Sepracor In Sights of Big Pharma

Analysts have recently speculated that publicly traded Sepracor may be a target of acquisition for either Pfizer or Schering-Plough. Sepracor sells sleep medication, Lunesta, and asthma drug, Xonepex. Buyout speculation has driven Sepracor’s market cap to just over $6B, which is relatively affordable for most major pharmaceutical companies.

Although Sepracor may provide Pfizer or Schering-Plough with an earnings benefit, there are a number of risks associated with the potential deal. Generic drug makers are challenging Xonepex’s patents, while sleep product Ambien from Sanofi-Aventis loses patent exclusivity towards the end of the year, which may hurt Lunesta growth.

Further fueling acquisition speculation, Pfizer recently terminated its partnership with Neurocrine Biosciences on Indiplon after the sleep drug only received an approvable letter from the FDA. This week, Pfizer sold its over-the-counter business to Johnson & Johnson for almost $17B. In addition to buying back shares, Pfizer has stated that it intends to make a number of acquisitions with this cash in hand.

As I have alluded to in previous posts, major pharmaceutical firms will likely continue to look for acquisitions to fill their product pipelines. For the first half of the year, global M&A volume was the highest it has ever been, and the current trend does not appear to be slowing down. European CEOs have expressed interest in doing even more deals in the remaining half of the year. It will be interesting to see what other smaller specialty pharmaceutical and biotechnology companies will be targets.

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