After three years of solid outperformance, most firms on Wall Street that we cover remain very positive on biotechnology as a whole. The analysts at UBS are not only bullish on the sector, they think there is a very distinct possibility that some of the top names may also become takeover targets this year. With patent expirations always looming, many companies are unable to achieve enough organic growth to continue robust earnings growth. That is where an acquisition can really help.
Given the financial strength of the large-cap biotech and pharmaceutical companies and low interest rates, the UBS team thinks there is interest to acquire de-risked high-quality leveragable assets. They have split up their list into stocks that are acquisition candidates and stocks that could be, depending on outcomes and data.
Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) is a stock to buy at UBS and a potential acquisition target. The UBS analysts see likely accretive near-term to an acquirer given $1.5 billion revenues that are big enough to be significant to a bigger company. The UBS price target for the stock is $150. The Thomson/First Call estimate is posted at $136.48. Alexion closed Monday at $130.61.
BioMarin Pharmaceutical Inc. (NASDAQ: BMRN) is a top mid-cap to buy at UBS and a possible takeover target. The UBS team thinks that media speculation of big-pharma interest in BioMarin is likely related to the commercial success of the orphan drug model globally. Its diversified and expanding pipeline could also provide significant strategic value to acquirers. The UBS price target for the stock is posted at $76, and the consensus figure is $80.05. BioMarin closed Monday at $68.64.
Incyte Corp. (NASDAQ: INCY) is another Buy-rated name that could be in the sights of a larger company. In addition to its current validated approach in hematology-oncology, there is reason to believe the three wholly owned clinical-stage assets could drive several billions in revenue — something important for an acquiring company. The UBS price target is $74, and the consensus number is set at $51.71. Incyte closed Monday at $59.11.
Medivation Inc. (NASDAQ: MDVN) has a top prostate cancer drug that would be a valuable acquisition. Xtandi is a highly leverageable likely blockbuster product in prostate cancer, a very large market segment with potential upside in breast cancer. The partnership with Astellas suggests a natural buyer, but the UBS team thinks that third parties would also be interested. The UBS price objective for the stock is $74, and the consensus target is $71.59. Medivation closed Monday at $69.69.
The UBS report also lists five stocks that pending successful trial outcome and data presentations this year could become strong takeover candidates as well. They included Idenix Pharmaceuticals Inc. (NASDAQ: IDIX), Insmed Inc. (NASDAQ: INSM), InterMune Inc. (NASDAQ: ITMN), Puma Biotechnology Inc. (NYSE: PBYI) and Vertex Pharmaceuticals Inc. (NASDAQ: VRTX). All the stocks are Buy rated at UBS and could jump much higher with a takeover bid.
While it is impossible for any firm or analyst to guarantee that a stock will be acquired, the UBS biotech candidates all make sense. With fierce generic competition gobbling up the revenues from former patented drugs, large cap biotech and large cap pharmaceutical companies are anxious to broaden their pipelines as quickly as possible. In many cases a strategic purchase and acquisition is the easiest route to travel.