Health and Healthcare

3 Specialty Pharma Stocks That Could Be Acquired in 2015

If there ever was a perfect storm for large pharmaceutical and big-cap biotech companies to make acquisitions to enhance growth it is now. The sheer size and pace of the current deals is staggering, and this year looks very likely to top 2014, when there were 45 transactions that came in at $114 billion. We are not even half way through the year, and already there have been 16 transactions, which came in at $99 billion.

A new report from Jefferies points out that all the ducks are lined up for acquirers: super-low interest rates, an abundance of cash to do all-cash deals and a race among companies to secure the lowest tax rate via inversion deals. While the new Treasury rules are designed to discourage such deals, the Jefferies team sees more to come. With many deals immediately accretive, there are surely more buyouts on the way, and maybe soon.

We screened the Jefferies list of specialty pharmaceutical companies that had the largest market cap and were rated Buy at the firm. Obviously, they would be the most expensive, but they also could perhaps bring the most to the table for a buyer.

It turns out that Valeant Pharmaceuticals International Inc. (NYSE: VRX), Shire PLC (NASDAQ: SHPG) and Perrigo Co. PLC (NYSE: PRGO) were the focal points of the report. We have shown each of the “why” rationales on these. Also included are partner companies and price target information from Jefferies.

While none of these deals can be assured by Jefferies, nor by anyone else, 24/7 Wall St. would point out that many mergers and acquisitions in biotech and specialty pharmaceutical companies occur at prices that are far above one-year price targets. The reason is simple: the selling company’s board of directors has to maximize shareholder value, and a buyout today has to almost always do more than just discount the news and upside of just the next year that the company would have had on its own.

Valeant Pharmaceuticals

Jefferies views this stock as the ultimate tax inversion deal, with its low 5% tax rate. Valeant Pharmaceuticals International Inc. (NYSE: VRX) develops, manufactures and markets pharmaceuticals, over-the-counter products and medical devices worldwide. It has an extensive list of products that treat everything from severe acne to Wellbutrin XL for major depressive disorder in adults; Jublia for onychomycosis of the toenails; Xenazine for chorea; Targretin for cutaneous T-cell lymphoma; Arestin, a subgingival sustained-release antibiotic; and Provenge for the treatment of prostate cancer.

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With attractive cash pay, strong ophthalmic and dermatological businesses, and a growing footprint in emerging markets, this is a very strong candidate for a deal. We noted recently that insiders are also buying the stock.

The Jefferies price target for the stock is $246. The Thomson/First Call consensus target was unavailable. Shares closed Friday at $238.77.


This stock may be the specialty pharmaceutical giant that is at the top of big pharma’s list. Shire PLC (NASDAQ: SHPG) is one of the Jefferies analysts’ top picks in specialty pharmaceuticals. The stock was absolutely destroyed back in the fall when AbbVie made it clear with tax inversion benefits gone that it wanted out of the planned acquisition of the company.

Shire repositioned its business two years ago, undertaking a realignment program with strategic focus on rare diseases and greater operational discipline. Shire has drugs for ulcerative colitis and hereditary angioedema in its portfolio. It also has the top selling Adderall XR for the treatment of ADHD.

While the company is being challenged on Lialda and Gattex patents by hedge fund manager Kyle Bass. According to filings, together they would have made up approximately 12% of Shire’s revenue in 2014. Yet, such challenges can take time, and despite the headline risk, the stock remains a solid buy.

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The Jefferies team hosted the chief executive and chief financial officer recently, and they came away feeling that odds of Lifitegrast approval are high, and if approved the new drug could be a $1 billion global brand.

Shire investors are paid a modest 0.4% dividend. The Jefferies price target is $284, while the consensus target is $274.27. Shares closed trading Friday at $260.15.


With 70% market share in store brand over-the-counter products and very profitable Tysabri royalties from Biogen, the company would be a solid and accretive addition. Perrigo Co. PLC (NYSE: PRGO) develops, manufactures and distributes over-the-counter and generic prescription pharmaceuticals, nutritional products and active pharmaceutical ingredients, and it receives royalties from multiple sclerosis drug Tysabri.

Perrigo is the world’s largest manufacturer of over-the-counter health care products for the store brand market and an industry leader in pharmaceutical technologies.

Numerous Wall Street analysts feel that company remains well positioned in store brands and in its generic niche. The earnings model most analysts are using assumes monetization of the Tysabri royalty stream at the end of this year (which may or may not happen).

Perrigo shareholders are paid a small 0.5% dividend. The Jefferies price target is $203, and the consensus target is $197.38. Shares closed on Friday at $190.30.

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While these three would all be monster deals with big price tags, they would also be a huge boost to which ever company buys them. While it would take deep-pockets to purchase any of them, big pharma and big biotech have the firepower to do it. Again, those one-year price targets are often blown away when companies start making acquisitions.

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