Buyouts in the biopharmaceutical space frequently come at staggeringly high premiums. For example, early-bird investors who bought shares of Avexis, Clementia, Kite Pharma, Juno Therapeutics, Nightstar Therapeutics, and Spark Therapeutics all walked away with enormous windfalls in an exceedingly short period of time.
In keeping with this theme, an initial investment of $10,000 in Kite Pharma's IPO would have resulted in a payday of over $100,000 in less than three years' time. So, given these types of jaw-dropping returns on capital, it's no surprise that buyouts are a hot topic of conversation within the biotech investing community.
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How to spot a biotech buyout candidate
What's the best way to spot the next big biotech acquisition? Over the past few years, a few general trends have emerged within the biopharmaceutical mergers and acquisitions landscape that should help investors separate the wheat from the chaff.
The first trend is that fairly recent biotech IPOs (within the last five years) have been a hotbed of acquisition activity. Literally every name mentioned at the top of this article was bought out within five years of their IPO.
The second trend that's come to light is that companies operating within the fields of orphan drugs, gene/cell therapies, or genomics in the broad sense have been the hottest buyout targets for a few years now.
Lastly, the companies that fetch a worthwhile takeover bid almost always sport either a late-stage clinical candidate or a recently approved product. Companies with early- to mid-stage product candidates, on the other hand, tend to attract licensing deals, not buyout offers.
So which biotech companies tick off all of these boxes? Despite a flood of recent IPOs in the biotech space, Atara Biotherapeutics (ATRA +11.73%) and Crispr Therapeutics (CRSP 2.19%) are the only two companies that clearly fit this general description. In fact, these two clinical-stage biotechs are on course to fall in line with all of these prevailing trends, once their lead product candidates take the next step in their respective life cycles.
Atara sports a highly coveted clinical asset
Atara's claim to fame is its off-the-shelf allogeneic T-cell immunotherapy platform. Although Gilead Sciences' (GILD +1.16%) and Novartis' anti-cancer cell therapies both sport stellar efficacy profiles, these first-generation commercial-stage products have problematic safety issues and are extremely hard to manufacture at commercial scales. Atara's tabelecleucel treatment -- that's presently being evaluated in two late-stage trials -- is designed to solve both of these drawbacks.
What's next? The company is expected to release top-line data from tabelecleucel's late-stage trials in the first half of this year, potentially setting the table for a regulatory filing in early to mid-2020. The big deal is that the first company with an off-the-shelf T cell immunotherapy on the market should be a red-hot buyout candidate.
Which biotechs or big pharmas might step up to the table? Gilead and Novartis are both obvious candidates, given their leadership position in adoptive cell therapy at the moment. However, Amgen, the Bristol-Myers Squibb/Celgene mash-up, Pfizer, and Roche could all be in play for Atara's hand -- that is, if tabelecleucel hits the mark in these two ongoing trials. GlaxoSmithKline (GSK +2.19%) also shouldn't be counted out. Glaxo has made a decisive pivot to immuno-oncology under its new leadership team and the company clearly needs more high-value assets to successfully pull off this transition. In short, there should be ample interest in Atara following a positive late-stage readout.
Crispr: The world is watching
Gene editing could take a big leap forward soon. Crispr and partner Vertex Pharmaceuticals (VRTX +3.02%) are evaluating their CRISPR/cas9 treatment CTX001 in two rare blood disorders, beta thalassemia and sickle cell disease. As the first-company sponsored human trials for a CRISPR/cas9 therapy, Crispr and Vertex stand to gain an all-important first-mover advantage with this experimental therapy.
Crispr's name should thus float to the top of the buyout rumor mill if CTX001 proves to be both safe and efficacious in either of these blood disorders. This novel technology, after all, has the potential to supplant more burdensome gene-editing methods like transcription activator-like effector nucleases and zinc finger nucleases and accelerate the pace of development for a broad array of gene and cell-based therapies as well.
Who are Crispr's likely suitors? Partner Vertex already owns a 10% stake in the company, putting the drugmaker in the catbird seat from an acquisition standpoint. That said, Bayer AG, GlaxoSmithKline, and Celgene also own sizable equity stakes in Crispr -- a fact that might lead to a bidding war in the event this gene-editing platform lives up to the hype.
Are Atara or Crispr worth buying right now?
Owning shares of a company well ahead of a potential takeover bid is obviously the best way to maximize profits. However, Atara and Crispr are both highly speculative plays at this point -- a fact that should give potential investors pause.
The bottom line is that each company needs its lead clinical candidates to pan out. Otherwise, its stock will probably lose most of its value in the blink of an eye. In other words, Atara and Crispr are arguably only suitable for super-aggressive investors at this stage. The next clinical update for either company could change this situation for the better, however. Stay tuned.
