Cue the Biotech M&A Attack!

by Gene Marcial | April 20, 2012 9:58 am

Judging by the recent buyout frenzy — foiled or successfully done — in the biotech sector, Big Pharma is once again showing their willingness to stick out their necks and wallets for both drugs and their makers that have the potential to bolster their bottom lines.

Indications are that more takeover plays will surface this year as the major pharmaceutical companies are discovering there are plenty of fish to catch in the biotech industry. And the stark reality that Big Pharma badly needs new products to augment and enhance their sagging top and bottom lines only intensifies their determination to find and close great deals — pronto!

The key question is: Who are some of these other buyout baits among the biotechs?

The most recent unsolicited buyout attempt was for Human Genome Sciences (NYSE:HGSI[1]), whose stock incredibly soared 98% in one day — yes, 98% — to $14.17 per share Thursday after U.K. pharmaceutical giant GlaxoSmithKline (NYSE:GSK[2]) announced it had offered to buy Genome for $2.6 billion, or $13 per share, an 81% premium to HGSI’s closing price the day before.

You would think Genome, whose stock had been in a sharp tailspin this year for various reasons, would jump and grab the high-premium offer. It didn’t. Genome rejected the bid from long-time partner GlaxoSmithKline as too low, describing it as not reflecting “the value inherent in HGS.” It wants a higher price tag, presumably, so HGSI is now “in play,” as the pros call it, assuming that either GlaxoSmithKline will up the ante or somebody else will come along as a white knight to snap up Genome at a richer price. Judging by the jump in HGSI’s price, many believe either one, or both scenarios, could happen.

A somewhat similar case is the one involving Illumina (NASDAQ:ILMN[3]), which rejected a buyout offer[4] from Roche (PINK:RHHBY[5]) — even after the latter had raised its original offer. These are the unsuccessful (so far) takeover bids, all involving biotechs whose products could become blockbusters.

Some buyout offers that ended in happy marriages were mighty impressive deals. Late last year, Gilead Sciences (NASDAQ:GILD[6]) paid $11 billion for Pharmasset[7], whose treatment for hepatitis C — a once-daily dosage that’s orally administered — currently is in phase 2 clinical trials. Biotech giant Amgen (NASDAQ:AMGN[8]) acquired in 2011 two biotechs: It paid $1.6 billion for Micromet and another $1 billion for BioVex. Amgen was attracted to Micromet mainly because of its drug against leukemia, which is in phase 2 clinical studies. And BioVex has developed a vaccine for the treatment of melanoma and head and neck cancer, which also is in phase 2 clinical testing.

A couple of biotechs that are expected to be among the next involved in M&A talks: Amylin Pharmaceuticals (NASDAQ:AMLN[9]) and a little known Los Angeles-based company, ImmunoCellular Therapeutics (NASDAQ:IMUC[10]).

I wrote a column about Amylin[11] earlier this month suggesting that approval of the company’s drug, Bydureon, for the treatment of Type 2 diabetes, will attract suitors. Before that, I had written another column with the headline, “Is Amylin a buyout target?”[12] The stock at the time was trading at $14 a share. Bloomberg on March 28 came out with a report on its website saying that Amylin had rejected a $22-per-share offer from Bristol-Myers Squibb (NYSE:BMY[13]), which Amylin refused to comment on.

Then on April 4, Bloomberg followed up with a report that activist investor Carl Icahn, who owns 14.4 million Amylin shares, is pressing the company to pursue a sale of the company. Icahn might launch a proxy fight at Amylin as management remains adamant on talking about the Bristol-Myers offer. It disagrees with Icahn’s contention that the board is “dysfunctional and is no operating in a manner than enhances shareholder value.”

Shares of Amylin currently are trading around $23 per share but had jumped earlier to a 52-week high of $25 on March 25, when rumors about a takeover started to swirl.

“We expect Amylin to be bought this year — with Roche, AstraZeneca (NYSE:AZN[14]), GlaxoSmithKline and Takeda Pharmaceuticals (PINK:TKPYY[15]) among others, lining up to buy the company,” says John McCamant, editor of the Medical Technology Stock Letter in Berkeley, Calif.

So sometime soon, Amylin will have to come clean with what’s going on and should face the buyout question directly.

ImmunoCellular Therapeuitics, the other biotech some pros believe will become takeover bait, is focused on developing dendritic cell-based cancer vaccines, something somewhat similar to what Dendreon (NASDAQ:DNDN[16]) achieved in its FDA-approved prostate cancer vaccine. But unlike Dendreon, IMUC is pursuing a polyvent strategy that allows its products to target multiple cancer antigens at once. In addition to targeting “regular” tumor cells, IMUC is targeting cancer stem cells, a distinctive cancer-cell type that is widely believed to be the root cause of tumor growth and recurrence.

In a phase 1 clinical study in 16 patients with deadly brain cancer glioblastoma mutiforme (GBM), IMUC’s lead cancer vaccine candidate, ICT-107, demonstrated a three-year progression-free survival rate of 38.5%. According to IMUC, three patients have now lived four years free of disease, and one, an unheard-of five years. The sample size is small, true, but considering GBM patients have only a 6% chance of surviving three years disease-free with standard of care alone, the findings shouldn’t be dismissed, according to some investors.

A large phase 2 clinical trial is now under way, with completion expected this quarter and final data anticipated by next year. Carol Werther, a veteran biotech analyst at Summer Street Partners, which focuses on life sciences, considers IMUC a highly undervalued stock, and has a price target of $8 a share. The stock currently is at $2.78.

In the hunt for oncology game changers, IMUC is among those that has a chance of proving the uniqueness of its multivalent vaccine strategy. So there is little doubt that Big Pharma might soon “discover” IMUC to usher in, as Werther indicates, the paradigm shift that oncology needs.

As of this writing, Gene Marcial did not hold a position in any of the aforementioned securities.

Editor’s note: This story was updated on April 23 to reflect the Carol Werther’s correct target price for IMUC.

Endnotes:
  1. HGSI: http://studio-5.financialcontent.com/investplace/quote?Symbol=HGSI
  2. GSK: http://studio-5.financialcontent.com/investplace/quote?Symbol=GSK
  3. ILMN: http://studio-5.financialcontent.com/investplace/quote?Symbol=ILMN
  4. which rejected a buyout offer: http://investorplace.com/2012/02/why-illumina-ilmn-future-remains-bright-roche-rhhby/
  5. RHHBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=RHHBY
  6. GILD: http://studio-5.financialcontent.com/investplace/quote?Symbol=GILD
  7. paid $11 billion for Pharmasset: http://investorplace.com/2011/11/gilead-buys-pharmasset-hepatitis/
  8. AMGN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMGN
  9. AMLN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMLN
  10. IMUC: http://studio-5.financialcontent.com/investplace/quote?Symbol=IMUC
  11. column about Amylin: http://investorplace.com/2012/04/here-comes-a-bidding-war-for-amylin/
  12. “Is Amylin a buyout target?”: http://money.msn.com/top-stocks/post.aspx?post=3b6834b6-07c2-4ad6-af89-b33e3ee541c1&lc=1033
  13. BMY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BMY
  14. AZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AZN
  15. TKPYY: http://studio-5.financialcontent.com/investplace/quote?Symbol=TKPYY
  16. DNDN: http://studio-5.financialcontent.com/investplace/quote?Symbol=DNDN

Source URL: http://investorplace.com/2012/04/cue-the-biotech-ma-attack-hgsi-gsk-ilmn-rhhby-imuc-amln/
Short URL: http://invstplc.com/1nwpAbE