Drugmakers, let's make a deal

Drugmakers spent much of 2008 hooking up with competitors, partners and biotech upstarts. Credit markets allowing, they’ll continue to make deals this year. In fact, the pace of buyouts is likely to increase, experts tell us, because several big drugmakers are sitting on piles of cash, while acquisition targets have seen their prices erode and erode some more. Cheap prices plus ready money, in their view, equals M&A.

And then there’s the undeniable fact that Big Pharma pipelines still need an infusion of drug candidates--and small biotech companies are becoming their go-to source for them. “The No. 1 drive of why we think there are going to be more deals is the patent cliff that is beginning to drive the industry starting around 2011,” a Moody’s exec has said.

Chief purchasing suspects include Pfizer, with its $26.2 billion in cash and short-term investments, plus $14.8 billion in free cash flow. And then there’s Novartis, which boasts $16.2 billion in cash and short-term investments. All told, nine of the biggest U.S. drugmakers had a combined $105 billion in cash and investments as of June 30, and while that cache might have shrunk a bit since, there’s still billions of dealmaking money available.

Roche, of course, still has its $43.7 billion offer on the table for Genentech. GlaxoSmithKline said in October that it’s giving its stock buybacks a rest so it can keep its cash free for buyouts. Bristol-Myers Squibb, which lost ImClone Systems to rival suitor Eli Lilly, says it has a list of companies it’s interested in. Bayer says it’s on the prowl.

Notwithstanding all that pharma cash, at least some deals--Roche’s outstanding offer included--will depend at least in part on financing. So this year we’ll be keeping one eye on the markets and the other on the news wires. The latest on pharma deals could come from either place.

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