Ten Top Biotech Merger and Partnership Candidates

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One of the ways the big pharmaceutical and biotechnology firms grow their business is through partnerships and acquisitions. That was never more in focus than Thursday when Pfizer lost its patent appeal on one of its top-selling drugs. The company, which is the world’s biggest drug maker, faces competition to its $3 billion arthritis pill Celebrex in May, after a federal judge invalidated a patent that would have extended protection through December 2015.

Not all firms face the loss of such a top-selling drug, but those without the safety net of strong pipelines often go the route of partnership or straight out acquisitions if their organic growth is faltering. In a new research report, the boutique biopharma shop Leerink highlights 10 top names that are strong candidates for a partnership or acquisition. Beyond prospectively identifying partnerships and acquisitions at a higher rate than the universe as a whole, each of the past top 10 portfolios and acquisition target portfolios they have released have significantly outperformed the broader markets, and three of four have outperformed the biotech sector in the 18 months following publication. In other words, this firm knows what they are talking about.

Here are the top 10 biopharma partnership and acquisition candidates from Leerink for 2014.

Alkermes PLC (NASDAQ: ALKS) is a top name that many on Wall Street for years have thought to be an acquisition target. The company was confident that its long-acting version of Ablify, which is currently in Phase 3 trials, would be approved by the U.S. Food and Drug Administration (FDA). The plan is to submit the new drug application in the second half of this year. The Thomson/First Call price target on the stock is $49.30. The stock opened Friday at $45.25 a share.

Akorn Inc. (NASDAQ: AKRX) recently delivered revenue growth of 19% to $85 million, which was driven primarily by new products launched in late 2012 or the beginning of 2013. Its adjusted profit rose more modestly, to $0.14 per share from $0.13 in the year-ago period, as gross margin dipped 340 basis points to 55.3%. The forward guidance was below Wall Street estimates and the stock was hit hard. This may give investors a great entry point. The consensus price target is $27.43. Akorn opened Friday at $22.56.

Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL) has also been often mentioned as a solid takeover candidate. Its Testim drug is a proprietary, topical testosterone replacement therapy gel FDA approved for the treatment of male hypogonadism. Since its launch in the spring of 2003, Testim has steadily gained market share from entrenched competition via the company’s increased 150-person sales and marketing organization in the United States. The consensus price target stands at $32.31. The stock opened Friday at $29.04.

Cubist Pharmaceuticals Inc. (NASDAQ: CBST) has used acquisitions to bolster its outstanding portfolio of antibiotic drugs over the years, and now the company could be a target. It also has four Phase 3 pipeline products in development, which could boost sales and earnings dramatically. If the Phase 3 trials for CXA-201 prove successful, many Wall Street analysts see a large potential upside from current valuation. The consensus price objective is $79.88. Cubist opened Friday at $76.51.

Hospira Inc. (NYSE: HSP) is the world’s leading provider of injectable drugs and infusion technologies, and a global leader in biosimilars. Through its broad, integrated portfolio, Hospira is uniquely positioned to advance wellness by improving patient and caregiver safety while reducing health care costs. This could easily be a big pharmaceutical company target. The consensus price target is $42.40, and the stock started the day at $42.09.

Jazz Pharmaceuticals PLC (NASDAQ: JAZZ) expects adjusted earnings for 2014 in the range of $8.00 to $8.25 per share. The guidance excludes share-based compensation expense, which is expected in the range of $65 million to $70 million. The consensus estimate currently stands at $7.76 per share. The company will submit a supplemental biologics license application to the FDA later this quarter to allow intravenous administration of Erwinaze. Another study for the use of Erwinaze in adolescents and young adults with acute lymphoblastic leukemia, who are hypersensitive to E. coli-derived asparaginase, is expected to commence enrollment by second quarter 2014. The consensus price target for this top name is $182.89. Shares started Friday at $148.55.

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 UBS analysts think that third parties would also be interested. The consensus target is $92.16. Medivation opened Friday at $68.30.

NPS Pharmaceuticals Inc. (NASDAQ: NPSP) could have a solid year. CEO Francois Nader told Wall Street analysts to expect an FDA advisory panel to be held for their leading drug candidate Natpara before the October Prescription Drug User Fee Act (PDUFA) date. If the panel is positive and the drug is approved, NPS will be ready to launch the drug before the end of the year. NPS also is gearing up to start a Phase 2a study of NPSP790 in autosomal dominant hypocalcemia later this year. This is what an acquiring company may be looking for. The consensus price target is $43.50. NPS opened Friday at $33.13.

Salix Pharmaceuticals Ltd. (NASDAQ: SLXP) develops and markets prescription pharmaceutical products and medical devices for the prevention and treatment of gastrointestinal diseases. Salix’s strategy is to in-license late-stage or marketed proprietary therapeutic products, complete any required development and regulatory submission of these products, and commercialize them through the company’s 500-member specialty salesforce. The consensus price target is $113.06. The stock opened $109.33 on Friday.

United Therapeutics Corp. (NASDAQ: UTHR) develops and commercializes products to address the unmet medical needs of patients with chronic and life-threatening conditions worldwide. Its lead product Remodulin is an injection used for the treatment of pulmonary arterial hypertension (PAH). The company also provides Tyvaso, an inhaled prostacyclin therapy, and Adcirca, a once-daily oral therapy for the treatment of PAH. Cowen analysts think that Remodulin sales can increase significantly as physicians will be very hesitant to use generics. The consensus price target is $113.06. Shares opened Friday at $94.52.

The Leerink top 10 partnership and acquisition candidate portfolios have been outstanding over the years. While most investors cannot add all the stocks, a select few of the names may be a great addition for portfolios with very high risk tolerance. While many of these are far from start-up classification, they are not suitable for most conservative portfolios.