Swiss pharmaceutical company Novartis NVS has announced a deal to buy The Medicines Company MDCO for 85.00 per share in cash or for a total value of $9.7 billion. The offer price represented a premium of 24% to Medicines Company’s closing price of $68.55 on Friday. The deal, if successfully closed, will add Medicines Company’s PCSK9 inhibitor inclisiran, a potential treatment to control cholesterol levels, to Novartis pipeline. The Medicines Company has a partnership with Alnylam Pharmaceuticals for inclisiran, which has demonstrated potent and durable LDL-C (bad cholesterol) reduction with an excellent safety and tolerability profile in clinical studies. Regulatory applications are expected to be filed in the United States later this year and in Europe during first-quarter 2020.
There has been a flurry of M&A deal announcements this year in the biotech/drug industry. In fact, 2019 witnessed two mega-merger announcements. Bristol-Myers Squibb BMY acquired the leading biotech company Celgene for a whopping $74 billion. The deal was announced in January and closed in November. In June, AbbVie announced a definitive deal to buy Allergan for $63 billion. The deal, subject to necessary approvals, is expected to close in early 2020.These will be among the largest acquisitions in the drug/biotech sector in the recent times.
Meanwhile, smaller biotech research firms investigating new therapies or interesting pipeline candidates have also garnered attention of bigger players this year. Oncology and gene therapy have mainly been the focus areas for M&A activities.
The deals included Pfizer’s purchase of small cancer drugmaker Array BioPharma for $12 billion, Lilly’s purchase of small cancer biotech Loxo Oncology for $8 billion and Merck’s buyout of Immune Design. In non-oncology deals, Roche is due to acquire Spark Therapeutics for $4.8 billion, per a deal announced in February. Also, Alexion is set to buy clinical-stage biotech Achillion Pharmaceuticals for $930 million, per a deal announced last month.
There are several reasons for the flurry of M&A announcements. Big pharma companies are cash rich, especially after the tax overhaul in 2017, which reduced the tax rate. Given that it takes several years and millions of dollars to develop new therapeutics from scratch, large pharmaceutical companies sitting on huge piles of cash may prefer to buy innovative small/mid cap biotech companies to build out their pipelines.
Also, sloppy sales of mature drugs due to pricing pressure and generic/biosimilar competition, dwindling in-house pipelines, government scrutiny of drug prices and emergence of big tech firms like Apple and Google, in the healthcare industry whet the M&A appetite of large drugmakers. Another important factor leading to acquisitions this year is the decline in biotech/pharma valuations toward the end of 2018.
In this article, we discuss some mid- and large-cap names that may be logical acquisition targets for big dug/biotech companies like Gilead, Amgen, Pfizer, Merck, Johnson & Johnson and others.
The fields that have attracted a lot of industry attention lately are immuno-oncology treatments and drugs to combat rare diseases.
Investors should consider the current sales performance of drugs/products, sales prospects and the quality of the pipeline while buying drug/biotech stocks.
The four companies discussed here have most of these factors going in their favor and appear to be good investment options. Acquisitions of very small drug/biotech companies are difficult to predict and are quite frequent. Hence, these have been excluded from the discussion.
Vertex Pharmaceuticals, Inc. VRTX
Vertex’s holds a dominant position in the cystic fibrosis (CF) market. Consistent positive regulatory approvals have led to an increase in the eligible patient population for Vertex’s approved CF medicines in the past two-three years. In 2019 alone, the company received nine new regulatory approvals for label expansions for its CF medicines globally. With consistent expansion in patient population and additional ex-U.S. reimbursement arrangements, Vertex’s sales drugs have been rising consistently. Importantly, its triple-combo regimen called Trikafta was approved by the FDA, five months ahead of the schedule in October and is expected to be Vertex’s key revenue driver in 2020. The regimen is crucial for long-term growth as it has the potential to treat up to 90% of CF patients. Meanwhile, its non-CF pipeline is progressing rapidly with data in multiple diseases expected in 2020.
Vertex, with a market cap is around $57 billion, could be a potential buyer as well as a good acquisition option for much larger companies like Pfizer. The stock carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Biogen, Inc. BIIB
Biogen, with a market cap is around $55 billion, could also be a potential buyer as well as a possible buyout target. We believe its buyout potential has increased after it announced intention to seek U.S. approval of Alzheimer’s treatment, aducanumab, just a few months after halting late-stage studies on the same drug following a futility analysis. Biogen holds a strong position in the multiple sclerosis (MS) market with a wide range of products, including Tecfidera and Tysabri. Its efforts to diversify beyond MS to other areas like Alzheimer’s are also commendable. Its newest drug for spinal muscular atrophy treatment, Spinraza, has multi-billion dollar potential and is generating strong sales. Biogen also regularly in-licenses assets to build its pipeline. The stock has a Zacks Rank #3 (Hold).
BioMarin Pharmaceutical Inc. BMRN
Companies that have product portfolio/pipeline of rare disease drugs are in great demand as it is a less competitive space and the expensive treatments can bring in huge profits. BioMarin is one such drug developer. Its market cap is $14.4 billion.
BioMarin has seven commercially approved rare disease drugs with some more in the pipeline, which makes it worthy of a buyout. Its key orphan disease drugs – Vimizim and Kuvan – are doing well, backed by strong underlying patient demand trends. The newest rare disease drug in its portfolio, Palynziq, is witnessing strong commercial uptake in the United States. BioMarin believes the injection has peak commercial opportunity of roughly $1 billion as it demonstrated dramatic Phe reductions in PKU patients in pivotal studies. Its rare disease pipeline is progressing well. The company targets regulatory filings for valoctocogene roxaparvovec (valrox) by year-end and vosoritide in 2020.Valrox, a gene therapy for hemophilia A, is anticipated to be transformational, if approved
There has been speculation about BioMarin’s takeover for a long time. Companies like Gilead, Amgen and Roche may be interested in buying it. BioMarin has a Zacks Rank #3.
Alexion Pharmaceuticals, Inc. ALXN
Like BioMarin, Alexion is also focused on the development and commercialization of life-transforming drugs for the treatment of patients with ultra-rare disorders. Its key drug is Soliris, approved for three severe and ultra-rare disorders — paroxysmal nocturnal hemoglobinuria (PNH), atypical hemolytic uremic syndrome (aHUS) and generalized myasthenia gravis (gMG) — has consistently done well.
Alexion received a significant boost in December 2018 with the FDA approval of its long-acting C5 complement inhibitor, Ultomiris, for PNH, which has a four times longer dosing interval than Soliris. The approval has strengthened the company's PNH franchise and reduced its dependence on Soliris. Importantly, last month, the FDA granted approval to Ultomiris for another indication, aHUS.
Alexion is working on expanding the label of Soliris and Ultomiris to include additional indications, which if approved, can boost sales growth. It has two other drugs for rare diseases called Strensiq and Kanuma, which are emerging as key growth drivers, benefiting from continued patient additions.
Roche, Pfizer, or Novartis may be interested in buying it. The market cap of Alexion is around $25 billion. It has a Zacks Rank #2 (Buy).
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Bristol-Myers Squibb Company (BMY) : Free Stock Analysis Report
Novartis AG (NVS) : Free Stock Analysis Report
The Medicines Company (MDCO) : Free Stock Analysis Report
Vertex Pharmaceuticals Incorporated (VRTX) : Free Stock Analysis Report
Alexion Pharmaceuticals, Inc. (ALXN) : Free Stock Analysis Report
BioMarin Pharmaceutical Inc. (BMRN) : Free Stock Analysis Report
Biogen Inc. (BIIB) : Free Stock Analysis Report
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