MICHEL DE ROSEN (CEO, Viropharma): Some companies do deals with the focus on net income. Other deals focus on stock price. A deal may sometimes have no—at least
immediate—accretive impact on your bottom line, but your P/E will change positively. I remember going through that kind of
experience in the 1990s, when I was CEO of Rhône-Poulenc Rorer and it acquired Fisons in England. We did a reasonable deal,
not a great one, but the Street got excited because it showed we were a player, and our stock price went up.
Michel De Rosen, Viropharma
TONY FARINO (US life sciences advisory services leader, PricewaterhouseCoopers): Some deals have been less than successful because many companies make decisions without understanding how the market—meaning
payers—will assess and value the innovation. This partially explains why several compounds introduced over the last 10 years
haven't met market potential. Companies are realizing that innovation cannot be defined just in the lab. It has to be defined
in the marketplace.
BREITSTEIN: Given pharma's pipeline, why haven't there been more deals?
ANNETTE GRIMALDI (managing director, life sciences, Jeffries & Co.): M&A activity was quite strong in 2006, a little less according to the statistics in 2007, but still on pace. I think the
IPO market has impacted that.
Annette Grimaldi, Jeffries & Co.
Most people see M&A as something that is countercyclical with the public market. But in my experience, it's often been the
opposite. For companies to combine, they both need to be happy with their valuations at that point in time. What tends to
happen is that, rather than sell themselves when the market is difficult, biotechs tend to do small, unhappy, diluted financing
to tide them over until a more opportune time.
DE ROSEN: There are many reasons for the lack of deals: One is that what is for sale is not good enough and what is good enough is
not for sale. Other issues include price; social or government issues; and the clinical, scientific, and regulatory uncertainties
that make it very difficult to predict if the product will become huge or be a zero.
There's also this tension between the critical mass companies want to build and the focus they want to keep. It is sometimes
tempting to combine a company that is focused on one area with a company that is focused on another, but very often, it does
not make sense. And then there are the huge egos.
In recent years, there's also been too much money available. When a lot of money is available, companies don't need to combine.
It seems likely to me that in 2008, and maybe onwards, there will be less money available and, therefore, more pressure on
companies to combine than there was before.
GARTIN: There's also a low personal appetite for risk. There is very little down side in not doing a deal. If you don't pull the trigger on spending money, you don't get fired if the company does well and you have
not bought it.
WALL STREET PERSPECTIVE
BREITSTEIN: Wall Street typically has a short-term perspective. How does that impact deals?
DE ROSEN: When my company was looking to acquire a drug called Vancocin, we had difficulty in raising money—people on the Street were
skeptical. It was only after six months that they saw that it was a good deal. The point is, you can't judge after one day,
one week, one month. You need one or two years to know.