Healthcare Economy

More Big Drug & Biotech Mergers Likely (SNY, AMGN, BIIB, GENZ, BSX, JNJ, HGSI, DNDN, AUXL, VRTX, AMLN, LLY, WCRX, CBST)

Jon C. Ogg

Sanofi-Aventis SA (NYSE: SNY) was a bit of a stalking horse news item on a week that many investors and traders started taking off for a long weekend.  The company has tried to telegraph the possibility of making several U.S. acquisitions.  To make matters worse, or perhaps just more interesting, the company said that one or two of those deals could be worth at least $15 billion.  Some stocks with the market caps of $5 to $15 billion rallied, but many names in the go-to arena are still very much considered down and out stocks.  If this sounds like a double-take from Amgen Inc. (NASDAQ: AMGN), it is close to the truth.  Amgen said in the middle of June that it is aggressively looking for acquisition targets on an international diversification basis.

Some names pondered for potential deals or that could also be “partnering” deals are as follows: Biogen Idec Inc. (NASDAQ: BIIB), Genzyme Corp. (NASDAQ: GENZ), Human Genome Sciences, Inc. (NASDAQ: HGSI), Dendreon Corp. (NASDAQ: DNDN), Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL),  Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX), Amilyn Pharmaceuticals, Inc. (NASDAQ: AMLN), Eli Lilly & Co. (NYSE: LLY), Warner Chilcott plc (NASDAQ: WCRX), Cubist Pharmaceuticals Inc. (NASDAQ: CBST), and even the crazy Boston Scientific Corporation (NYSE: BSX).

Biogen Idec Inc. (NASDAQ: BIIB) once put itself up for sale, but nothing happened.  Carl Icahn said it was a dud of an effort.  For a larger firm that is willing to look past the PML issues of TYSABRI as a treatment for MS, Biogen is the king of MS drugs.  The shares are seeing some profit taking with a drop of 1.4% to $48.71 and the 52-week range is $41.75 to $60.28.  As far as the market cap, that is $13 billion today.

Genzyme Corp. (NASDAQ: GENZ) is now interesting with a $13.6 billion market cap after a 3.5% slide today to $50.95 and a 52-week range of $45.39 to $60.15.  The company’s great growth model was sharply interrupted after its recent continued manufacturing woes.  Its Fabry drug now has been allowed to get even more competition due in part to those manufacturing woes.  Still, buying Genzyme would be a coup for a large drug company wanting a growth franchise.  The risk is that Genzyme might not be able to sell even if it wanted to… it was an $80 stock in 2008, and anything south of $60 still punishes most share buyers who have held since 2005.

Two out of the ordinary names which could have been bought for a song in the past that would require huge premiums today are Human Genome Sciences, Inc. (NASDAQ: HGSI) and Dendreon Corp. (NASDAQ: DNDN).  Both are possibilities, but both have risks associated with being an acquirer at this stage.  Human Genome has a $4.1+ billion market cap, but its prized BENLYSTA under FDA review for systemic lupus is in partnership with GlaxoSmithKline plc (NYSE: GSK).  That means that buying Human Genome is effectively buying only part of that drug’s revenue stream after (and if) it is approved.   As per Dendreon Corp. (NASDAQ: DNDN), we have two serious issues here.  The first is that last week’s Medicare review is likely a price shake-down, but its compromised stock chart for investors does not offer any real indication that a deal is even possible here.  The $3.77 billion market cap here also matters not for Dendreon… shareholders would not likely approve a buyout at anything under $40.00 per share (or maybe much more).

Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL) and Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) were noted in May as potential takeout candidates with Human Genome Sciences Inc. (NASDAQ: HGSI).

Another name which has been constantly thrown around as a buyout target in biotech is Amilyn Pharmaceuticals, Inc. (NASDAQ: AMLN).  This has BYETTA as a Type II diabetes standout, but it is also in partnership with Eli Lilly & Co. (NYSE: LLY).  The $2.6 billion market cap with shares at $18.02 also compares to a 52-week range of $11.01 to $24.21.  Amylin also spent much of 2006 and 2007 being north of a $40.00 stock.  In short, there are hurdles here.

One almost unknown name to many investors in drug and biotech is Warner Chilcott plc (NASDAQ: WCRX).  It has drugs in women’s healthcare, dermatology, gastrointestinal, musculoskeletal and more.  After the P&G deal last year, this one has a $5.65 billion market cap with a $22.40 price and versus a 52-week range of $12.60 to $29.24.  Whether this company would even be for sale after it made the P&G drug unit purchase is also a huge hurdle for this as a candidate.  Still, it is one of the more attractive drug companies out there and it still has somewhat of a muted analyst following.

Another go-to name we have always thought could be acquired is Cubist Pharmaceuticals Inc. (NASDAQ: CBST) for its Cubicin and infection drugs.  With hospital infections from Staphylococcus aureus and MRSA being almost out of control, this one seems on the surface that it could be a target in a drug and biotech land-grab.  This was one of our value stock picks at earlier this year.

One other name which was thrown out by Seeking Alpha, with a rather interesting diversification twist and one we would probably on the surface not consider, is Boston Scientific Corporation (NYSE: BSX).  This would be diversifying for sure, and it would make the company look more and more like a Johnson & Johnson (NYSE: JNJ) than like an international drug giant.  The $6.10 price tag for a $9.25 billion market cap compares to a 52-week range of $5.41 to $11.77.  Forget about this being able to happen here anywhere close to the current price.  The company’s shares have been hammered and punished after the Guidant buyout turned into a back-breaker and after waves and waves of product issues.  This was a $30 and $40 stock from 2003 to 2005 and many of its holders have stuck by this one even if they have averaged down their price.

Sanofi may do a deal. It may do more than one deal.  Amgen may do a deal as well.  Which company gets bought, if any, depends upon more than enough variables to make this anything more than a guessing man’s game at this point.  As with all “speculative merger reports,” these should be considered nothing more or less than a rumor until more clarity comes into play.