Investors can win big when they invest in healthcare stocks that are likely takeover targets. These companies often may not be that profitable, but because of the potential for their products or for their growing revenue, larger companies are willing to pay a premium for them. That often means the purchasing company pays above market price for the target's shares, and investors in the targets are paid well for their patience.
It can be a win-win all around. The larger companies buy some growth while the companies that are being pursued get adopted in a sense by a larger company that may be better equipped to market their products with a greater sales reach.
CRISPR Therapeutics (CRSP 1.08%), BioMarin Pharmaceutical (BMRN -0.44%), and Sight Sciences (SGHT -2.60%) all stand out as potential healthcare stocks that are excellent takeover targets this year. Let's look at why and who might be buying.
1. CRISPR's expertise and pipeline are enticing
CRISPR Therapeutics is one of the likeliest takeover targets among biotech stocks. The company's expertise in gene editing and growing portfolio make it attractive, despite its unprofitability.
It doesn't take much to figure out who some of the likely suitors might be as well. Just look at the company's partners in its pipeline. CRISPR is partnering with Vertex Pharmaceuticals (VRTX 0.10%) on CRISPR's lead therapy, exa-cel, to treat sickle cell disease (SCD) as well as transfusion-dependent Beta-Thalassemia (TBT). It's also collaborating with ViaCyte on diabetes mellitus stem-cell therapies VCTX-210, VCTX-211, and VCTX-212. It's working with pharmaceutical giant Bayer on an early stage hemophilia A treatment, and it also has therapies for which it is collaborating with Capsida and Nkarta Therapeutics.
The company could see its first marketed therapy this year in exa-cel. The company is in the process of submitting the curative one-dose therapy's rolling biologics license application with the Food and Drug Administration (FDA) this quarter. Overall, it has 21 programs in its pipeline, but besides exa-cel, the rest are in early trials.
Through nine months, the company reported $1.19 million in revenue (all from collaboration and grants), down from $902 million in the same period a year ago. Through nine months, CRISPR said it lost $556.8 million, compared to $518.2 million in the first nine months of 2021. The company has a strong cash position with $1.97 billion, so it can afford to fend off suitors for a while, but eventually, it may make sense for a larger company to buy CRISPR.
2. BioMarin's new approvals make it attractive
Shares of BioMarin have climbed more than 20% over the past year. The biotech specializes in rare disease gene therapies. The same qualities that are attracting investors to the San Rafael, Calif., company are drawing suitors. BioMarin is on track for its first profitable year. It has several marketed therapies and a pipeline that includes seven programs. Two of companies that have reportedly shown interest in BioMarin include Roche and Sanofi.
The FDA approved BioMarin's Voxzogo (vosoritide) in November 2021 to treat achondroplasia, a genetic condition that is the most common form of dwarfism. The company said it expects the drug to bring in between $140 million and $170 million in 2022, but that it could be worth more than $1 billion a year.
The company is launching severe hemophilia A therapy Roctavian this year in Europe and the drug has a Prescription Drug User Fee Act Target Action date of March 31 with the FDA, so it could also launch here later this year or early next year.
Besides Voxzogo, the company has seven other marketed therapies, led by Vimizim, which treats Morquio A syndrome, a metabolic disorder, and is forecasted to bring in between $655 million and $700 million this year. BioMarin's No. 2-selling drug is Naglazyme, designed to treat Maroteaux-Lamy syndrome, another metabolic disorder. The company said it expects Naglazyme to bring in between $415 million and $450 million.
Through nine months, BioMarin reported revenue of $1.5 billion, up 12.4%, year over year and net income of $141.8 million, compared to a loss of $6.2 million, in the same period last year.
3. Keep an eye on Sight Sciences
Sight Sciences specializes in making surgical and nonsurgical products to treat glaucoma and dry eye disease. It went public with an initial public offering in 2021.
The company released preliminary fourth-quarter and full-year numbers on Jan. 9. It said it expected full-year revenue to be between $71.2 million and $71.4 million, up 46% over 2021 at the midpoint. Most of the revenue is from the Omni, the company's surgical glaucoma system, which is expected to bring in between $65.5 million and $65.6 million, the company said, with the rest coming from dry eye therapies.
The problem for Sight Sciences isn't growth, as it has increased annual revenue by 205.6% over the past three years, using the company's lowest estimate for 2022 annual revenue. The concern is that it isn't close yet to being profitable. Through nine months, the company said it had a net loss of $69.3 million, 47.4% more than it lost in the same period last year, though EPS improved to a loss of $1.45 compared to an EPS loss of $2.38 in the first nine months of 2021.
The Omni is a hand-held device used for microinvasive glaucoma surgery (MIGS). It assists in draining fluid from the eyes and reducing intraocular pressure. The company said its stand-alone device has the potential for $5 billion in annual sales. The Glaucoma Research Foundation estimates that more than 3 million people in the U.S. have the disease, but only 1.5 million know it. It is also the second-leading cause of blindness for African-Americans, behind cataracts.
There may be even more potential, in the long run, for the company's TearCare treatment for dry eye disease (DED). The disease affects, according to Sight Science, 38 million people in the U.S. and represents a $10 billion annual opportunity in revenue. The TearCare system is a wearable eyelid technology that melts away gland obstructions that cause DED.
The growth of the company's products, combined with a relatively small cash position of $199.8 million, makes Sight Science a candidate for a buyout by a larger medical device company.
