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Pharma M&A Active This Week: 4 Potential Buyout Targets

Indrajit Bandyopadhyay
Mutual Fund Report for PGOFX

The current year began on widespread optimism, predicting a significant increase in drug/biotech mergers and acquisitions (M&A) activity, mainly buoyed by the new tax law enacted in December 2017 and purchasing newer technologies. The tax reform has lowered the tax rate and provided a low-tax window to bring back huge cash stashed overseas. These will certainly improve the cash position of the companies and fuel M&A activities amid struggling organic growth.

With a quarter of the year already gone by, we have seen quite a few billion dollar buyout deals being inked. For instance, Celgene Corporation acquired Juno Therapeutics to add a CAR-T therapy to its pipeline for approximately $9 billion. Moreover, the company is in process to complete the acquisition of Impact Biomedicines for an upfront amount of $1.1 billion. Also, Sanofi in a bid to strengthen its blood disorder pipeline purchased Bioverativ for $11.6 billion and even offered to buy Belgian Biotech Company, Ablynx for $4.8 billion.

Additionally, Pfizer is aggressively on the lookout for a buyer for its Consumer Healthcare unit after British firms Glaxo and Reckitt Benckiser Group withdrew from discussions. However, Glaxo announced its acquisition of Novartis’ NVS stake in their healthcare joint venture for $13 billion. Meanwhile late last month, Takeda also confirmed its intention to integrate Dublin-based Shire into its portfolio to boost its core therapeutic areas.

Moreover, this week bore news of a couple of more M&A deals. A brief description of the two deals is as follows:

Novartis to Buy AveXis

Novartis inked a deal to acquire the U.S. based clinical stage gene therapy company, AveXis, Inc AVXS, to boost its presence in gene therapy and neuroscience space.

AveXis’ lead gene therapy candidate, AVXS-101, is being developed to treat spinal muscular atrophy ("SMA"), a neurodegenerative disease, accounting for the highest genetic cause of death in infants. The only approved treatment for SMA is the Biogen’s Spinraza.

Per the agreement, Novartis will close the acquisition in an all cash deal of $8.7 billion. The company proposed a cash-tender offer of $218 per share for AveXis’ common stock. The deal is expected to culminate in the second half of 2018. (Read more: Novartis Inks $8.7 Billion Gene Therapy Deal to Buy AveXis)

Alexion-Wilson Deal

Alexion Pharmaceuticals, Inc. ALXN announced that it will consolidate Sweden-based Wilson Therapeutics in its portfolio to add a late-stage candidate to its pipeline for the treatment of Wilson disease, a rare genetic disorder. The acquisition is line with the company’s strategy to diversify its portfolio and lower its dependence on its blockbuster drug, Soliris.

Alexion has offered 232 Swedish Krona in cash for each outstanding share of Wilson Therapeutics, which translates into a total transaction value of $855 million. The buyout is expected to get wrapped up this quarter. (Read more: Alexion to Acquire Wilson Therapeutics for $855M)

In this article, we suggest three drug/biotech companies as logical acquisition targets this year. The parameters counting for buying a drug/biotech stock are the current sales performance of its drugs/products, prospects of future sales growth and the quality of the company’s pipeline. Takeovers of small-cap drug/biotech companies are very difficult to forecast and are quite frequent in the said space. Hence, these have been excluded from the discussion.

Agios Pharmaceuticals, Inc. AGIO

Agios Pharmaceuticals’ share price is witnessed to rally this week on speculations that the company might be bought by other big players in the pharma and biotech industry.

The company received an FDA approval for Idhifa (enasidenib) in August 2017 for treatment of acute myeloid leukemia (“AML”) with IDH2 mutation, lending a huge boost to its immense commercial potential in the target market. Agios’ ivosidenib is under review in the United States as a therapy for relapsed/refractory AML with IDH1 mutation. The candidate is also being developed for addressing advanced hematologic malignancies.

Agios’ pipeline also includes a mid-stage genetic diseases candidate. A consistent progress with its investigational candidates makes the company one of the most lucrative takeover options for other large players in the drug/biotech space at the moment. (Read more: Agios Pharmaceuticals Shares Rise on Buyout Speculation)

Agios carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank stocks here.

BioMarin Pharmaceutical Inc. BMRN

Companies with product/pipeline portfolios comprising rare disease drugs are in great demand as there is less competition in the concerned space and the expensive treatments can garner huge profits. BioMarin is one such drug developer with a market cap of around $15 billion.

BioMarin’s key orphan disease drugs, Vimizim and Kuvan, are doing well, backed by strong underlying patient demand trends. Also, another orphan drug Brineura’s earlier-than-expected approval this year for the treatment of children with CLN2 disease is likely to be a huge boost to BioMarin. A potential approval for pegvaliase is expected next month.

BioMarin has already been a target of takeover speculation. Companies like Gilead, Amgen and Roche might be interested in buying BioMarin.

BioMarin carries a Zacks Rank #3.

Vertex Pharmaceuticals, Inc. VRTX

For Vertex, a consistent expansion in patient population raised revenues quarter to quarter throughout 2017. Moreover, the approval to its third cystic fibrosis (“CF”) drug, Symdeko (tezacaftor/ivacaftor combination), will further drive the company’s sales. The company is hopeful that a positive trend of CF sales will continue in 2018 as it gains additional reimbursement approvals for Orkambi in the ex-U.S. markets

Meanwhile, the company is focused on triple combination therapies for treating CF, which will further expand its patient population. The market cap of Vertex is more than $40 billion.

Vertex carries a Zacks Rank #3.

Incyte CorporationINCY

Incyte’s strong oncology portfolio makes it an attractive pick for companies, namely Gilead, Amgen and Bristol Myers. Incyte’s market cap is also around $15 billion.

The primary reason why Incyte is ready for buyout is because of the encouraging performance of its two marketed products such as, Jakafi and Iclusig. Jakafi is seeing a strong sales performance, driven by solid patient demand in the approved indications.

The company is also working on its further label expansion. Meanwhile, Incyte’s pipeline boasts candidates like immune therapy epacadostat, which is being studied in combination with other drugs for the cure of cancer and rheumatoid arthritis.

Incyte carries a Zacks Rank #3.

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