Danaher Corporation (NYSE:DHR) announced today that it is buying genetic testing company Cepheid (NASDAQ:CPHD) in a deal valued at $4 billion, including debt. CPHD stock is gapping up 50% based on a huge premium over the previous valuation of $2.5 billion for the biotech stock.
Danaher, a $55 billion company with a robust medical testing unit, will be well-served in the long run by this biotech buyout even if DHR stock is soft today on worries that it overpaid. Genetic testing and diagnostics is a huge growth area, and Cepheid is a leader in the field.
And of course, overpaying is only a “problem” for the buyer; it’s great news if you owned CPHD stock.
A bigger healthcare company overpaying for a small-scale biotech stock is precisely why investors love to play in this segment of the market. CPHD was just a money-losing mid-cap a few days ago, and back in May, it wreaked havoc on many a portfolio after a huge leg down. Now, Cepheid is one of the best investments for many biotech investors.
If you missed your chance, though, here are some other biotech buyout targets to consider:
- Myriad Genetics, Inc. (NASDAQ:MYGN), like Cepheid, is focused on diagnostic tests. Founded in 1992 with a rich history of successes, MYGN is profitable — unlike some other biotech buyout targets — and has best-in-class technology to alert patients to cancers and autoimmune disorders. This $1.4 billion player is down sharply year-to-date after a downbeat earnings report in August, but if Cepheid could surge back, so can MYGN stock.
- Qiagen NV (NASDAQ:QGEN) also offers efficient and reliable diagnoses to doctors. Its molecular diagnostics technology is another go-to resource for oncologists as well as those working in women’s health fields. Most interesting to potential acquirers is its GeneReader sequencing technology that has big potential for genetic testing across the board.
- Illumina, Inc. (NASDAQ:ILMN) is larger than the previous companies at almost $25 billion, but if Big Pharma wants a legit genetic testing company with scale, this is it. In 2014, ILMN introduced the HiSeq X Ten system that will provide human genome sequencing for just $1,000 — an amazing breakthrough in gene science and testing. lllumina is comfortably profitable with about $1.5 billion in cash and investments on the books, so even if it doesn’t get bought out immediately by Big Pharma, it is sure to be a dominant player on its own.
The best biotech stocks to buy are ones that have stable businesses as well as the potential for a big buyout premium, and all three of these players definitely foot the bill based on their great product portfolios.
If you missed out on the Danaher-Cepheid deal, consider one of these players. And make sure to do your own investment research, because volatility works both ways in this fast-moving space.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.