Which Biotechs Could Be Next M&A Targets (AMLN, BMY, VRTX, CELG, CBST, AMRN, BMRN, VVUS, ARNA, PCYC, AFFX, THRX, RIGL, HGSI, GSK, DNDN)

The freshly announced multibillion biotech buyout of Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) for more than $5 billion in equity value may be a bit misleading if you consider that it is effectively a split deal.  Nonetheless Wall Street investors and traders love buyout announcements and one buyout usually leads these investors to look for the next buyout candidate(s).

24/7 Wall St. wanted to take a look at several other possible merger candidates in the biotech and emerging pharma sector.  Our focus is generally on the companies which have a $1 billion potential buyout value to a suitor because Big Pharma players generally cannot waste time on too many small deals unless they can be rapidly expanded.  We would make a reminder that Wall Street standalone price targets often do not value a company at the same rate as a buyer.  Case in point: Amylin’s $31.00 cash buyout by Bristol-Myers Squibb Co. (NYSE: BMY) for about 50% more than what Wall Street’s Thomson Reuters consensus price target was.

One company which routinely arises as a buyout name is Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX).  Its $11.5 billion value is getting on the higher side of a biotech M&A, and its shares have been extremely volatile based upon good news flow followed by bad news flow.  The Thomson Reuters consensus target is $67.65 on Vertex versus a $54.60 price today and versus a high of $66.10.

This company is likely too expensive to buy on a nominal basis, but Celgene Corporation (NASDAQ: CELG) has now corrected by about 20% from its highs after massive growth was met by mixed drug news.  The market cap of the shares is almost $29 billion and Wall Street analysts have a price target of $76.09 on the stock against a current share price of $64.50 and against a high of $80.42.

One company which we have targeted in the past as a potential target for its fight against infections from healthcare facilities is Cubist Pharmaceuticals Inc. (NASDAQ: CBST).  The success of Cubicin and other partnerships helped shares double over the last couple of years and the move may have put too much of a premium in this one.  A management shakeup may rekindle some M&A hopes here and the premium valuation still only comes to a market cap of $2.45 billion.  At $38.75 the consensus target from Wall Street is almost $49.00.

Read Also: The Next (non-Biotech) Mergers of 2012

The $2 billion Amarin Corporation plc (NASDAQ: AMRN) is up over 4% on word that it may be a takeout candidate as well.  At $15.00, Wall Street has almost a $23 price target on this ahead of a decision on its triglycerides treatment under FDA review.

VIVUS Inc. (NASDAQ: VVUS) is not moving at all on buyout hopes, but with it believed to have the best chance of being the weight loss drug its $28.60 price generates a market value of more than $2.8 billion. Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) is a weight-loss rival worth some $1.8 billion now, but the enthusiasm has backed off after understanding what its position in weight loss may be around a 2013 timing.

Another player worth note has been Pharmacyclics Inc. (NASDAQ: PCYC).  It appears to be the top gainer in biotech year to date and the company is now worth about $4 billion.  After another near-7% gain to $58.36 on Monday, this one’s price target is $49.71 from Wall Street analysts.  We have heard no credible rumors here but the reality is that a gain of this magnitude speaks for itself. Its large oncology pipeline appears to be driving significant value and high hopes here.

Two players which routinely came up as hopeful M&A targets were Human Genome Sciences Inc. (NASDAQ: HGSI) with a $2.7 billion value today and Dendreon Corporation (NASDAQ: DNDN) with a $1.1 billion value. Human Genome has been fighting off a low-price bid from GlaxoSmithKline (NYSE: GSK).  Both of these companies have fallen from grace and HGSI’s BENLYSTA for Lupus and Dendreon’s PROVENGE for advanced prostate cancer have both lagged expectations.

One smaller name which surfaced as a possible buyout candidate after a FDA Orphan Drug designation for its Hepatitis treatment is Medgenics, Inc. (NYSEMKT: MDGN).  Its market value is only $100 million, but various forms of Hepatitis can make for very successful acquisitions if handled properly.

A Piper Jaffray note reported by theflyonthewall listed the following companies as possible buyout targets:

• Affymetrix Inc. (NASDAQ: AFFX), but its shares are lower after a Goldman Sachs downgrade. This one’s $4.55 share price generates only a $320 million market cap, and Thomson Reuters has a consensus target of roughly $5.60 after its recent acquisition of eBioscience.
• BioMarin Pharmaceutical Inc. (NASDAQ: BMRN) hit a new high of $41.11 today and its market value is about $4.75 billion.  At $40.95, the consensus target is $42.00.
• Rigel Pharmaceuticals, Inc. (NASDAQ: RIGL) is up almost 2% and just under $9.50, and its market cap is $674 million with a consensus target on the stock of $13.00.
• Theravance Inc. (NASDAQ: THRX) was up 7.9% at $23.98 and its market value if $2.1 billion comes along with a Wall Street consensus price target of $24.50.

As you have probably figured out, there are no free lunches in biotech.  Literally none.  Betting on these companies for the sake of a buyout can be rather painful.  Still, we have seen time after time that the biotech and emerging pharma sectors consolidate time after time.

JON C. OGG