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M&A Bonanza For Drug & Biotech in 2011 (MRK, PFE, ALXN, DNDN, HGSI, CEPH, UTHR, CADX, AMAG, SNY, GENZ, AMGN, BEC, TEVA, SGMO, LLY, ALTH, CBST, VVUS, AUXL, VRTX)

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The game of predicting mergers and acquisitions in the biotech and in pharma sectors is not a new one.  The talk heats up, then it dies down.  A deal comes, followed by another deal, and the activity goes quiet.  This next week is likely to have at least more chatter in the biohealth sector for possible mergers and acquisitions after Barron’s gave a cover story called “The New Doctor in the House: Consolidation.”

Barron’s noted that “as big drug firms buy up smaller, specialty outfits and their most innovative products, better pipelines and sales-force efficiency will boost profits.”  Here is the thing to consider: Barron’s did not really offer anything new or ground-breaking this weekend.  It will have rekindled some hope that M&A is coming in the space.  At issue: pipeline fatigue.  A note we’d throw in as well, dead-dead stocks.  We are going to at least address some of the Barron’s roster, but we want to show you many others which are just as or even more likely acquisition targets.  Some of ours have even been in-play before.

Barron’s threw in Merck & Co. (NYSE: MRK) and Pfizer, Inc. (NYSE: PFE) as the largest of the Big Pharma players and it threw out biohealth names with stock-market values below $10 billion:

  • Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) with a $7.5 billion value after a hueg run-up;
  • Dendreon Corporation (NASDAQ: DNDN) for Provenge for prostate cancer (and future cancers) with a $5 billion market value today;
  • Human Genome Sciences, Inc. (NASDAQ: HGSI) for its Benlysta in patients with severe active lupus nephritis and CNS lupus and a $4.5 billion market cap;
  • Cephalon, Inc. (NASDAQ: CEPH) is one we have rarely looked as since things quieted down there;
  • United Therapeutics Corporation (NASDAQ: UTHR) for its treat pulmonary arterial hypertension and an almost-$4 billion value;
  • Cadence Pharmaceuticals Inc. (NASDAQ: CADX) was noted for its pain medication without the addiction aspects of morphine and its value is only $369 million;
  • AMAG Pharmaceuticals, Inc. (NASDAQ: AMAG) was called a value stock despite its recent weak sales and despite its cash burn with a $368 million market cap.

Much of the biotech M&A game hinges on Sanofi-Aventis (NYSE: SNY) in its chase to acquire Genzyme Corporation (NASDAQ: GENZ).  The latest talk is that a work-out could come to $80 all-in if certain milestones were achieved but the deal is still south of there officially.  As noted above, we have our own opinions on which biotech companies and drug companies could find their way into the hands of a larger acquirer.

Amgen Inc. (NASDAQ: AMGN) is likely to continue being an acquirer.  The company recently announced a deal worth potentially $1 billion to acquire privately-held BioVex.  Last year the company said it was aggressively looking for new targets and its $52 billion market cap is the largest of all the independent biotechs in America. The company has more tricks up its sleeve.

Beckman Coulter Inc. (NYSE: BEC) went into play in early December with private equity firms being the likely acquirers of the portfolio of biomedical testing equipment and supplies.  We argued at the time of the premium that it seemed shares fully reflected that value, and shares are actually lower now.

And don’t forget Sangamo Biosciences Inc. (NASDAQ: SGMO), where shares rallied in November on rumors of a potential bid interest from Eli Lilly & Co. (NYSE: LLY).  It had good news on ZFP Therapeutic program to develop SB-509, a zinc finger protein transcriptional activator (ZFP-TF) of the vascular endothelial growth factor (VEGF)-A gene as a treatment for ALS and the news flow has continued to propel shares higher.  It went above $4.50 on the rumors but now shares trade at $7.39.  The market cap is still low here at $334 million.

Allos Therapeutics, Inc. (NASDAQ: ALTH) has been another name floated out there for M&A possibilities, but things are looking less and less bright for the company.  Shares hit a 52-week low just on Friday.

Cubist Pharmaceuticals Inc. (NASDAQ: CBST) has not really gone anywhere as it is deemed a mature company, but it is one we thought for sure that would find its way into being part of a larger company.  Its Cubicin is on the market and it fights severe hospital-induced infections and the market cap is $1.3 billion here.

VIVUS Inc. (NASDAQ: VVUS) remains a wild card due to the FDA.  Diet and weight-loss pills have not been given any real love by the FDA.  The exception here is that Qnexa does have serious benefits.  There are side effects, particularly in cases of pregnancy.  We would ask this though: How many pregnant and soon-to-be-pregnant women really diet?  Most doctors don’t even want pregnant women taking supplements, let alone drugs.  IF the FDA approves Qnexa, that $680 million market cap may be worth far more.

Teva Pharmaceutical Industries Limited (NASDAQ: TEVA)… We have also noted Teva’s mega-cap ambitions, and making more acquisitions would generally get there.

Last year, Morningstar put out a list of three favorites that it sees as acquisition targets in the biohealth space: Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL), Human Genome Sciences Inc. (NASDAQ: HGSI), and Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX).  FULL ARTICLE

This should at least give you a better and more concise list of possible deals and deal-makers for 2011.  Just remember this, regardless of what Barron’s or other media outlets try to tell you: not all biotechs have to be acquired, not at all.

JON C. OGG


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