The healthcare sector is going through an unprecedented period of consolidation lately due to a multitude of factors, including the Affordable Care Act, the patent cliff, the advent of several ground-breaking new classes of drugs, and the retirement of the so-called "baby boomers" that has ratcheted up demand for nearly all forms of medical services.
Investors fortunate enough to be holding shares in companies that been on the buyout side of the M&A ledger have been making out like bandits for the most part. As such, there's a healthy interest in the investment community regarding which healthcare companies -- especially in the high-flying biotech industry -- might be the next buyout target. To shed some light on the matter, we asked three of our healthcare contributors to chime in with their thoughts. Here is what they had to say:
Sean Williams: Predicting which biotech stock could be a buyout target next is far from an exact science (in fact, your odds might be just as good throwing a dart at a newspaper), but if my arm were twisted, I'd opine that small-cap BioCryst Pharmaceuticals (NASDAQ:BCRX) could soon find itself on larger companies' radars.
BioCryst is a predominantly clinical-stage company, with Rapivab, a treatment for acute uncomplicated influenza, being its only FDA-approved drug. The company's remaining research ranges from pivotal phase 3 studies to preclinical work.
Obviously, a buyer is going to be intrigued with having an approved product (Rapivab) and its potential to generate immediate revenue. Additionally, BioCryst had $132 million in cash and cash equivalents at the end of the second quarter, or around $100 million net after accounting for debt. That cash could be a dangling carrot for a buyer as it ultimately acts as a rebate for the acquirer.
However, the real allure is BCX4161, an oral therapy designed to treat hereditary angioedema (HAE), a rare genetic disorder that causes swelling to the extremities, face, airways, and intestinal tract of patients. HAE is a highly sought after indication for drugmakers because any approved therapies are likely to carry a six-digit price tag and deal with relatively minimal competition. BioCryst initiated enrollment for its 12-week OPUS studies in December, and if all goes well, a larger company itching for a taste of the rare-disease market (or wants to expand its rare-disease portfolio) could come knocking on BioCryst's doorstep. If approved, BCX4161 could hit the $1 billion mark in annual sales according to some of the most bullish analysts, so this is certainly a biotech stock worth monitoring.
Cheryl Swanson: Biogen (NASDAQ:BIIB) is my candidate for the next buyout target. And since I've put on my pharmaceutical soothsayer hat, I'll add that the market leader in multiple sclerosis treatment could be Botox-maker Allergan's next target.
Allergan CEO Brent Saunders recently hived off its generics business to Teva Pharmaceutical for $40.5 billion. With his company's M&A debt settled, Saunders made it clear he's racing back to the deal-making table. We're "reloaded and ready to move" on future acquisitions, he said in a conference call last month.
Why Biogen? The big biotech's share price appears to have been overly punished, significantly improving its buyout appeal in the eyes of acquisitive drugmakers. Mixed results from an Alzheimer's drug treatment showed investors the folly of exaggerated expectations in the notoriously difficult Alzheimer's space. Things soured further when Biogen's key moneymaker, Tecfidera, fell short of estimates, and the company lowered its near-term financial forecasts accordingly.
While Botox and Biogen may seen like strange bedfellows, Biogen's multiple sclerosis franchise has some strategic overlap with Allergan's central nervous system franchise. In addition, while this would be a massive deal, (Cowen's research team ballparks it at $100 billion), they also estimate it could add $11 billion to Allergan's 2017 annual revenue.
Biogen could also end up the hunter instead of the hunted. Its $4.5 billion cash store gives it options, including buying another biotech or drugmaker. "Eat or be eaten" is the rule in the healthcare space these days, and Biogen is a stock I believe could face big changes ahead.
George Budwell: As Sean aptly pointed out, biotech mergers and acquisitions tend to come out of left field, making them nearly impossible to predict. That being said, I suspect that the tiny oncology company Exelixis (NASDAQ:EXEL) is starting to garner some interest from bigger pharmas right now, and may end up getting bought out before year's end.
My belief centers around the potential for Exelixis' flagship cancer drug Cometriq to successfully expand its label soon to include an advanced kidney cancer indication. As a refresher, the company reported that Cometriq easily topped Novartis' Afinitor in terms of progression-free survival last July, perhaps putting the former drug's roughly $400 million in annual sales into play going forward.
If a Cometriq label expansion weren't enough of an incentive, Exelixis and its partner, Roche, are also barreling toward their Nov. 11 target review date with the FDA for their combo therapy of cobimetinib and Zelboraf, indicated for BRAF V600 mutation-positive metastatic melanoma. Most industry insiders believe this combo therapy will indeed get the green light come November, which would give Exelixis two approved products, with perhaps three approved indications within the next year.
All told, I think Exelixis is turning into a compelling buyout target based on the recent progress of its clinical pipeline that's targeting one of the fastest-growing areas of biopharmaceuticals, namely oncology.
Cheryl Swanson owns shares of Biogen Idec. George Budwell has no position in any stocks mentioned. Sean Williams owns shares of Exelixis. The Motley Fool recommends Exelixis and Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.