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3 Biotechs That Could Be M&A Targets

By Todd Campbell – Sep 24, 2016 at 12:01PM

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These three cancer drug stocks could have the best shot at getting acquired.

Image source: Getty Images.

After Pfizer, Inc. agreed to pay 14 times forecast sales for 2016 to acquire cancer drugmaking pure play Medivation last month, shares in other cancer-focused biotech companies shot higher. While it doesn't make sense to buy shares in all the companies that have taken off, investors may want to consider owning these three, each of which has catalysts on deck that could make it attractive to a bidder.

Approaching the finish line

In May, Array BioPharma (ARRY) announced it would file for FDA approval of binimetinib, to treat melanoma linked to mutations in the NRAS gene, and the company followed through on that plan at the end of June.

If approved, binimetinib will become the first of Array BioPharma's drugs to cross the regulatory finish line and make it to market; given that there's a significant need for new treatment options in this indication, binimetinib could hit the ground running.

Median progression-free survival for binimetinib patients with advanced NRAS-mutant melanoma was 2.8 months, versus 1.5 months for dacarbazine. Binimetinib patients with advanced NRAS-mutant melanoma who had also previously been treated with immunotherapy had progression-free survival of 5.5 months, versus 1.6 months for patients treated with dacarbazine.

A decision on binimetinib isn't expected until next summer, but an acquirer could step up prior to that. If one does, it would also gain access to a host of other cancer drugs, including encorafenib, which is in phase 3 trials, and seven other cancer therapies that are in phase 2 studies.

Expanding reach

Shares in Seattle Genetics (SGEN -1.80%) are rallying after the release of important trial data that could expand the addressable target market for its commercial drug, Adcetris:

SGEN Chart

SGEN data by YCharts.

Adcetris is a CD30-targeting drug that's approved to treat Hodgkin lymphoma patients whose disease has returned after a stem-cell transplant, or following at least two chemotherapy regimens. In August, the company reported results from a phase 3 trial that could also allow Adcetris' use in advanced mature T-cell lymphoma.

Overall response rate at four weeks for Adcetris patients in this indication was 56.3%, compared to 12.5% in the control arm of the study. Secondary endpoints, including complete response rate, progression-free survival, and reduction in the burden of symptoms during treatment, were all highly statistically significant in favor of Adcetris.

Management plans to file for a label expansion to include this indication early next year, and if approved, it could further fuel Adcetris sales growth. In the second quarter, Adcetris U.S. sales jumped 20% year over year to a record $66.2 million; total revenue, which includes royalties paid to it by Takeda Pharmaceutical on international sales, climbed 24% to $95.4 million.

Trials are also underway to determine if Adcetris is effective as a frontline therapy in Hodgkin lymphoma and mature T-cell lymphomas, and results from those studies could be available as early as next year. Additionally, Seattle Genetics is enrolling patients in a phase 3 study of another drug, SGN-CD33A, for acute myeloid leukemia.

Since Seattle Genetics has deep pockets (with $863 million in assets), it's already racking up solid sales, and it has multiple cancer drugs in late-stage studies, this could be a very intriguing company for an acquirer to get its hands on.

Recovering its footing

Rumors are swirling that Clovis Oncology (CLVS -1.76%) may be a mergers-and-acquisitions target ahead of a FDA decision on rucaparib, an ovarian-cancer drug that put up solid efficacy in trials. If those rumors are true, then it would mark an impressive turnaround for the company. Last year, management reported that data from a lung-cancer trial evaluating rociletinib wasn't as good as previously thought, prompting the FDA to shelve an accelerated approval of the drug earlier this year:

CLVS Chart

CLVS data by YCharts.

So far, it looks like rucaparib will avoid rociletinib's fate, and become Clovis Oncology's first FDA-approved drug. In September, the FDA said it wouldn't conduct an advisory committee meeting to discuss rucaparib, a potentially bullish sign. An official go/no-go decision is anticipated from the FDA on Feb. 23, 2017.

If approved, then rucaparib will become the second PARP inhibitor approved to treat advanced ovarian cancer patients with BRCA mutations. The first drug, Lynparza, costs $13,000 per month, and notched $100 million in sales through the first six months of this year. While Lynparza is approved for patients who have received three or more chemotherapy treatments, rucaparib could get the nod for use in patients who have been treated with two or more chemotherapies, an advantage that could give this drug nine-figure potential. If so, then I think this stock could be worth more than its current $1.4 billion market cap to a buyer.

Todd Campbell owns shares of Medivation and Seattle Genetics. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this.

The Motley Fool recommends Seattle Genetics. We Fools may not 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.

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Stocks Mentioned

Seagen Inc. Stock Quote
Seagen Inc.
SGEN
$121.22 (-1.80%) $-2.22
Clovis Oncology Stock Quote
Clovis Oncology
CLVS
$0.34 (-1.76%) $0.01
Array BioPharma Stock Quote
Array BioPharma
ARRY

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