Mergers and acquisitions can be extremely profitable for pharmaceutical investors. A little over a year ago, for instance, Jazz Pharmaceuticals swooped in to buy Celator Pharmaceuticals in a cash deal valued at $1.5 billion, representing a stunning 73% windfall for Celator's investors. 

So, with the tempo of the M&A party expected to pick up in the next few months -- fueled by another wave of patent cliff causalities and a surfeit of cash reserves building up across the industry -- investors may want to start considering which drugmakers might be worthy acquisition targets going forward.

Keeping with this theme, I think the large-cap drugmakers Biogen (NASDAQ:BIIB) and Bristol-Myers Squibb (NYSE:BMY) are two names that might not be the most obvious buyout targets to casual observers, but that are, in fact, highly attractive acquisition candidates. Here's why. 

Puzzle pieces

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Two reasons Biogen is an under-the-radar buyout target

Biogen's name hasn't floated to the top of many buyout rumor mills lately, and perhaps for good reason. The company's core multiple sclerosis franchise, after all, is under attack from a suite of competitors, such as Celgene's ozanimod and Roche's Ocrevus. However, analysts at Mizuho Securities still think Biogen may get bought out, but at a somewhat modest premium of roughly 10% compared to where the stock to trading right now ($281 per share). 

Biogen may prove to be an attractive target for two reasons. First, the biotech's present market cap of $59.5 billion puts it right in the sweet spot from a financial perspective. Several drugmakers could flat out pay cash for Biogen at its current valuation to tack on its roughly $12 billion revenue stream, and $3.74 billion in free cash flows. Put simply, that's a great price for a bolt-on acquisition that should be accretive to earnings right away, and there simply aren't a whole lot of similar valuation scenarios floating around the industry these days. 

Second, Biogen has two particular assets under its roof that might trigger a buyout. Specifically, the biotech's experimental Alzheimer's candidate, aducanumab, sports the highest net present value among all clinical-stage drugs at a staggering $10.2 billion, according to a report by EvaluatePharma. If approved, this drug could turn out to be the best-selling medicine of all time by a wide margin.

The downside is that aducanumab belongs to a class of drugs that have repeatedly failed to show any signs of efficacy in pivotal-stage trials -- meaning that this drug is without a doubt a long shot. Still, big pharma has plowed literally billions into similar drugs time and again -- despite any lack of proof that they work. So it shouldn't come as a shock if aducanumab turns out to be a key reason Biogen gets taken out.     

Aside from aducanumab, Biogen and its partner Ionis Pharmaceuticals also share the newly approved spinal muscular atrophy medicine Spinraza, which is expected to eventually reach megablockbuster status. Spinraza is an especially attractive asset for a potential acquirer because it's an orphan medication, so it comes with an extended period of exclusivity, and it will probably turn out to be largely immune to any potential drug pricing reforms. 

Bristol's immuno-oncology franchise may be too valuable to ignore 

Unlike Biogen, Bristol's name has made the rounds several times on the buyout rumor mill, linked to possible mergers with both Gilead Sciences and Pfizer (NYSE:PFE) in the recent past. The overarching reason is obvious: Opdivo. Bristol's anti-cancer medicine has quickly racked up 11 indications and should exceed a healthy $4 billion in sales this year as a result.

Despite the tenacity of these rumors, however, Bristol has yet to receive a formal offer -- at least one that's been made public. Presumably, potential suitors are concerned about Opdivo's ability to break into earlier lines of therapy for its most valuable indication -- non-small cell lung cancer (NSCLC) -- and to stave off competitors in later-line settings as well. Opdivo, after all, flamed out in a clinical trial as a monotherapy for NSCLC and its ongoing combination study with Bristol's Yervoy is showing some worrisome signs as well. 

The bigger picture, though, is that Bristol is without question transforming into an immuno-oncology giant, regardless of this hiccup in NSCLC. While Opdivo should ultimately become a bona fide backbone therapy employed in a variety of combination medicines, Bristol also has a vibrant pipeline of additional immuno-oncology agents, such as its anti-LAG3 and IDO-inhibitor cancer drugs. That's an enormously appealing feature to a company that has largely failed to establish its own oncology franchise (like Gilead).  

As an added bonus, Bristol also sports two additional legit franchise-level drugs. Specifically, Bristol and Pfizer's blood-thinner, Eliquis, generated a noteworthy $3.3 billion in sales last year and became the world's leading oral anti-coagulant
globally for stroke prevention in patients with atrial fibrillation. And the drugmaker's rheumatoid arthritis medication, Orencia, hauled in a stately $2.3 billion in 2016. 

Now, Bristol's price tag could easily top $120 billion in a buyout scenario, ruling out most potential suitors, including Gilead. But Pfizer is a definite contender to make a play for Bristol based on their shared interests in immuno-oncology, cardiovascular care, and anti-inflammatory diseases. Stay tuned. 

Investing takeaways

Although you should arguably never buy a stock simply because of its potential as a buyout candidate, there's no denying that another wave of consolidation is eventually going to sweep across the biopharmaceutical landscape soon. So it's probably a good idea to at least have this secondary value driver in the back of your mind when buying biotech and biopharma stocks right now.

In regards to Biogen and Bristol, these two companies both offer modest near-term growth prospects, fairly clean balance sheets, and some intriguing clinical assets. As such, a buyout thesis certainly isn't necessary in order to consider adding these top pharma names to your portfolio. Nevertheless, the current environment does lend credence to a takeover scenario in each case -- making it worthwhile to ponder as a possible near-term catalyst.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.