In a bid to offset the risk of patent expiration, drugmakers spend billions of dollars every year on acquisitions to bolster drug pipelines and boost sales. But just because we know that Big Pharma has a penchant for purchases doesn't mean we know which companies they might be interested in buying. We asked three Motley Fool analysts to tell us which companies they think could be a perfect fit for an M&A-hungry acquirer. Read on to see which three they selected.
But that doesn't mean other U.S. companies won't buy Shire, which has a robust pipeline of ADHD and rare-disease drugs. Shire's three core ADHD drugs -- Vyvanse, Intuniv, and Adderall XR -- controlled a fourth of the entire U.S. ADHD market last quarter. Sales of Vyvanse, which accounted for 23% of Shire's top line, rose 19% to $355 million. Its nine main drugs (excluding Cinryze, which it acquired less than a year ago) all posted double-digit sales growth. That attractive portfolio of drugs helped Shire's revenue and operating income respectively soar 33% and 49% last quarter.
An obvious suitor would be Pfizer (NYSE:PFE), which was willing to pay $112 billion for London-based AstraZeneca earlier this year before the deal fell apart. Pfizer's new drugs, such as palbociclib and bococizumab, are potential blockbusters, but Pfizer needs to beef up its pipeline with more high-growth drugs like the ones that Shire offers. Even if Pfizer doesn't step up, Merck -- which is looking for new drugs, not big inversions -- could be another potential suitor.
At $4.56 billion in revenue last year, Pfizer-spinoff Zoetis is by far the leader in animal-health, where critical mass is important. German-based Bayer AG (NASDAQOTH:BAYRY), which is shedding its plastics business, could do a bolt-on acquisition of Zoetis. Such a deal would vault Bayer from fifth-place to top dog in animal-health.
Another suitor could cut in, however. As Todd Campbell pointed out recently, Pershing Square's founder Bill Ackman has a $2 billion stake in Zoetis. Ackman had teamed with Valeant Pharmaceuticals in a bid for Allergan and failed -- Zoetis could be a fallback plan.
Rising income in emerging markets has created higher pet ownership and increasing demand for livestock. Zoetis currently has a 20% market share of the estimated $23 billion global market for animal medicines and vaccines.
Brian Orelli: The best biotech takeout targets are companies with a single drug, because the buyer gets just what it wants and doesn't have to pay for something extra. Medivation (NASDAQ:MDVN) fits that bill with its prostate cancer drug Xtandi.
While Medivation doesn't have any molecules in the pipeline, it's testing Xtandi in other indications with the potential to treat prostate cancer patients at other times in the disease progression. It's also testing Xtandi as a treatment for breast cancer.
Astellas would be the obvious suitor, since it already sells Xtandi outside the U.S., where Medivation gets double-digit royalties, and shares profits with Medivation in the U.S. If Astellas believes its future royalty payments plus the U.S. profits are worth more than Medivation's enterprise value, it makes sense for the Japanese pharma to buy Medivation.
While it's less likely that another pharma would buy Medivation, it's not unheard of if the asset is attractive enough as long as the buyer was willing to work with the biotech's current marketing partner. Eli Lilly, for example, bought ImClone Systems, despite having to work with ImClone's marketing partner Bristol-Myers Squibb to sell Erbitux. The competition -- Bristol also bid on the company -- allowed ImClone's investors to get a better price, something Medivation's shareholders would certainly appreciate.
Brian Orelli and Cheryl Swanson have no position in any stocks mentioned. Leo Sun owns shares of Pfizer. The Motley Fool recommends and owns shares of Valeant Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools dno't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.