Shares of Mallinckrodt (NYSE:MNK) were up 10% after the company announced that it's buying Cadence (NASDAQ:CADX) for $1.3 billion. Shares of Cadence performed even better, up about 25% on the buyout news.

The catalyst for the acquisition is painkiller Ofirmev, which was approved in 2010, but with roughly $100 million in trailing-12-month sales, it hasn't been a huge seller. Mallinckrodt believes it can double those sales, and in this video from Tuesday's Market Checkup, Motley Fool health-care analyst David Williamson says he thinks the company will need to reach that goal to fully justify this purchase.

If everything goes well, this purchase should be accretive this year, which is what had the market showing love to both of these companies on the news. Mallinckrodt is focused on growing its specialty pharma side, and already specializes in abuse-resistant painkillers. In the video, David gives investors the story on Mallinckrodt, and discusses why he now sees this spec pharma company as a possible acquisition target itself.

What's the best way for investors to play the volatile biotech space?
The best way to play the biotech space is to find companies that shun the status quo and instead discover revolutionary, groundbreaking technologies. In The Motley Fool's brand-new free report "2 Game-Changing Biotechs Revolutionizing the Way We Treat Cancer," find out about a new technology that big pharma is endorsing through partnerships, and the two companies that are set to profit from this emerging drug class. Click here to get your copy today.

David Williamson has no position in any stocks mentioned. The Motley Fool recommends Covidien. 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.

Compare Brokers