9 Biotech Buyout Players to Watch

by Jeff Reeves | July 17, 2012 7:15 am

9 Biotech Buyout Players to Watch

Human Genome Sciences (NASDAQ:HGSI[1]) agreed to be acquired by GlaxoSmithKline (NYSE:GSK[2]) for $14.25 a share in cash. The HGSI-GSK deal[3] values the Human Genome at roughly $3 billion on an equity basis. This comes after a previous deal from GlaxoSmithKline valuing the biotech stock at just $2.6 billion in cash a few weeks before, which was rebuffed by HGSI.

It also comes after another big deal between Amylin Pharmaceuticals, Inc. (NASDAQ:AMLN[4]) and Bristol-Myers Squibb (NYSE:BMY[5]) that just kept moving higher. The Amylin-BMY deal[6] is valued for as much as $7 billion or $31 a share, after it rebuffed a $22-a-share offer weeks before the final deal.

It seems like big pharma is on the buyout prowl, and biotech stocks have all the leverage.

I recently penned an article about five small biotech stocks that could be homeruns [7](or strikeouts if they miss), and briefly talked about buyout potential. But these 9 stocks here have buyout buzz galore, and are worth noting simply due to that acquisition angle. They are also much lower risk than that previous list because there are some real money-makers here instead of just development-stage biotechnology outfits bleeding cash.

Some are would-be buyers. Some are would-be targets. But all are players in the consolidation we are seeing in biotech right now:

Amarin Corporation (NASDAQ:AMRN[8]) has doubled since the beginning of 2012 in anticipation of an important approval date on July 26. AMRN is a player in the lucrative triglycerides drug market, helping to fight heart disease, and recently had one of its flagship patents win protection through 2030[9]. The company is flirting with profitability, and positive movement on the regulatory front could really make Amarin attractive to big pharma or a peer in the biotechnology sector.

Arena Pharmaceuticals (NASDAQ:ARNA[10]) is a weight-loss medication company that made waves in June as it won the first FDA approval for an obesity drug in 13 years[11]. The stock has surged over 500% year-to-date and is worth over $2 billion on a market cap basis. Considering the pervasiveness of the obesity epidemic in America, one could easily see this company as a wise investment on future sales far beyond its 2013 weight loss drug launch. You can bet big pharma is watching closely.

BioMarin Pharmaceutical (NASDAQ:BMRN[12]) is perhaps one of the biggest fish in the biotech space right now, and thus may be difficult for a suitor to swallow. Its market cap is approaching $5 billion. The stock isn’t profitable when it comes to annual earnings, however, its niche play on genetic and metabolic disorders means it has potential. Piper Jaffray recently noted that BioMarin could fetch as much as $79 per share in an offer — nearly double the current $43 level.

Celgene Corporation (NASDAQ:CELG[13]) had been cited as a possible buyer of Human Genome Sciences. The idea was that HGSI had a medication for lupus, an autoimmune disease, and so did Celgene so they were likely partners. But who will CELG be shopping for now that Human Genome is off the table?

Cubist Pharmaceuticals (NASDAQ:CBST[14]) and its eponymous Cubicin antibacterial treatment is a big hit. Shares have doubled since early 2011 and the company has been profitable for some time thanks to its success in fighting MRSA — one of the banes of healthcare due to its drug resistance. Cubist is established and has a good product pipeline.

Dendreon Corporation (NASDAQ:DNDN[15]) has been a buyout candidate in biotech for a long time, and for a while it was seen as a bit too pricey to be worth the risk. However Dendreon carries only a $1 billion market value after crashing from a peak share price of over $40 a share in 2011 to just north of $6 currently. The cause of the Dendreon crash was its flagship Provenge prostate cancer drug that didn’t come close to sales expectation. However, though DNDN isn’t profitable, it does have some drugs that are indeed selling. And maybe at this lower valuation companies that thought it out of reach a few years ago may be enticed to buy it for a bargain.

Pharmacyclics (NASDAQ:PCYC[16]) hasn’t really been big among the buyout buzz, but its amazing 260% gain year-to-date proves that investors are certainly interested. The $3.7 billion price tag is rich, but a pullback may not be out of the question considering this stock was under $10 last year and ran up after the “smart money” took interest and started putting buy recommendations on the stock based almost solely on its drug pipeline of oncology treatments.

Vertex Pharmaceuticals (NASDAQ:VRTX[17]) had been bandied about just like Dendreon in previous years, though unlike DNDN its share price has failed to roll back. Its pipeline of viral drug treatments is robust, and it is now actually operating in the black. However it’s a bit pricey for big pharma’s blood. A $11.4 billion valuation currently and the prospect of future growth (if analysts are to be believed) means a heck of an offer is in order. Of course, if a major pharmaceutical company can get past the sticker shock they may be well served by replacing some of their expiring blockbusters with research from VRTX.

VIVUS Inc. (NASDAQ:VVUS[18]) is another weight-loss drug developer, like the aforementioned Arena. But it’s a bit more pricey at around $2.8 billion in market capitalization. This used to be cost prohibitive in the eyes of many, but the Human Genome deal shows that companies are willing to reach. VVUS is up roughly 200% in the last year on hopes that its lead Qnexa drug will get the same warm reception as Arena’s medication.

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.”[19] Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing he did not own a position in any of the stocks named here.

Endnotes:
  1. HGSI: http://studio-5.financialcontent.com/investplace/quote?Symbol=HGSI
  2. GSK: http://studio-5.financialcontent.com/investplace/quote?Symbol=GSK
  3. HGSI-GSK deal: http://investorplace.com/2012/07/glaxosmithkline-to-pay-3-6b-for-human-genome-sciences/
  4. AMLN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMLN
  5. BMY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BMY
  6. Amylin-BMY deal: http://investorplace.com/2012/07/bristol-myers-squibb-to-buy-amylin-for-7b/
  7. five small biotech stocks that could be homeruns : http://investorplace.com/2012/07/swing-for-the-fences-with-these-5-biotech-stocks/
  8. AMRN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMRN
  9. win protection through 2030: http://investor.amarincorp.com/releasedetail.cfm?ReleaseID=688251
  10. ARNA: http://studio-5.financialcontent.com/investplace/quote?Symbol=ARNA
  11. first FDA approval for an obesity drug in 13 years: http://www.forbes.com/sites/matthewherper/2012/06/27/arena-obesity-drug-approval-looks-like-best-case-scenario/
  12. BMRN: http://studio-5.financialcontent.com/investplace/quote?Symbol=BMRN
  13. CELG: http://studio-5.financialcontent.com/investplace/quote?Symbol=CELG
  14. CBST: http://studio-5.financialcontent.com/investplace/quote?Symbol=CBST
  15. DNDN: http://studio-5.financialcontent.com/investplace/quote?Symbol=DNDN
  16. PCYC: http://studio-5.financialcontent.com/investplace/quote?Symbol=PCYC
  17. VRTX: http://studio-5.financialcontent.com/investplace/quote?Symbol=VRTX
  18. VVUS: http://studio-5.financialcontent.com/investplace/quote?Symbol=VVUS
  19. “The Frugal Investor’s Guide to Finding Great Stocks.”: http://www.amazon.com/dp/B007KB9CSI/ref=rdr_kindle_ext_tmb

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