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Biogen, BioMarin, Lilly and Bristol-Myers Could Be in Crosshairs of Acquirers

- By Barry Cohen

Merck (MRK) shares have been on a roll the past year, up nearly 50% to more than $80 in the past year. Yet, despite outstanding fourth quarter and full-year results, the more than $43 billion pharma giant may be on the lookout for acquisitions to help spur growth.

That may also be one strategy pursued by other members of big pharma as a way to counter mounting government opposition to price increases. In a recent article in FiercePharma, Morningstar analysts said that U.S.-based companies may have to go the acquisition route to increase their high-value pipelines.


Indicative of things to come, last week Merck agreed to buy the South San Francisco biotech Immune Design (IMDZ) for about $300 million. Even bigger industry purchases may be on the way.

Although Pfizer (PFE) Chairman Albert Bouria doesn't appear to be interested in a mega deal, some think the company, as well as Merck and Johnson & Johnson (JNJ), may be sniffing around some big fish, including two of the most coveted companies, Biogen (BIIB) and BioMarin (BMRN) and even top producer Eli Lilly (LLY) and underperformer Bristol-Myers (BMY). Lower on the totem pole are Gilead (GILD) and Regeneron (REGN). Getting any type of premium for Bristol and Gilead shareholders would be a blessing given that the stock price of both companies are in the doldrums, with Gilead down 77% from its five-year high of $117.

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Caption: Two companies at the top of the list of potential acquisitions are Biogen and BioMarin

Merck CEO Kenneth Frazier seemed to back away from the possibility of a large acquisition in response to a question from Seamus Christopher Fernandez of Guggenheim Securities during the company's Feb. 1 conference call to discuss fourth-quarter results. He stated that Merck plans to steer clear of mega mergers that could throw it off track. "... I think what we want to do, given our strong balance sheet, is to actively look across the entire spectrum of assets across therapeutic areas to create the strongest portfolio," Frazier said.

It seems he has had a change of heart since January, when FiercePharma reported he told analysts at the JPMorgan Healthcare Conference that the company has the resources to do both big and small deals but thought valuations were too frothy. "Broadly speaking, I think with the valuations coming down, it creates more possibilities," he added.

Frazier may be on to something. Morningstar analysts think Biogen and BioMarin make good targets because they're not only bargains but have attractive product portfolios. Still, with a $64 billion market cap, Biogen would be a hunk to chew off. Easier to digest would be BioMarin, which is worth a quarter of Biogen.

Maybe Biogen is considered "cheap" because its multiple sclerosis portfolio was pretty much stagnant last year. The company's ace in the hole is its Alzheimer's drug adacunumab, which is in phase 3 trials. Even if that drug fizzles, Biogen has other promising Alzheimer's treatments in its R&D channel.

During the fourth-quarter results conference call, as reported by Yahoo Finance, Biogen executives emphasized that company is a lot more than just about Alzheimer's. Six new drugs were added to its pipeline in the fourth quarter, including experimental drugs to treat stroke, schizophrenia and amyotrophic lateral sclerosis.

CEO Michel Vounatsos said during the call that 2018 "was one of the most productive years we have had in research and development, as we aim to further de-risk our pipeline and prepare for multiple potential launches in the early 2020s."

Disclosure: The author has positions in Johnson & Johnson, Eli Lilly and Bristol-Myers.

This article first appeared on GuruFocus.