Another day, another buyout rumor. Yesterday it was Onyx Pharmaceuticals
Here's a news flash for you: Every public biotech could be sold at any point.
Boards of directors have a fiduciary duty to maximize value for shareholders. They have to entertain offers and make decisions about approaching potential acquirers; it's in the job description.
Just because an unnamed source says the drugmaker is up for sale, that doesn't mean it it's going to happen. Heck, even if the CEO says the company is entertaining offers, I wouldn't ascribe a higher value to the company. It takes two tango; you need a willing buyer to actually complete a sale. Throwing out a for-sale sign on the front lawn isn't good enough.
Not an investment thesis, but ...
While you can't count on a company to be acquired, I think it's reasonable to find high-quality companies that might be acquired. As long as you don't assign any value to the potential for an acquisition, it's a free kicker. Gilead Sciences
And knowing that a drugmaker might be acquired helps you to know that you're on the right track with your due diligence. If another company might be interested in buying the drugmaker, it seems reasonable that investors will be, too.
What makes a good acquisition target? Attractive drugs and the least complicated deal possible.
It certainly helps to have a drug that's in a growing market with little competition, but what I think pharmaceutical companies really want is to be able to quantify the risk. They haven't reached the point where they're so conservative that they only want to buy drugs already on the market, but if they're going to invest in a drug that is still in development, it had better be clear what the chances of approval are. That's one reason I think BioSante isn't likely to be acquired until the phase 3 data is revealed, and potentially not until after the drug gains FDA approval. There are just too many unknowns at this point.
The less complicated the deal, the better. It's not a deal-breaker for a company to already have a partner; Eli Lilly bought ImClone Systems even though it already had Bristol-Myers Squibb as a partner. But all things being equal, pharmaceutical companies would rather acquire the full rights to a drug than have to deal with developing it with another drugmaker.
Even after the purchase of Pharmasset and Anadys, the hepatitis C space is still ripe for further consolidation. Idenix Pharmaceuticals, Inhibitex
I used to think that Exelixis
Finally, there's Amarin
You can follow the Foolish news on the potential acquisition targets by adding them to the Fool's free My Watchlist service.
- Add Onyx Pharmaceuticals to My Watchlist.
- Add Idenix Pharmaceuticals to My Watchlist.
- Add Inhibitex to My Watchlist.
- Add Exelixis to My Watchlist.
- Add BioSante Pharmaceuticals to My Watchlist.
- Add Anadys Pharmaceuticals to My Watchlist.
- Add Amarin Corporation to My Watchlist.
- Add Achillion Pharmaceuticals to My Watchlist.
And while you're waiting for the next big biotech buyout to happen, download a copy of The Motley Fool's special free report, "The Motley Fool's Top Stock for 2012." See which company our analysts hand-pick as a high performer next year.
Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Exelixis. Motley Fool newsletter services have recommended buying shares of Gilead Sciences, Exelixis, and GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools don'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.