The Sanofi-Genzyme Drama Has Nothing on These Potential Buyouts

The courting, if you can call it that, between sanofi-aventis (NYSE: SNY  ) and Genzyme (Nasdaq: GENZ  ) has turned into a "he said, he said" with both sides arguing about how much Genzyme is really worth. My suggestion: Ignore the drama.

Might a deal get done? Sure. For more than the $69 Sanofi has offered? Probably. But why bet on probably when the other side of the equation -- not being able to reach a compromise -- will likely cause the stock to drop precipitously.

Instead, here are three drugmakers that could be acquired, but more importantly, look promising on their own even without a takeout premium.

Antibodies on steroids
Seattle Genetics
(Nasdaq: SGEN  ) looks like it has a winner in brentuximab vedotin (SGN-35). The drug has gone two for two in recent weeks, showing that it can tackle Hodgkin's lymphoma as well as anaplastic large cell lymphoma.

The drug is an antibody -- the brentuximab part -- connected to vedotin. The antibody targets the vedotin to the tumor cells, and the vedotin actually does the killing.

The key to Seattle Genetics success extends beyond brentuximab vedotin though. The supercharged antibody technology can be applied to other antibodies to target other cancer types. Seattle Genetics has licensed the technology out to Genentech, GlaxoSmithKline (NYSE: GSK  ) , AstraZeneca (NYSE: AZN  ) , and other drugmakers and is developing other drugs internally that use the technology as well.

With a market cap over $1.6 billion and no drugs on the market, Seattle Genetics doesn't come with a lot of wiggle room. Fortunately the technology seems to work, and there's upside if brentuximab vedotin is approved.

Genzyme light
Like Genzyme, BioMarin Pharmaceutical (Nasdaq: BMRN  ) sells drugs that treat orphan indications. By definition, these diseases don't have many patients to treat, but companies can make up for the lack of volume by charging a ton of money for the drugs. BioMarin's Naglazyme, for instance, goes for $365,000 per year.

The strategy seems to be working. BioMarin's revenue was up 21% year over year in the third quarter. The key to the company's success isn't its current drugs though; BioMarin will only be able to keep the growth up by launching new drugs for additional rare diseases. The company has two drugs in phase 3 development and one in phase 2. Considering that it only has four drugs on the market, that's not bad. One additional hit will make a substantial contribution to the bottom line.

A cancer giant
Celgene
(Nasdaq: CELG  ) had a bit of a rough patch last year, but has been firing on all cylinders again. Sales of its lead drug, Revlimid, were up 43% year over year in the third quarter.

There seems to be plenty of growth left in the cancer drugmaker. In addition to expanding Revlimid and developing the rest of its pipeline, Celgene recently purchased Abraxis Bioscience to get a hold of its cancer drug. It makes sense for Celgene to continue growing externally, so the drugmaker may become more of an acquirer than be acquired. Either way it looks like it has potential to increase in value.

Would Sanofi buy them?
None of these are truly a replacement for Genzyme; even BioMarin, which  makes the same type of drugs, isn't a good candidate since it's much smaller and wouldn't have the same effect on Sanofi's revenue line.

But that's not really the point. Investment with an acquisition exit strategy is better suited for venture capitalists than it is for retail investors in public companies. VCs usually have seats on the board and have some control over an acquisition. Retail investors are generally stuck with management making M&A decisions.

Investing in companies that have growth potential is a much sounder strategy. If the drugmaker gets taken out, so be it; enjoy your premium. But invest with the plan to hold for many years, and you'll be less disappointed when no buyer comes along.

Have a suggestion for a drugmaker with growth prospects that might get bought? Share in the comment box below.

BioMarin Pharmaceutical is a Motley Fool Rule Breakers recommendation. The Fool owns shares of GlaxoSmithKline, which is a Motley Fool Global Gains pick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


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