Could Vertex Pharmaceuticals Be a Prime Acquisition Target?

Many investors expect that Vertex Pharmaceuticals (VRTX 1.49%) could make additional acquisitions in the not-too-distant future with its growing cash stockpile. However, there is a different possibility for the big biotech. In this Motley Fool Live video recorded on June 23, 2021, Motley Fool contributors Keith Speights and Brian Orelli discuss whether or not Vertex might be a prime acquisition target.

Keith Speights: All right. Brian, we spoke earlier this week about the possible companies that Vertex Pharmaceuticals might acquire. Vertex is being pushed by at least one analyst to use its growing cash stockpile to go on a buying spree.

But with Vertex's share price down after its clinical setback with this AATD program, do you think the company actually might instead be a prime acquisition target itself?

If so, which companies could be possible buyers of Vertex?

Brian Orelli: Vertex is pretty big, but I think it could still potentially be bought at this price. The market cap's around $48 billion and the enterprise value is around $41 billion, so that's closer to what  somebody who bought it would be paying plus presumably some premium.

That's about the same size that Celgene was when it was bought by Bristol Myers Squibb, who acquired in 2019 for 50 percent in premium. It's definitely doable by the large pharmas.

I don't think Bristol Myers Squibb is the right fit. It's pretty heavy into oncology focus. Same to the Merck, especially after it spun out [Organon] , whatever [laughs] the name of that spinout was, and they spun out a whole lot of their other drugs that made them even more heavily into oncology so I'm not sure that would be necessarily a good fit with Merck.

For the U.S. pharma's that leaves Eli Lilly (LLY 1.25%), and Pfizer (PFE 0.51%). I feel like Pfizer might be a better bet there if they were going to acquire it, just because they seem a little more eclectic than Lilly, who seems to be more focused on diabetes and some other places, I feel like Pfizer is a little bit bigger and all over the place.

Looking overseas, I think it's a little bit harder because you have to start looking at currency exchange rates. A few years ago, or maybe I'm dating myself and it was more than a few years ago, there was a series of acquisitions by Japanese companies and it turned out the yen had really appreciated against the U.S. dollar, and so that made the companies in the U.S. cheaper for Japanese companies to buy.

I guess I'm ignoring that factor because I think it's too hard to tell. Novartis (NVS 3.07%) might be a good fit, they're into rare diseases and they have some gene therapies, so I think Vertex's partnership with CRISPR Therapeutics could fit in right there.

Let me throw out one wild card here, and we'll call this reckless prediction: How about a merger of equals with Biogen (BIIB 0.42%)? I mean, of course, Biogen did it once before with Idec, although that was when they were much smaller. It was even called Biogen Idec for many years.

That would give Biogen some stability to its declining sales in multiple sclerosis, and then that would allow it to ramp up sales for Alzheimer's disease drug Aduhelm. I think that would probably be a good fit, but I'm not sure of that either one of the companies will really be interested in doing it.

Speights: Now Brian, I like that reckless prediction there, but in a merger of equals, it's usually not a merger of equals. One of the players tends to [laughs] be a little bit more dominant in the transaction between these two. Do you think it would be Vertex or Biogen in the driver's seat if something happened with these two companies merged?

Orelli: I think right now it's probably Vertex because although their pipeline isn't so great, they do have their revenue declining. I think the two like Vertex's better just because while its revenue gains or growth is slowing, it's definitely they're not declining yet, and I don't think they will over the years I think they're just starting to launch in Europe.

I think that their new drug's in Europe, and so I think that will allow them to continue to grow sales for years to come, even as they maximize their use in cystic fibrosis.

Then of course, as we've said, they really need to find that pipeline candidate that's in late-stage development, and they don't have that right now. I think that's the reason why the price has declined so much. Hopefully, they can find something that they can buy to spark some interest from investors.