Thursday, December 17, 2009

2009 M&A/Alliances DOTY Nominee: Abbott/Solvay and the Foreign Cash Dilemma

It's time for the IN VIVO Blog's Second Annual Deal of the Year! competition. This year we're presenting awards in three categories--that's 300% more fake prizes than last year!--to highlight the most interesting and creative deal making solutions of the year. The categories are: Big Pharma Deal of the Year, M&A/Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (roughly half a dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

We'll admit it. Abbott's $6.6 billion acquisition of Solvay's pharmaceutical unit doesn't have the same level of drama as, say, Halle Berry's performance in Monster's Ball. Or to put it into the perspective of our own Race for the Roger, even the show of Johnson & Johnson's swan dive into Alzheimer's disease with its 18% stake in Elan.

But there's a conundrum floating around Big Pharma halls these days that makes the move by Abbott seem pretty strategic, DOTY-worthy even. That is: how to spend the billions of dollars held outside the US before the Obama administration decides to crack down on a tax deferral for multinationals.

All in all, the buyout follows a pretty straightforward plot line, but the clincher to the story is this: Abbott is buying the Belgian drug unit with cash, most of which is coming from overseas.

It's a smart use of those funds since repatriating it would subject it to a hefty 35% tax. And while multinationals sidestepped a withdrawal of the overseas tax deferral by the Administration earlier this year, some in the industry still think the axe could fall (think Kathy Bates in Misery), next year when the budget review comes around.

Abbott's decision to buy Solvay isn't just about spending ex-US cash though. The drug maker also adds more than $3 billion to its top line and gains full control over the blockbuster TriCor/TriLipix dyslipidemia franchise, a business Abbott has big plans for. The company is developing Certriad, a fixed-dose combination of TriLipix and the statin Crestor, under a partnership with AstraZeneca. The addition of Solvay's drug unit also extends Abbott's geographic footprint, adds a branded generics business and provides entry into vaccines. (Ooh, diversification.)

Management didn't have much trouble selling the deal to investors, given the short-term gains. But the acquisition does little to address the holes in Abbott's pipeline. The major drugs in development at Solvay are pardopronox in Phase III development for Parkinson's disease, Duodopa, an L-dopa suspension system for advanced stage Parkinson's disease and gabapentin GR, an extended-release form of gabapentin (Pfizer's Neurontin and generics) for neuropathic pain and post-herpetic neuralgia.

How the buyout will play out over the long-term remains to be seen. But Abbott chief executive Miles White has impressed us before. Abbott's $3.7 billion buyout of Kos in 2006 added Niaspan and Simcor just before Pfizer's next-big-thing torcetrapib blew up, and with the $6.9 billion acquisition of Knoll in 2001, Abbott gained Humira, a drug that today generates more than $4 billion a year. Now that's what we call foresight.

DOTY isn't a Lifetime Achievement Award. But maybe it is time to stop doubting.

image by flickr user GazH used under a creative commons license.

1 comment:

Anonymous said...

Good work on blog, how do you think deal will pan out for employees of Solvay?