1 of the Most Surprising Biotech Acquisitions in Years

Jazz Pharmaceuticals (JAZZ 0.77%) recently announced plans to acquire cannabinoid-focused biotech GW Pharmaceuticals (GWPH) in a deal valued at $7.2 billion. In this Motley Fool Live video recorded on Feb. 3, Fool.com writers Keith Speights and Brian Orelli talk about how this deal ranks as one of the most surprising biotech acquisitions in years.

Keith Speights: Brian, let's kick it off with a non-COVID story. One of the biggest news items of the day in the biotech world anyway, is that Jazz Pharmaceuticals announced plans to acquire GW Pharmaceuticals. The overall price tag of the deal is $7.2 billion, but net of GW's cash, the total is $6.7 billion. GW stock is up more than 40% this morning. I think the last I looked, just a few minutes ago is around 46%. That will probably go up and down a little bit. But Brian, I guess, let's start off with this one. How surprising to you is this acquisition of GW by Jazz Pharmaceuticals?

Brian Orelli: Yeah. I don't really see the connection too much. Jazz has a couple of sleep drugs for narcolepsy, and they have some cancer drugs. I guess they're a weird play in and of themselves maybe another bolt-on acquisition of GW Pharmaceuticals, which is into epilepsy is maybe not so bad. GW has got a lot of specialized manufacturing because they're purifying their drug out of cannabis.

Speights: To be honest with you, this is one of the more surprising biotech acquisitions I've seen in quite a while. It came out of the blue. I wasn't looking for it at all. Like you said, the connection is a little thin. I guess both companies operate in the neuroscience spectrum. I guess that's one of the commonalities there. But Jazz focuses on sleep disorder drugs primarily. GW has Epidiolex, a cannabinoid that has been approved for, I guess, three epilepsy-related conditions so far. But this was a stunner and obviously, great news for GW shareholders with the stock soaring.

But I don't think investors are necessarily looking at it as positively for Jazz. The last I looked, I'm going to pull up the stock there and see how it's doing as of right now. As of right now, Jazz stock is down around 6%. It doesn't look like Wall Street or other investors are viewing this transaction all that positively from Jazz's perspective, but it's obviously a good one for GW's.

Orelli: Yeah. It's not really that expensive. It's trading with today's move, GW's trading at 13.7 times sales, so that's not insanely expensive considering it should be continuing to grow. We think of five as being the stagnant company valuation, decent valuation for a stagnant growth company. So 13.7 price to sales, I don't think is completely outrageous, although the actual value was slightly higher than that because it doesn't reach the full value of the takeover.

Speights: Right. Sales of Epidiolex have been really strong since it was launched. It was the first plant-based cannabinoid drug to be approved by the FDA. They initially received approvals for Dravet syndrome, Lennox-Gastaut syndrome, both rare forms of epilepsy, more recently, received approval for tuberous sclerosis complex another form of epilepsy. It still has growth potential and GW has some other cannabinoid drugs in its pipeline. I guess Jazz was saying, hey, we want to expand, we want to maybe get some growth from GW's pipeline and cash in on the great story that Epidiolex has been so far and decide to pull the trigger. But again, just a totally shocker there. I don't think anyone saw this one coming.

Orelli: Yeah, especially not those two as a combination.

Speights: Yeah. Brian, there are some deals that are made in the biotech world that we look at and say, "Well, that one made sense." For example, I thought Bristol Myers Squibb acquisition for Celgene made sense. I thought there was some good synergies there. This one, it's striking.