3 Biotechs That Could Be Bought Out This Year

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Buyout! The word gets biotech investors' blood flowing and their hearts racing. Mere rumors that a biotech stock could get bought out can send shares surging.

Chances are that a few biotech companies will be scooped up by larger players over the coming months. Here are three biotechs that could possibly be bought out by the end of the year.

1. Onyx Pharmaceuticals (UNKNOWN: ONXX.DL  )
This one's virtually a no-brainer. A few weeks ago, Amgen (NASDAQ: AMGN  ) made an unsolicited offer for Onyx. Although Onyx rejected Amgen's bid of $120 per share as being too low, that wasn't the end of the story.

Onyx decided it liked the attention from Amgen and "interest received from other third parties," so it commissioned its financial adviser to explore other opportunities for a sale. Depending on which analyst you're listening to, the biotech could bring as low as $145 per share and as high as $180 per share.

Several potential buyers have been floated -- by pundits, not by the company itself. German drugmaker Bayer and Onyx already work closely together, co-marketing Nexavar. Pfizer (NYSE: PFE  ) also has a connection with the biotech through its licensing of breast cancer drug palbociclib. Of course, Onyx won't limit its options to big companies with which it currently works.

2. Alexion Pharmaceuticals (NASDAQ: ALXN  )
Despite all of the buzz, I won't say that a sale of Alexion is a done deal just yet. Roche is reportedly looking to finance a buyout of Alexion, but the possibility exists that the high price tag could scuttle those plans. On the other hand, we would be remiss without including Alexion in our list of potential biotech buyouts.

Roche threw in the towel last year on a potential acquisition of Illumina due to price. The company hasn't shied away from big deals, though. It bought Genentech in 2009 for $46.8 billion. However, that buyout was for 17 times EBITDA. Piper Jaffray says that an acquisition of Alexion could cost 61 times EBITDA.

Valuation concerns aside, Alexion makes an attractive target for Roche. Soliris, which treats two rare blood diseases, enjoys marketing exclusivity as an orphan drug and ranks as one of the most expensive treatments in the world. Alexion also continues to experience strong growth from Soliris, with revenue increasing 38.5% year-over-year last quarter.

3. Acadia Pharmaceuticals (NASDAQ: ACAD  )
There aren't any known deals in the works for Acadia, but it wouldn't be surprising if acquisition stories emerge in the not-too-distant future. Several factors could contribute to the small biotech ending up as a target for a larger player.

Acadia received great news from the Food and Drug Administration in April. The FDA told the company that another planned phase 3 trial wouldn't be needed for pursuing approval of pimavanserin, which targets treatment of Parkinson's disease psychosis, or PDP. As a result, Acadia anticipates submitting a New Drug Application, or NDA, for the drug by the end of 2014.

Pimavanserin also holds potential to treat Alzheimer's disease psychosis, which is similar in several aspects to PDP, as well as schizophrenia. Analyst Jason Napodano projects that worldwide peak sales for all indications could exceed the $2 billion mark. With Acadia's market cap now at a little over $1.5 billion, the company could be a good buy for a larger organization if these estimates are even close to accurate.

Buyout fever
Just because a company is open to being acquired doesn't necessarily mean that it will be acquired, as is the case for Onyx. And just because a larger company has the motive and the means to make an acquisition doesn't mean that it will happen. Pfizer, for example, could benefit from a smart buy and certainly has the cash to make a deal happen. However, CEO Ian Read hasn't placed a high priority on acquiring smaller companies. Roche might want Alexion, but the price tag could ultimately prove too high.

Getting buyout fever can be a dangerous disease for investors. Chasing a stock on buyout rumors only to have those rumors fail to pan out can be hazard to your portfolio's health. The smarter approach is to buy a stock based on its own merits. If the company gets bought out, that's great. If not, you're still holding a stock with good prospects for producing gains.

Biotech stocks can soar on buyout rumors, but the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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  • Report this Comment On July 17, 2013, at 12:08 AM, crt6978 wrote:

    You Fools are correct on ACAD being a BO target and probably this year.I don't understand how you got CYTK so wrong .On 7/10/13 you say "worth the risk" and on 7/15/13 you sat "due for a pullback".You can not have it both ways and the fundamentals did not change in that short period of time.CYTK has two exciting investigational new druge Tirasemtiv for ALS and Omecamtiv Mercarbil for heart failure patients both of which have an extremely good chance of approval and BB status in a very short time. Co is easy worth 5x the 340mm value today just on Tirasemtiv and Omecavbil being 10x that.

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