Looking for the Next Biotech Buyout After Two Drug and Biotech Deals

What usually happens when you get two mergers announced in drugs and biotech in the same day? Investors begin to wonder which other peers and competitors might be on the M&A block. Monday’s news flow brings a $1.9 billion total buyout of Par Pharmaceutical Companies Inc. (NYSE: PRX), which values the company at $50.00 per share, by private equity firm TPG. Another deal being touted is Human Genome Sciences Inc. (NASDAQ: HGSI) being near to accepting a buyout from GlaxoSmithKline (NYSE: GSK) at $14.00 per share.

The most recent deal in the biotech and emerging pharma sectors was Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) finally being acquired at a large premium by Bristol-Myers Squibb Co. (NYSE: BMY). The more than $5 billion deal was almost 50% higher than the price that analysts valued the company. So, who is next? 24/7 Wall St. has a regular list of merger candidates in biotech and emerging pharma, and here are some of the possible candidates. We have added color on each, if applicable.

First and foremost, it is important to consider who the buyers will generally be. Companies like AstraZeneca PLC (NYSE: AZN), Sanofi (NYSE: SNY), Merck & Co. (NYSE: MRK) and Bristol-Myers Squibb Co. (NYSE: BMY) were all Amylin suitors, and Pfizer Inc. (NYSE: PFE) was reportedly interested before backing out due to valuation of the company. Celgene Corporation (NASDAQ: CELG) recently was cited as a possible buyer of Human Genome Sciences Inc. (NASDAQ: HGSI) to fill its pipeline and to regain some momentum. Will Celgene look elsewhere?

Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) often arises as a possible takeover name, but it is worth about $11.2 billion in its market capitalization, and that would put it on the high side of biotech M&A values. Shares have been very volatile on drug news of its own, as well. The Thomson Reuters consensus target of $66.40 compares to a share price of $52.85 and a 52-week high of $66.10.

Cubist Pharmaceuticals Inc. (NASDAQ: CBST) used to be one of our top targets, but shares doubled over the past two years. Its $2.6 billion market cap with a $41 share price compares to a 52-week high of $44.95 and a Thomson Reuters consensus target price of $48.80. The success of Cubist and other partnerships helped drive the gains here, but a fresh management shakeup of late may at least rekindle some M&A ambitions from Wall St.

The $2.1 billion Amarin Corporation (NASDAQ: AMRN) has recently backed off its highs of $15.60, and shares are now around $14.60 with a $2 billion market cap. Thomson Reuters has a consensus target price of $22.95 ahead of a decision on its triglycerides treatment under FDA review.

Dendreon Corp. (NASDAQ: DNDN) almost always comes up as a buyout candidate in biotech when Human Genome Sciences was noted as a buyout candidate. The similarities are there, with recent approvals followed by weaker-than-expected drug sales. Perhaps a larger company can make a difference here in making PROVENGE for advanced prostate cancer more widely accepted as its sales have lagged results in late-stage prostate cancer. To show the tie, its shares are up 3.5% initially on the HGSI deal to $6.27. Just keep in mind that its 52-week high is $39.50, so you have to ask yourself how low of a price Dendreon could even accept without being crushed under shareholder lawsuits.

VIVUS Inc. (NASDAQ: VVUS) is expected to be the leader in the weight-loss drug market, but its more than $2.7 billion market capitalization and $27.50 share price that 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), another weight-loss hopeful, is now worth almost $2.1 billion ahead of its 2013 weight loss drug launch.

Pharmacyclics Inc. (NASDAQ: PCYC) has backed off of recent highs north of $60.00 to just under $54.00. Its shares have seen explosive growth from less than $10 over the past year to make it one of 2012’s best biotech stocks. With a value near $3.7 billion and a massive share price gain, it would seem a stretch to say that this is a buyout target. Still, the move speaks for itself as it is supposed to have a large oncology pipeline.

Vical Inc. (NASDAQ: VICL) has surfaced from time to time as a potential buyout candidate, but we have not heard much about it in months and months. Its Allovectin is under Phase III trials for treating malignant melanoma, and its market value is just above $300 million.

Medgenics, Inc. (NYSEMKT: MDGN) is a smaller name that sometimes arises as a possible buyout candidate after a FDA Orphan Drug designation for its Hepatitis treatment. Its market value is only $140 million, and we would note that its shares are down 4% on a day when two M&A deals have been announced.

Piper Jaffray recently named the following companies as possible biotech buyouts, with market values being “as of that time” rather than today: 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; and Theravance Inc. (NASDAQ: THRX) with a $2.5 billion market value.

This is a list of some of the possible biotech and emerging pharma companies that could come back into play as takeover bait. Just keep in mind that investing in biotech solely for M&A ambitions can be a very painful process. Also, some of these companies may never want to be acquired.

If you enjoy news around M&A, private equity, IPOs and secondary offerings, you can join our free email newsletter that is sent right to your inbox each morning. We cover the top analyst calls of the day, IPOs, special financial exclusives, mergers and more. Sign up in the box below.

JON C. OGG