For Biotech Takeovers, Timing is Key

BOSTON (TheStreet) -- Yet another Vivus (VVUS) takeover rumor circulating through the market Tuesday got me thinking: When do most biotech and drug takeovers happen? Is it possible that Vivus -- which will hear from FDA in just 13 days about the approval decision for its weight-loss drug Qnexa -- could be right now in secret negotiations with a Big Pharma suitor?

Not likely if history is any guide. Biotech and small drug companies are rarely acquired immediately before or after a drug approval or even during the initial phase of a new drug launch.

An acquisition of Vivus now, with FDA's approval decision on Qnexa looming on April 17, would be an exception to the biotech takeover rule. The same likely applies to Arena Pharmaceuticals (ARNA) and Discovery Labs (DSCO), both of which are in a similar situation as Vivus and have been the subject of recent takeover speculation.

Looking back at past deals, biotech companies are typically acquired while experimental drugs are still in mid- to late-stage clinical trials; or well after a drug's approval when the commercial opportunity is more easily quantified.

Examples of the former include the most recent hepatitis C-focused takeovers: Roche (RHHBY) buying Anadys Pharmaceuticals, Bristol-Myers Squibb (BMY) for Inhibitex and Gilead Sciences (GILD) acquiring Pharmasset.

Other examples of deals where Big Pharma took out smaller biotech/drug firms to bolster their R&D pipelines include Johnson & Johnson (JNJ) buying Cougar Biotech, Amgen (AMGN) acquiring Micromet, GlaxoSmithKline (GSK) buying Sirtris and Pfizer (PFE) for Esperion Therapeutics. [The last two deals, of course, are examples where these speculative takeouts backfire big time.]

If an acquisition doesn't happen early, deals tend to come late. Eli Lilly (LLY) acquired both Icos and ImClone Systems only after the erectile dysfunction drug Cialis and cancer therapy Erbitux had years of sales in the books. Other examples of similar deals include Takeda buying Millennium Pharmaceuticals, Astellas buying OSI Pharmaceuticals and AstraZeneca (AZN) acquiring Medimmune.

I struggled to think of examples where Big Pharma or even Big Biotech swooped in to make an acquisition of a smaller company that had a drug either under FDA review or recently approved and in the early days of a commercial launch.

The only example I came up with was Forest Labs (FRX) buying Clinical Data weeks after the latter received FDA approval for its antidepressant Viibryd.

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