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Finding the Next Biotech M&A Targets (HGSI, GSK, AMLN, BMY, VRTX, CELG, CBST, AMRN, DNDN, BMRN, VVUS, ARNA, PCYC, VICL, MDGN, AFFX, THRX, RIGL)

Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) often arises as a possible takeover name. Its $11.4 billion value is on the high side of biotech M&A values, and its shares have been extremely volatile, based on good news flow followed by bad news flow. The price of $54.20 compares to the Thomson Reuters consensus target of $66.20 and compares to a 52-week high of $66.10.

Another company that we have targeted in the past as a potential target for its fight against infections from health care facilities is Cubist Pharmaceuticals Inc. (NASDAQ: CBST). The success of Cubicin and other partnerships helped shares double over the past couple of years, and the move may have put too much of a premium in this one for it to be acquired. One consideration is that a fresh management shakeup may rekindle some M&A hopes here. Its market cap of $2.5 billion is not exactly prohibitive to most companies and its share price of $39.20 compares to a Thomson Reuters consensus target of $48.80 and a 52-week high of $44.95.

The $2.1 billion Amarin Corporation (NASDAQ: AMRN) is very close to highs at $15.40 with its 52-week range being $5.99 to $15.60. Wall St. has almost a $23 price target on this ahead of a decision on its triglycerides treatment under FDA review.

It is also almost impossible to not consider Dendreon Corporation (NASDAQ: DNDN) as a buyout candidate in biotech if Human Genome Sciences is truly up for grabs. Dendreon carries only a $1 billion market value, which is solely valuing PROVENGE for advanced prostate cancer as its sales have lagged results in late-stage prostate cancer.

VIVUS Inc. (NASDAQ: VVUS) is expected to be the leader in the weight-loss drug market, but its $2.8+ billion market capitalization compares to a price target from Wall St. of $31.20. The price premium may be too great already for it to be acquired. Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) is a weight-loss rival and it is now worth $2.1 billion ahead of its 2013 weight loss drug launch.

Another player worth note has been Pharmacyclics Inc. (NASDAQ: PCYC) as it reached yet another high on Monday when shares hit $60.00. This is perhaps the biggest gainer in biotech year to date and the company is now worth more than $4 billion. We have heard no credible rumors here about a biotech buyout since this was under $10 last year, but a gain of this magnitude speaks for itself with a large oncology pipeline.

One smaller name that 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 $140 million, but various forms of Hepatitis can make for very successful acquisitions if handled properly.

Another name that surfaces from time to time as a potential buyout is Vical Incorporated (NASDAQ: VICL) for its Allovectin under Phase III trials for treating malignant melanoma. This $300 million stock has traded all over the place and an update on its trial data is not being priced in until later in 2012, if you track the open interest in put and call options. Vical is a company that remains highly speculative.

Piper Jaffray recently earmarked the following companies as possible biotech buyouts:

  • Affymetrix Inc. (NASDAQ: AFFX) with a $317 million market value
  • BioMarin Pharmaceutical Inc. (NASDAQ: BMRN) with a $4.8 billion market value
  • Rigel Pharmaceuticals, Inc. (NASDAQ: RIGL) with a $700 million market value
  • Theravance Inc. (NASDAQ: THRX) with a $2.5 billion market value

Here is a list of the possible nonbiotech mergers that could come as soon this summer. Keep in mind that there is no such thing as a free lunch when it comes to biotech and pharma mergers and acquisitions. The sector is ripe with risk when you are just considering one single company because a side-effect or a single request for more information from the FDA can be devastating to these types of companies.

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JON C. OGG