Private equity plus Big Pharma carve-outs equals gold? Well, maybe

Private equity firms are sitting on a record amount of unspent cash--$1.2 trillion by some estimates. At the same time, Big Pharma companies are looking to cast off off-patent drugs and other old products. Could that make a match?

Possibly so. Some private equity bigwigs are looking to the pharma sector for opportunities to take those tired drug portfolios and quickly turn them into valuable assets that they can sell or take public. 

Big Pharma has already seen one private equity deal this year--Carlyle Group's $4 billion purchase of Johnson & Johnson's ($JNJ) Ortho Clinical Diagnostics unit. When J&J put the unit up for sale in January, CEO Alex Gorsky told investors that the transaction was designed to tighten up the company's product portfolio and maximize shareholder value.

Still, some on Wall Street have doubts that private equity firms will find the secret sauce to turn tired pharma products into gold. "You're buying a sparkler that's halfway burned," Morningstar analyst Debbie Wang told Reuters recently. "It's going to burn out soon, and that's my question for private equity--how quickly can they make the proper portfolio changes?"

In fact, some private equity firms have already faced challenges when they've tried to cash out of their purchased pharma assets. In 2008, TPG capital bought Aptalis Pharma (then called Axcan) for $1.3 billion and combined it with Eurand in a deal worth $590 million. Last year, TPG struggled to find a buyer for the company, so it filed to take Aptalis public. Finally in January, Forest swooped in and bought it for $2.9 billion--just shy of the $3 billion TPG was hoping to get.

Sanofi CEO Chris Viehbacher

No doubt private equity firms will find plenty more opportunities to take assets off Big Pharma's hands. GlaxoSmithKline ($GSK), Merck ($MRK) and Sanofi ($SNY) are among the companies that have made it clear they're looking to offload mature product portfolios.

Sanofi CEO Chris Viehbacher, for one, has been quite vocal about his intention to steer clear of megamergers and instead look for ways to maximize the value of his company's older products. In April, word emerged that the company had hired adviser Evercore Partners to market a portfolio of Sanofi's mature drugs, which experts estimate could fetch twice as much as the $3.7 bilion in annual sales the products generate.

- here's the Reuters story