Health and Healthcare

Which Biotech Stocks Are Buyout Targets After Onyx Pharmaceutical Rejects Amgen?

On Friday after the market closed, biotech giant Amgen Inc. (NASDAQ: AMGN) made an unsolicited $120 per share bid for Onyx Pharmaceuticals Inc. (NASDAQ: ONXX) that was rejected. The company has now hired advisors to pursue other potential acquirers, and media reports suggest at least two other parties are interested. With its three approved drugs in oncology, the UBS A.G (NYSE: UBS) biotech analysts have long viewed Onyx as an attractive takeover candidate, and they make the case for a $150 bid for the company.

Their recent report on the Amgen bid also included a list of stocks that were used as valuation comparisons. All the companies have rising year-over-year sales between now and 2015. While the 2015 price-to-sales numbers varied from lower to higher than the Onyx numbers, it certainly made sense to us that any of these stocks, given their strong sales and pipelines, could be a viable takeover candidate.

Ariad Pharmaceuticals Inc. (NASDAQ: ARIA) gained early approval for its Leukemia drug Iclusig last year, and the shares actually traded down. Six months later the shares still remain below preapproval highs. The Thomson/First Call price target for the stocks is $28. A move to the price target would represent a 60% gain for investors.

BioMarin Pharmaceutical Inc. (NASDAQ: BMRN) had more than a quarter of a billion dollars in sales last year from its orphan drug Naglazyme alone. Orphan drugs are ones that are specially formulated to treat rare diseases and medical conditions. It is often easier to gain regulatory approval for such drugs. The consensus price target for BioMarin is $70.

Incyte Corp. (NASDAQ: INCY) has been targeted by short sellers and still has almost 30% of the float sold short. Incyte’s revenues come from three sources: product sales by the company itself, royalty revenues from net sales by its corporate partners (which are big pharmaceutical companies) and contract revenues from milestone/development payments from its corporate partners. The consensus price target for the stock is $26.50.

Medivation Inc. (NASDAQ: MDVN) was a featured stock to buy yesterday in our PropThink profile piece. The company recently has entered into phase 2 studies on its breast cancer drug Enzalutamide. The consensus price target for the stock is $68.

Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) has more than doubled in price in the past year, on large (and perhaps unsustainable) increases in both top and bottom lines. A good deal of future growth is already priced in, with investors having bid up the stock price to more than 30 times trailing earnings. Their products include injections to treat macular degeneration. The consensus price target for this top name is $290.

Seattle Genetics Inc.‘s (NASDAQ: SGEN) lead drug Adcetris (brentuximab vedotin) has been granted accelerated approval by the FDA for Hodgkin lymphoma after failure of autologous stem cell transplant (ASCT), or after failure of at least two prior multi-agent chemotherapy regimens in patients who are not ASCT candidates. The consensus price target for this stock is $36.50.

Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) has been a leader in hepatitis-C drug treatment. According to the Centers for Disease Control and Prevention, nearly 3.2 million people in the United States (about 1% of the population) are estimated to have a chronic version of the hepatitis-C virus, which is known as one of the silent killers because many of its symptoms go undetected. The consensus price target for Vertex is $92.50.

Many of the major pharmaceutical companies top branded drugs will be coming off patent protection in the next three years. This will allow generic competition to eat into the revenue streams these companies receive. One way for large cap drug companies to increase their product line and pipelines is acquiring another company. There is a good chance for Onyx bids much higher than Amgen’s rejected amount. There is also a very good chance other companies will become targets.

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