Biotech Stocks Will be Fueled by Takeovers in 2011

While a number of companies are on the verge of hitting the market with exciting new drug products or medical treatments, the biggest 2011 profits for investors in the biotech stocks are more likely to come from mergers and acquisitions �(M&A) than research and development (R&D).

That's because mergers and buyouts in the industry have far outpaced the sector's overall growth rate, which in recent years has been sluggish. Indeed, IMS Health, a leading research and analytical firm serving the pharmaceutical and medical industries, projects only a slight increase in worldwide growth in 2011 - 5% to 7% versus a pace of 4% to 5% this year - with a similarly restrained outlook stretching out to 2015.�

By contrast, virtually every major player in pharmaceuticals worked at least one M&A deal in 2010. That trend is expected to continue, if not accelerate, in the years ahead as drug companies look to broaden product lines, replace revenues lost to patent expiration and expand into emerging markets, where the industry growth rate is much higher in than in the developed nations.

It's also much more economical for big companies to acquire potential new "blockbuster" drugs - those with an annual market potential of $1 billion or more - by buying smaller specialized firms with products already well along in the development "pipeline" than it is to fund the prolonged research, testing and approval process from scratch. A few examples of recent major buyouts include:

• Johnson & Johnson's (NYSE: JNJ) buyout of California-based medical-devices maker Micrus Endovascular Corp.; its agreement to acquire all rights to Elan Corporation's (NYSE: ELN) Alzheimer's Immunotherapy Program (AIP); and its September announcement of intent to complete acquisition of Crucell NV, a Dutch firm� specializing in the discovery, manufacture and commercialization of vaccines.
• Pfizer Inc.'s (NYSE: PFE) announced acquisition of King Pharmaceuticals Inc. (NYSE: KG) in order to boost its position in the pain-management market.
• Bristol-Myers Squibb Co.'s (NYSE: BMY) $2.4 billion buyout of Medarex Inc., a specialist in manufacture of antibody-based drugs, in a bid to broaden its research into treatments for cancer and immunologic conditions such as arthritis, lupus and psoriasis.
• Abbott Laboratories' (NYSE: ABT) April acquisition of Facet Biotech Corp., a developer of drugs to treat various types of cancer, including chronic lymphocytic leukemia.