A lot of small biotechs are fantastic buys right now. With Big Pharma sitting on a lot of cash, we might start seeing some smart acquisitions later this year.
We asked a trio of contributors to pick the biotechs they're feeling most bullish about as potential buyout candidates in 2022. Their choices: OptimizeRx (OPRX -0.32%), Affimed (AFMD 1.58%), and Blueprint Medicines (BPMC -2.31%).
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The internet will revolutionize healthcare
Taylor Carmichael (OptimizeRx): While internet stocks are getting creamed right now, I have no doubt that this sector is one that investors will want to be in over the next couple of decades. The internet makes everything faster and cheaper. This has been the overriding theme of my 25-year investing career. And we're finally seeing that revolution come to the healthcare industry with the advent of telehealth. Companies like Teladoc Health (TDOC -1.52%) and Doximity (DOCS -0.77%) are shifting the practice of medicine into the digital age.
One tiny company I love in this sector is OptimizeRx, which helps pharmaceutical companies reach doctors. That's a $9 billion market opportunity, and Optimize is in the sweet spot. Its network reaches over 700,000 healthcare providers. That makes it the largest point-of-care electronic network in the U.S.
What makes OptimizeRx so valuable is that it reaches doctors via its vast electronic health records network. So when a doctor is looking up a patient's medical records, drug companies can target the physician with pharmaceutical updates -- for instance, a link to a new study showing an increase in efficacy.
That's far more valuable than having a squadron of pharmaceutical sales reps. This is why 19 out of 20 of the largest drug companies subscribe to OptimizeRx. And like your typical software-as-a-service (SaaS) company, OptimizeRx has a land-and-expand model. A pharmaceutical company might start by using OptimizeRx's network to promote one drug, and then expand the relationship to more and more drug campaigns as it comes to recognize the value of the service.
I believe the value proposition is fairly obvious, which is why I suspect one of the larger telehealth companies will be acquiring OptimizeRx sooner rather than later. Regardless, this stock should soar a lot higher as it takes more and more market share of a very large niche.
The next big thing in cancer immunotherapy
George Budwell (Affimed): Although the widely expected 2022 biotech buyout bonanza has yet to materialize, there are several good reasons to think an acquisition frenzy could be close at hand. Beyond the fact that big pharma is flush with cash, most, if not all, of the top companies could arguably use infusions of new products and pipeline candidates.
Small-cap cancer immunotherapy companies -- especially those with novel product candidates -- ought to draw attention once the takeover party gets rolling.
Among this group, the German anti-cancer immunotherapy company Affimed stands out from the crowd. Affimed is developing a series of innate cell engagers, which are antibodies that form bridges between natural killer cells and tumors.
For investors digging into Affimed, the early trial results of its lead candidate, AFM13, should jump off the page. At a recent scientific conference, the company reported that AFM13 generated a 100% objective response rate in patients with CD30-positive relapsed or refractory Hodgkin and non-Hodgkin lymphomas. The therapy was also surprisingly well-tolerated.
I think Bristol-Myers Squibb and Roche stand out as the two most likely suitors in this case. Each of these elite pharma entities has considerable interests in cutting-edge immuno-oncology products, and each could use an infusion of new talent, so to speak.
The risk is that big pharma hasn't shown much interest in paying top dollar for novel assets of late. Market conditions may have to improve before smaller companies like Affimed can negotiate from positions of strength. Management teams in this beaten-down space probably aren't willing to give away their prized treatment assets at low-ball prices. Eventually, though, Affimed should attract a willing suitor.
A potential blockbuster on sale
Patrick Bafuma (Blueprint Medicines): Both Pfizer Chief Executive Officer Albert Bourla and Novartis Chief Executive Officer Vasant Narasimhan have made it known over the last two years that they're on the hunt for acquisitions. Blueprint Medicines has multiple therapeutics that would nicely tuck into a large pharma, where they could benefit from a larger R&D budget.
Blueprint's first-ever approved drug, Ayvakit, addresses a disease called mastocytosis. During flare ups, this condition is characterized by allergic reaction-like symptoms throughout the body, ranging from hives to abdominal pain, muscle aches, and mood changes. While currently only approved in advanced cases, where median survival is just 6 months to 3.5 years, the company is making progress in advancing it as a treatment for other variations of the disease. Blueprint plans to launch in non-advanced systemic mastocytosis sometime in 2023. That would be a win for patients, who report worse physical functioning and mental health than patients with colorectal or lung cancer. Market expansions for Ayvakit could be a huge windfall for the company. There are an estimated 16,000 patients in the U.S. with some form of mastocytosis, so with its $32,000 a month price tag, Ayvakit has multibillion-dollar potential for this $3.1 billion market-cap biotech.
Blueprint has multiple precision oncology drugs in development as well. While it has four targeted therapies in phase 1/2 trials, this is not your typical early-stage biotech with numerous candidates that won't see late-stage trials. It already has an approved targeted therapy, dubbed Gavreto, for certain types of thyroid cancer and non-small cell lung cancer. It agreed to split costs and profits 50/50 in the U.S. market for Gavreto with Roche, as well as tiered royalties of somewhere between 15% and 25% on sales outside the U.S.
Blueprint Medicines, in short, has shown that its research and development team can deliver drug candidates that can make it to market.
Blueprint has an oncology research program that has already delivered a successful product, and it's lining up multiple shots on goal. The company could be a steal for a larger pharmaceutical maker looking to expand its pipeline and capitalize on future market expansions for Ayvakit.
