Consolidation has been the name of the game for much of the health care sector over the past few months. Companies with focus areas in hepatitis C and life-science instrumentation have been hot commodities and the premiums paid by purchasing companies has investors excited and on notice -- mostly because there's still plenty of cash left on the balance sheets of large pharmaceutical companies and a lot of voids to fill after "Patent-geddon 2012" is over.
However, predicting a buyout is tricky business. There aren't any crystal balls in the world good enough to answer the who, when, and how-much questions that we'd all love to know concerning a buyout. What I can do is share with you three companies that should be on your radar since I feel they're already on Big Pharma's. Please consider this pure speculation on my part -- I'm not expecting my crystal ball back from the repair center anytime soon. Still, these three biotechs have pipelines that many aging pharmaceuticals companies should find attractive.
Here they are, in no particular order, along with the company that I feel could be a potential suitor:
Vertex Pharmaceuticals (Nasdaq: VRTX )
Vertex has been tossed in the shopping cart for a few years now – 2012 should finally be the year that it makes it to the checkout counter. With sector hopeful's Pharmasset and Inhibitex being purchased recently, Vertex seems like the next logical choice since it actually has a drug for hepatitis C already on the market -- Incivek.
Not only is Incivek on the market, it's been tearing it up and eating it for breakfast. Approved in May, Incivek sales totaled $420 million in the third quarter and it could wind up being one of the fastest product launches to reach $1 billion in sales. Vertex's adoption rate of the drug has been phenomenal, as has its managing of the Incivek's supply. Not surprisingly, Vertex has other drugs in its pipeline (eight in total) with focus areas on HIV and cystic fibrosis; but make no mistake, Incivek is the driving force behind its stock and the current miniscule forward P/E of just 8. With a $7.25 billion market valuation, Vertex won't come cheap, but Incivek marketing partner Johnson & Johnson has the cash to make this deal happen. Merck is another potential suitor for Vertex, but if it were to go after Vertex it may send the wrong signal to shareholders that its own Hep-C pipeline isn't good enough.
Onyx Pharmaceuticals (Nasdaq: ONXX )
Like Vertex, this one almost seems like a no-brainer. It was rumored in early December that Onyx had hired a banking firm to scout out potential suitors for the company. A suitor for Onyx would be looking at gaining access to Onyx's kidney and liver cancer drug Nexavar, as well as carfilzomib, its experimental drug used to treat multiple myeloma, which is currently under FDA review.
Nexavar sales grew by 11% in the most recent quarter and the company continued to expand its marketing partnership with Bayer. In December, a failed trial by Bristol-Myers Squibb's (NYSE: BMY ) brivanib assured that Nexavar would remain the only treatment for hepatocellular carcinoma, the most common type of liver cancer. While not the fastest-growing drug, clearly any drug with the "M" word – monopoly -- bears buyout consideration. Obviously, Bayer makes sense because it's Onyx's marketing partner, but don't count out GlaxoSmithKline, Novartis, or Pfizer (NYSE: PFE ) ,either – they all have a significant presence in kidney and liver cancer treatment. With Pfizer's Inlyta being approved on Friday to treat advanced kidney cancer, I'd give the nod to Glaxo, who seems more desperate to replace its aging pipeline.
Acorda Therapeutics (Nasdaq: ACOR )
Acorda is similar to Onyx in that it holds a monopoly on a specific treatment; in this case the multiple-sclerosis market. Unlike the previous two companies, Acorda already has two drugs approved by the FDA, which should give it an edge to being purchased by a larger pharmaceutical company. The primary allure of Acorda is Ampyra, the only treatment approved by the FDA for MS patients to treat walking impairment. Secondarily, the company produces Zanaflex which is a short-acting drug that treats central nervous system injuries.
Ampyra is no Incivek – sales grew by just 10% over the year-ago period, but with 2.5 million people diagnosed worldwide with MS, the market for this drug seems undeniably large. It's that market that could draw the attention of larger pharmaceuticals suitors. Biogen Idec seems like the logical suitor here with Ampyra licensed to Biogen for sales outside of the United States. However, I think it would be wrong to count out Merck, Novartis, or even Teva Pharmaceutical which have interests in the MS drug market.
So there you have it -- three pipelines with high hopes and a good chance at being purchased in 2012.
What companies have crossed your radar as possible buyout candidates in 2012? Share them in the comments section below and consider adding these three biotechs to your free and personalized Watchlist so you can keep up with the latest news for each company.
Also, if you think I'm the only one scouting out for the next potential blockbuster in the health care sector you'd be sorely mistaken. Our top-notch team of analysts has released a new special report, "Discover the Next Rule-Breaking Multibagger," which names a company that could be set to spread and grow like a wildfire. Best of all this report is free for a limited time, so don't miss out!
- Add Vertex Pharmaceuticals to your Watchlist.
- Add Onyx Pharmaceuticals to your Watchlist.
- Add Acorda Therapeutics to your Watchlist.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool owns shares of Johnson & Johnson and Teva Pharmaceutical. Motley Fool newsletter services have recommended buying shares of Vertex Pharmaceuticals, Johnson & Johnson, GlaxoSmithKline, Teva Pharmaceutical, Novartis, and Pfizer, as well as creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy with an endless pipeline of transparency.