Last year was truly remarkable when it came to merger and acquisition activity in the biotech sector. Although the number of deals completed in biotech was flat year-over-year at 27, according to Pharmexec.com the value of those deals skyrocketed to $12.7 billion from $7.1 billion the previous year. I believe this demonstrates that there is clear interest in dealmaking within the biotech sector at present.
One reason we're seeing such an abundance of deals is easy access to cheap cash. Historically low lending rates have allowed bigger companies to be aggressive and finance deals at attractive interest rates. Another key point is the patent cliff, which has been clubbing Big Pharma product lines pretty hard and coercing them to seek out immediate alternative avenues for growth. The answer, in many instances, has been acquisitions.
Of course, it's important to understand that predicting which company could be the next buyout candidate is far from an exact science -- and investing in a stock in the hope of a buyout is rarely, if ever, a good idea. Nonetheless, it's worthwhile to examine what biotech companies could be on bigger companies' radars, as it could have a material impact on our investments.
With that in mind -- and with another reminder that these are merely guesses on my part and not necessarily suggestions to buy these companies -- here are three biotech companies that could be potential buyout targets.
BioMarin Pharmaceutical (NASDAQ:BMRN)
BioMarin Pharmaceutical is far from a tiny tot with a valuation of $22 billion, but the company's incredible clinical-stage results and successful drug development platform could be the perfect match for a larger biotech or Big Pharma company.
BioMarin's research revolves around ultra-rare diseases. In the past, most drug developers have shied away from researching rare disease drugs because it's costly and the patient pool is often very small. However, for those that did go that route, like BioMarin, the rewards can be enormous when they get their treatments approved by the Food and Drug Administration. Approved ultra-orphan disease drugs carry hefty price tags and rarely have any competitors to worry about.
BioMarin's product portfolio currently includes Naglazyme, a drug designed to treat Maroteaux-Lamy syndrome which markets for close to $500,000 per year, and Vimizim, a treatment for Morquio A syndrome that'll set insurers and/or patients back about $380,000 per year. Between 2014 and 2018, Wall Street anticipates BioMarin's sales could more than double from $751 million to $1.9 billion.
So, who might be interested in BioMarin? Understanding that this is pure speculation, I'd still single out Shire (NASDAQ: SHPG). Shire's portfolio predominantly revolves around rare disease drugs, so a combination would help lower costs, and would probably provide an EPS boost as quickly as a year following the closing of a deal. The only complication here is that Shire made an unsolicited $30 billion bid for Baxatla earlier this month. There's no guarantees this deal will come to fruition, but if it doesn't, keep a possible Shire and BioMarin marriage on your radar.
Bluebird bio (NASDAQ:BLUE)
Clinical-stage biotech company bluebird bio is what you might call the cream of the crop of attractive biotech buyout candidates, because it offers therapies targeted at rare diseases and chimeric antigen receptor T-cell technologies (also known as CAR-T) which enhance the body's T-cell response to more effectively fight cancer. In other words, you have a company that has little competition at one end of its research spectrum, and a huge amount of interest from Wall Street and its peers in its immunotherapy-based therapies to treat cancer at the other.
Currently, bluebird bio's most advanced clinical studies involve Lenti-D, which is designed to treat a rare hereditary neurological disorder known as childhood cerebral adrenoleukodystrophy, and LentiGlobin for the treatment of two rare hemoglobinopathies. The study involving Lenti-D is currently in phase 3 trials, while its LentiGlobin study for beta-thalassemia major is also in late-stage studies. LentiGlobin has the potential to become a blockbuster therapy, according to a handful of Wall Street projections.
Obviously it's risky for a larger biotech or Big Pharma to consider buying a wholly clinical-stage biotech company, but Roche or Celgene seem like logical suitors from my perspective.
Celgene's interest in CAR-T therapies would give it a viable reason to make an offer. However, it's worth noting that Celgene just dropped $7.2 billion in cash to buy Receptos, meaning it may not be looking for an acquisition as large as bluebird anytime soon. Meanwhile, Celgene also recently narrowed its collaborative efforts with bluebird in favor of a $1 billion, 10-year CAR-T research program with Juno Therapeutics. Roche, with its oncology pipeline stretching about six-dozen clinical studies deep, may be the most likely of the two destinations for bluebird bio in my opinion.
I'm certainly not the first to propose that Ziopharm Oncology could be a buyout candidate. In June, the Boston Business Journal cited an interview with hedge fund manager Joe Barton who proclaimed that Ziopharm could be bought out relatively soon at a substantial premium. The reasoning behind Barton's assertion was the potential for success of Intrexon and Ziopharm's CAR-T immunotherapy development platform. Ziopharm's technology allowing it to control genes paired with Intrexon's RheoSwitch, which can turn genes on and off, could become the standard approach to treating cancer. In short, Interxon's and Ziopharm's approaches go hand in hand.
The danger here is that we're talking about a very young pipeline. Aside from Ad-RTS-IL-12, which is being studied in a midstage breast cancer trial, and a phase 1 B-cell malignancy therapy, everything within Ziopharm's pipeline is preclinical or discovery in nature. It means a potential suitor would need to step up and pay an enormous sum for Ziopharm and Intrexon without actually having any revenue-generating therapies for years to come.
So who might interested in this potential CAR-T dynamic duo? I'd take a look at U.K.-based AstraZeneca as a potential suitor. In June, AstraZeneca CEO Pascal Soriot had this to say when questioned about potentially buying a CAR-T immunotherapy developer:
"If at some point we conclude we need to make an acquisition, we would certainly consider it, there's no question about it."
Of course, Soriot also added:
"At this stage, we have a lot on our hands. We have a full portfolio of immunoncology assets; our strategy has been, with CAR-T, to partner."
It means investors shouldn't be betting on any buyouts solely as their reason for buying any of the aforementioned stocks (to echo what I said earlier), but it doesn't rule out the idea of AstraZeneca making a bid to bring this early but innovative technology into the fold.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool recommends BioMarin Pharmaceutical, Bluebird Bio, and Juno Therapeutics. The Motley Fool owns shares of and recommends Celgene. 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.