Who wants to make a deal? That's the question in the biotech world right now with valuations down from earlier this year. Several big drugmakers have both a reason to make an acquisition as well as the financial strength to do so. In this Motley Fool Live video recorded on July 14, Motley Fool contributors Keith Speights and Brian Orelli discuss which biotechs are most likely to make big acquisitions this year.
Keith Speights: Hey, and speaking of acquisitions, Jefferies analyst Michael Yee thinks that big drugmakers could be forking over plenty of cash in the second half of this year to make deals.
Sure enough, Eli Lilly just this morning announced a $1 billion dollar-plus acquisition of Protomer Technologies. Do you agree with the analyst that more acquisitions will be on the way? If so, which companies do you think will be most likely to be in buying mode?
Brian Orelli: It seems like a reasonable hypothesis. The biotechs are certainly on sale right now and they are well off their highs, the XBI, which is the SPDR S&P Biotech ETF, is down 26% from high set earlier this year. Asking who will make the acquisitions is basically the same as asking who is desperate for growth.
With that context, I'll give you three companies, AbbVie (NYSE:ABBV), which is facing coming biosimilar competition for its mega-blockbuster, Humira. Gilead (NASDAQ:GILD), which has a solid HIV franchise, but it's not really growing that quickly, and its hepatitis C franchise which rocketed up and then backed down. Then Vertex (NASDAQ:VRTX), which is getting close to maximizing its opportunity in cystic fibrosis. There's certainly some growth left in Europe, but it won't last all that long and it really needs to find its next growth driver.
I'd say those three are most likely to be making deals in the not-too-distant future, so AbbVie, Gilead, and Vertex.
Speights: I would agree with you on all of those. Gilead certainly has a large cash stockpile. The company has been scooping up some smaller oncology biotechs, but I could still see more deals in its future.
Vertex, in particular, I think there is increasing pressure on to make some kind of deal, especially with as you said, there's still some growth left for the cystic fibrosis franchise, but the company needs some other growth drivers. It had some clinical setbacks with its AATD program. I think as time goes by, the pressure will just intensify on Vertex to pull the trigger and use some of its growing cash stockpile to make a deal.
Orelli: Yeah. All three of them have quite a few billions of dollars just waiting to get deployed. The bigger question is whether they do licensing deals or will they do full acquisitions. I don't really care whether they do one or the other, they probably just need to do something to add to the pipelines.
Speights: Of the three, I think Vertex might historically, anyway, be a little pickier about making deals.
AbbVie had the big acquisition of Allergan, I guess it was a year and a half ago, something like that, not too long ago, which there wasn't all that much overlap, I think, between their product lines.
Orelli: Gilead, as you said, has done quite a few deals in oncology. I think it's really built out most of its pipeline through deals for oncology.