The new year began with a bang for the pharmaceuticals/biotech industry. Bristol-Myers Squibb Company (
BMY - Free Report) , one of the largest pharma giants, announced that it will acquire the leading biotech company Celgene ( CELG - Free Report) for a whopping $74 billion in what could be one of the largest acquisitions in recent times. Following suit, another large-cap pharma company Eli Lilly ( LLY - Free Report) is all set to acquire Loxo Oncology for $8.0 billion to broaden its oncology portfolio. Meanwhile, Japan-based Takeda Pharmaceutical completed its buyout of Irish company Shire plc.
The biotech sector took a beating in 2018 which makes the valuations more attractive. Evidently, the spotlight is back on mergers & acquisitions in the healthcare space. While it is true that last year too started on a cheerful note with expectations of a ramp-up in M&A activity, propelled by the implementation of the new tax law, thereby leaving more cash in the hands of companies, the deals however, dried up after the initial euphoria.
Key acquisitions in 2018 included Bayer’s takeover of Monsanto for $63 billion, Novartis snapping up AveXis, Inc. and Endocyte plus Sanofi grabbing Ablynx and Bioverativ, Celgene’s buyout of Juno Therapeutics, Alexion’s acquisition of Sweden-based Wilson Therapeutics and Syntimmune et al. GlaxoSmithKline plc has also announced an agreement to acquire commercial-stage biopharmaceutical company Tesaro, Inc with a focus on oncology.
The landscape in the drug/biotech sector is rapidly changing. A slowdown in mature products due to increasing competition and rise of biosimilars has forced most pharma bigwigs to eye lucrative acquisitions to bolster their pipeline. Small tuck-in acquisitions are quite frequent too. While amalgamation of complementary product portfolios and overlapping pipelines are a key reason for mega deals, smaller biotechs are generally bought owing to innovative pipelines.
Cost synergies in research and development (R&D) plus sales and marketing are also added benefits. The larger players with huge wads of cash are under a lot of pressure to make strategic acquisitions and diversify their revenue base. Moreover, it makes sense for these companies to buy innovative small/mid cap biotech companies and boost their pipeline rather than developing a drug from scratch and invest both several years and millions in it.
However, these acquisitions do not always shape up as planned and come with their respective set of risks. Companies like Bausch Health among others kept acquiring smaller and mid-size players irrespective of the burden it imposed on the balance sheet, which eventually resulted in shambles. While the Celgene acquisition does look positive prima facie for Bristol-Myers, it will induce a huge debt load as well for the latter. In addition, any acquisition of this magnitude comes with its own set of integration perils. Moreover, some of Celgene’s shareholders also believe that the company has better prospects on a standalone basis and might not give a nod to the acquisition.
Nevertheless, walking the lines of Bristol-Myers and Eli Lilly, we expect a surge in M&A activity during 2019 in the overall drug/biotech sector as the companies look to use huge cash trunks and combat rivalry woes. Oncology and Immuno-oncology are a key area of focus. Quite a few biotechs with promising oncology treatments are on the radar as companies like Pfizer and Roche gear up to strengthen their portfolio.
Here, we discuss a few large/mid cap biotech companies, which are likely acquisition targets with rewarding product portfolios and a deep pipeline of candidates with innovative treatments for diseases like NASH with an unmet need promising huge potential.
Alexion Pharmaceuticals, Inc. ( ALXN - Free Report)
Alexion primarily focuses on developing and commercializing drugs for the treatment of patients with ultra-rare disorders. The market potential of such drugs is significant with less competitive pressure. Alexion's blockbuster drug, Soliris (approved for the treatment of two severe and ultra-rare disorders resulting from chronic uncontrolled activation of the complement component of the immune system — paroxysmal nocturnal hemoglobinuria (PNH) — and atypical hemolytic uremic syndrome (aHUS)), continues to perform well. The FDA approval of the generalized myasthenia gravis indication has boosted the drug prospects further.
Alexion received a substantial boost from the recent FDA approval of its long-acting C5 complement inhibitor, Ultomiris, for treating adult patients with PNH, to be administered every eight weeks. The FDA approval comes well ahead of its action date set for Feb 18, 2019. The nod will strengthen Alexion's PNH franchise.
With a market capitalization of $24.1 billion, this company is a hot target for the big shots looking to build up a place in the rare diseases market.
Incyte Corporation ( INCY - Free Report)
Wilmington, DE-based Incyte Corporation is another company on the horizon with a first-in-class JAK1/JAK2 inhibitor, Jakafi, approved for the treatment of patients with polycythemia vera (PV). Its label has been updated several times since the approval and the prospects look good. The company is keen to expand the drug’s label further, which should boost sales. Its second JAK1 and JAK2 inhibitor, Olumiant (baricitinib, JAK1/JAK2 inhibitor), was developed in collaboration with Eli Lilly. The drug is approved for rheumatoid arthritis (RA) both in the United States and Europe. Moreover, the company has several candidates in early-to-mid-stage development in its pipeline including both targeted and immune therapies that are currently developed in oncology and outside it.
With a market capitalization of $15.8 billion, Incyte has high chances of being acquired by one of its co-developers like Novartis or Eli Lilly or another behemoth from the same space like Gilead.
Regeneron Pharmaceuticals, Inc. ( REGN - Free Report)
Tarrytown, NY-based Regeneron is one of the leading biotech companies with a very strong and varied portfolio. Its pipeline boasts marketed drugs like Eylea (for several eye diseases), Dupixent (atopic dermatitis) and Praluent (heterozygous familial hypercholesterolemia) among others. Regeneron’s key growth driver, Eylea, consistently performs well and its label expansion into additional indications has further boosted growth for the company. Dupixent too has driven overall performance. The company is working to expand Dupixent’s label further for several other indications. This should widen the company’s revenue stream and reduce dependence on Eylea. Last September, the FDA approved its immuno-oncology therapy, Libtayo, for treating patients with metastatic or locally advanced CSCC. The company has a deep and diverse pipeline.
With a market-cap of $42.9 billion, this top biotech has surely grabbed eyeballs and a bidding war can be expected in the near term.
Sarepta Therapeutics, Inc. ( SRPT - Free Report)
A relatively smaller biotech company as compared to the ones mentioned above with a market cap of $7.7 billion, Sarepta Therapeutics has arrested attention, mainly because of the prospects of it sole marketed drug Exondys 51, which has witnessed impressive growth. Exondys 51 is the first approved disease-modifying therapy for Duchenne muscular dystrophy (DMD) in the United States. The company primarily focuses on the discovery and development of RNA-based therapeutics targeting rare and infectious diseases. Sarepta is looking to build its DMD pipeline beyond Exondys 51 by developing other exon-skipping treatments and the company has about eight exon-skipping candidates in its pipeline.
A few setbacks notwithstanding, the company’s follow-on exon-skipping and gene therapy pipeline candidates represent the most comprehensive approach to treat DMD.
Given the money-spinning valuations, we expect a lot of M&A activity in the biotech space in 2019.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>