Mergers and acquisitions are a way of life in the biotech world. Several big buyouts have taken place this year, and it's only a matter of time before the industry is abuzz over the next one.
But which biotech stocks are most likely to be acquired? Investment bank Evercore ISI polled 244 industry observers on that very question. Here are the three biotechs that survey respondents thought would be the most likely buyout targets over the next year.
Special insight from the survey
Incyte Corporation (INCY 1.73%) snagged the most votes in the Evercore ISI survey -- 14% of participants in the survey thought that the biotech would likely be scooped up by a bigger player over the next 12 months.
The big attraction for Incyte is its JAK1 and JAK2 inhibitor Jakafi, which is approved in the U.S. as a treatment for the bone-marrow diseases myelofibrosis and polycythemia vera. Incyte received $391.4 million in revenue from U.S. sales of Jakafi in the first half of 2016, and made another $47.9 million in royalties from sales outside of the U.S. by Novartis. Peak annual sales for Jakafi in the U.S. are expected to reach over $1.5 billion.
Incyte's pipeline could also interest prospective buyers. The biotech licensed another JAK inhibitor, baricitinib, to Eli Lilly. Baricitinib is currently awaiting regulatory approval as a treatment for rheumatoid arthritis. While Lilly stands to receive the lion's share of revenue if the drug wins approval, Incyte could eventually see revenue as high as $1 billion annually from baricitinib if all goes well.
Another pipeline candidate with plenty of potential, epacadostat, is in a late-stage study targeting treatment of melanoma. Analysts think epacadostat might generate peak annual sales of over $3 billion if approved.
Perhaps the biggest hurdle for potential buyers to overcome is Incyte's valuation: The biotech's market cap currently stands at $18 billion, and Incyte would fetch even more in a buyout. Any larger company looking to make this acquisition would need to feel very good about the prospects of Incyte's pipeline candidates.
Biogen (BIIB 1.05%) ranked second on the Evercore ISI survey of biotechs most likely to be acquired, with 12% of respondents voting for the company. These industry observers must be itching for a megadeal: Biogen's current market cap is well over $67 billion.
There's definitely a lot to like about the biotech. Biogen's multiple sclerosis franchise is impressive, led by Tecfidera, with Plegridy growing sales quickly. But is Biogen more likely to buy smaller companies than sell to a larger player? Maybe not.
In a few months, Biogen will be smaller than it is now. In early 2017 the company plans to spin off its hemophilia business into a new company, to be called Bioverativ. Biogen expects this spinoff to increase value for shareholders. I think they're on the right track -- and the move could make Biogen a more attractive acquisition target.
Biogen's pipeline is intriguing. Nusinersen, which targets treatment of spinal muscular atrophy, awaits FDA approval. Aducanumab, which has the potential to be the first effective treatment for Alzheimer's disease, is in a late-stage study. If Biogen can successfully get these drugs across the finish line, today's price will look like a steal.
The Evercore ISI survey identified BioMarin Pharmaceutical (BMRN 2.05%) as the third most likely biotech buyout over the next year. BioMarin narrowly trailed Biogen by garnering 10% of the vote.
BioMarin's market cap of under $16 billion is the lowest of the top three acquisition targets in the survey. The company's product lineup includes four approved drugs: Vimizim, Naglazyme, Kuvan, and Aldurazyme. All four drugs target rare genetic diseases.
Vimizim, which treats Morquio A syndrome, is BioMarin's top-seller, generating $179.4 million in the first half of 2016; the drug could eventually reach peak annual sales of $800 million. Peak annual sales for the biotech's other three approved drugs are expected to be between $400 million and $500 million.
Two drugs in BioMarin's pipeline should be quite appealing to potential buyers. An FDA decision on Batten disease drug Brineura is expected by Jan. 27, 2017. BioMarin anticipates filing for regulatory approval of pegvaliase, which targets treatment of rare genetic blood disease phenylketonuria (PKU), in fourth-quarter 2016 or first-quarter 2017.
I suspect bigger companies could be drawn to BioMarin largely because the company develops drugs for indications that few other biotechs are targeting. With this competitive moat, BioMarin, in my view, is a very likely takeover target.