharma companies over the next few years, unless you have a robust new product portfolio.
Let’s take a look and see what happened:
Midwest Life Science Large Cap Stock Performance – 2007
|Company/Ticker||1/1/07 Stock Price||12/31/ 2007 Stock Price||% Change (12 months)||Market Value (billions) (1/25/08)|
|Dow Jones Industrials||12,459.54||13,264.82||+6%||N/A|
|NASDAQ Biotech Index||802.82||834.96||+4%||N/A|
|AMEX Biotech Index||754.25||786.50||+4%||N/A|
|AMEX Drug Index||345.06||338.52||<2%>||N/A|
|1) Procter & Gamble (PG)||$63.72||$73.42||+15%||$202.8|
|2) Abbott Labs (ABT)||$48.83||$56.15||+15%||$86.7|
|3) Monsanto (MON)||$52.00||$111.69||+115%||$59.3|
|4) Eli Lilly (LLY)||$52.45||$53.39||+2%||$57.6|
|5) 3M (MMM)||$77.53||$84.32||+9%||$53.9|
|6) Medtronic (MDT)||$53.08||$50.27||<5%>||$52.2|
|7) Baxter International (BAX)||$46.50||$58.05||+25%||$38.7|
|8) Dow Chemical (DOW)||$40.00||$39.42||<1%>||$34.3|
|9) Walgreen (WAG)||$45.89||$38.08||<17%>||$34.0|
|10) Stryker (SYK)||$55.55||$74.72||+35%||$27.3|
|11) Archer Daniels Midland (ADM)||$32.28||$46.43||+44%||$27.1|
|12) Cardinal Health (CAH)||$64.18||$57.75||<10%>||$20.4|
|13) Zimmer Holdings (ZMH)||$78.78||$66.15||<16%>||$15.6|
|14) St. Jude Medical (STJ)||$37.97||$40.64||+7%||$14.3|
|15) Hospira (HSP)||$33.75||$42.64||+26%||$6.3|
|16) Sigma-Aldrich (SIAL)||$39.21||$54.60||+39%||$6.3|
|17) Stericycle (SRCL)||$75.50||$59.40||<21%>||$4.9|
|18) APP Pharmaceuticals(APPX)||$27.60||$10.27||<63%>||$3.6|
|19) MGI Pharma (MOGN)||$18.38||$40.53||+121%||$3.3|
|20) Perrigo (PRGO)||$17.40||$35.01||+101%||$2.8|
|21) Techne (TECH)||$55.50||$66.05||+19%||$2.4|
|22) Steris (STE)||$25.53||$28.84||+13%||$1.8|
|23) AllScripts Healthcare (MDRX)||$27.03||$19.42||<28%>||$.9|
Source: Yahoo Financial Page: Jan. 25, 2008
In spite of the year-end stock market meltdown, as Frank Sinatra used to say, 2007 was a very good year for most large cap Midwest Life Science companies with spectacular growth seen by companies such as Monsanto and ADM in the agricultural sector (the continued impact of biofuels as traditional fuel headed fro $100/barrel).
Acquisitions fueled some of the stock growth: MGI Pharma got acquired as mentioned above, and Perrigo went on a shopping spree. Hospira also went on a shopping spree and significantly increased its international business with a couple of key strategic foreign acquisitions.
Other companies just had good old solid growth from existing and new products and executed on their business: Abbott Labs’ Humira (for several diseases) broke the $3 billion/year sales barrier, making it Abbott’s largest product, and is headed for over $4 billion/year in 2008. As Miles White has oft said, Humira is a product pipeline in one drug.
All in all, 61 percent of the companies had very strong stock growth, bettering the Dow Jones Industrials performance.
Stock Price Leaders
Company % Growth
1. MGI Pharma, +121%
2. Monsanto, +115%
3. Perrigo, +101%
4. Archer Daniel Midlands, +44%
5. Sigma- Aldrich, +39%
6. Stryker, +35%
7. Hospira, +26%
8. Baxter International, +25%
9. Techne, +19%
10. Procter & Gamble, +25%
11. Abbott Labs, +15%
12. Steris, +13%
13. 3M, +9%
14. St. Jude Medical, +7%
Stock Price Laggards
Company % Growth
1. APP Pharmaceuticals, <63%>
2. AllScripts Healthcare, <28%>
3. Stericycle, <21%>
4. Walgreen, <17%>
5. Zimmer, <16%>
6. Cardinal Health, <10%>.
7. Medtronic, <5%>
8. Dow Chemical, <1%>
9. Eli Lilly, +2%
Unfortunately, as good as the stock leaders did, there were other company stocks that seriously tanked in 2007.
The separation of what was Abraxis Bioscience (after a merger less than a year earlier) into two separate companies, of which APP Pharmaceuticals is the one still headquartered in Chicago, was not well-received by the investor community.
Some of the medical device giants also had a tough go also in 2007. Eli Lilly is facing issues of patent exclusivity expiration.
Walgreen’s has been struggling lately as they have tried to roll-out their health clinics competing heavily against both Wal-Mart and CVS. There is also a lot of competition in the generic drug business given Wal-Mart’s initiative to provide a wide array of generic drugs to consumers for very low, fixed (and easy to remember) prices.
Obviously, all of the above does not reflect the further market melt-down in January (except the market caps). It is also an election year with serious ramifications for the pharma industry depending on which party comes into office.
One thing for sure is that the price of oil is not going to retreat much and there are predictions of seeing $200/barrel. While this trend does not augur well for the U.S. economy, it is very positive for those companies involved in any shape or form in renewable fuels, otherwise known as “bio-fuels,” such as Monsanto, ADM, Cargill, etc.
Although the IPOs of important Midwest biotech companies such as TomoTherapy and Nanosphere does not yet position them as large cap companies, the very large amounts of funding both these companies received is very encouraging for this sector.
Doubtless, it is going to be an interesting year!
See you soon!
Previous articles by Michael Rosen
• Michael Rosen: U.S. can learn from growth of biofuels in Latin America
• Michael Rosen: 2007: The best and worst of times for Big Pharma
• Michael Rosen: Combination therapy: Back to future or wave of future?
• Michael Rosen: Angel investing slows during first half of 2007
• Michael Rosen: University research and life science collaborations drive new approaches to disease
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. The article is not meant to be a stock recommendation.
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