05 May Foreign biotech companies on U.S. buying spree
There is a “fire-sale” going on in the U.S. at the moment. As I sit here in New York attending the annual NanoBusiness Alliance conference, the city is mobbed with foreign tourists who find the U.S. dirt-cheap. Considering that New York probably is our most expensive city, you can imagine what the rest of the country must look like to these foreigners.
To get a little perspective, take a look at the five-year exchange difference from a number of different currencies around the world versus the dollar. Although I picked a five-year time period, a large change actually has taken place within the last 12 to 18 months.
Change in key currencies against U.S. dollar
|Currency||2003 Exchange Vs. Dollar||2008 Exchange Vs. Dollar||% Change|
Source: Yahoo Finance, May 4, 2008.
The Euro recently passed the $1.60 threshold, the pound the $2 threshold, the Swiss Franc the $1 threshold, and the Canadian dollar the $1 threshold before receding.
Over a barrel
Another key trend, the price of oil, is currently at $116 per barrel, having reached $120 per barrel, up from under $4 per barrel less than five years ago (+190 percent).
Another alarming figure is U.S. trade balance. According to the U.S. Census Bureau and the U.S. Bureau of Economic Analysis, the U.S. exported $1.628 trillion dollars in 2007. While these exports increased 13 percent over the 2006 level of $1.446 trillion (which is what one would expect if a currency such as the dollar gets cheaper against other major currencies around the world), the U.S. imported $2.337 trillion in 2007 versus $2.204 trillion in 2006, or an increase of six percent. The issue is that the U.S. had a trade balance deficit (more imports versus exports) of $709 billion for 2007, or almost $60 billion per month.
Unfortunately, this trade deficit has not gotten any better in 2008, with the February deficit at $62.3 billion.
The news gets worse when you look at the U.S. budget deficit (the government’s level of spending), which according to a USA Today article of May 5 is running at a level of over $400 billion a year (we had a surplus of $236 billion in 2000, and of over $100 billion in 2001. Obviously, things changed after 9/11.
So where am I going with this “doom and gloom” story? Well, as I started out the article, and as my focus is life science companies, the price tag for doing business in the U.S. market, the largest market in the world (with at least 45 percent market share), is getting cheaper and cheaper for foreign companies looking to set up shop here. In fact, the acquisition of an American company has rarely been cheaper.
As foreign life science companies from Japan, Europe, Israel, India, and Korea increase their globalization efforts, increasing their presence in the vast U.S. market has gotten cheaper. And they are even willing to pay a premium price for their activity.
In the news recently, Japanese companies have launched a number of initiatives:
Japanese pharma U.S. acquisitions
|Japanese Company – Acquirer||American Company Acquired||Date of Acquisition||Acquisition Cost|
|Takeda||Millennium Pharmaceuticals||4/08||$8.8 billion|
|Takeda||TAP Pharmaceuticals (50/50 JV with Abbott Labs)||4/08||$1.5 billion*|
|Eisai||MGI Pharma||12/07||$3.9 billion|
|Astellas||Dynogen Pharmaceuticals (renamed Urogenix)||3/06||N/A|
What has spurred Japanese acquisitions, in part, has been the slow growth of the Japanese pharmaceutical market. Although this market is the second largest national market in the world, with annual sales of over $60 billion (compared to the U.S. pharma market of about $250 billion), it declined in growth last year in part due to four percent price cuts by the Japanese government. Most Japanese pharma companies have mature product lines with a heavy reliance on products that have been in the market for more than 10 years, according to an article in BioPortfolio.
While the Japanese appetite for U.S. companies is clearly increasing (and they have the cash), none of this compares to the recent acquisition by Novartis, the Swiss Pharma giant, of American eye-care pharmaceutical company Alcon from the Swiss food behemoth Nestle for $39 billion.
Of course, there are many more foreign acquisitions of U.S. life science companies that I haven’t mentioned in this article, which would take pages to document, but you get the flavor of what I am saying – the “fire sale” of American life science companies continues. American companies like Bristol-Myers Squibb, with a market cap of $ 46.2 billion, Schering-Plough (valued at $30.6 billion), and Forest Labs ($10.7 billion) could look tasty to a number of foreign life-science companies, and American biotech looks downright cheap to these buyers!
See you soon!
Previous articles by Michael Rosen
• Michael Rosen: Globalization radically changing pharma, airlines, cars
• Michael Rosen: Biotech financing remains strong
• Michael Rosen: Canadian biotech: a profile of our northern neighbor
• Michael Rosen: A tale of two biotech cities: Chicago and Baltimore
• Michael Rosen: Get set because here come two Olympics, athletics and biotech
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. The article is not meant to be a stock recommendation.
The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC.
WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.