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Barry Cohen
Barry Cohen
Articles (247) 

Analyst's Potential Buyout List Includes Alexion, Amarin and Biomarin

Suitors like Amgen, Pfizer, Sanofi are likely eyeing mid-size companies that are more affordable

The health care strategy analyst at Jefferies said he expects to see acquisitions in the pharma and biotech space in the $5 billion to $10 billion range, according to an article in FierceBiotech. The publication enlisted the help of Jeffries' Jared Holtz to compile a list of the 10 top industry takeover targets.

Holtz thinks that most deals going forward will be those of the mid-size variety. That rules out several companies that were once the most highly coveted but have since become too expensive, including Seattle Genetics Inc. (NASDAQ:SGEN), Vertex Pharmaceuticals (NASDAQ:VRTX) and Regeneron Pharmaceuticals Inc. (NASDAQ:REGN).

Holz thinks the most aggressive shoppers will be Amgen Inc. (NASDAQ:AMGN), Biogen Inc. (NASDAQ:BIIB), Bristol-Myers Squibb Co. (NYSE:BMY), Gilead Sciences Inc. (GILD), GlaxoSmithKline (GSK), Johnson & Johnson (NYSE:JNJ), Merck & Co. Inc. (NYSE:MRK) Novartis (NYSE:NVS), Pfizer Inc. (NYSE:PFE) and Sanofi (SNY). That's a pretty good guess on Holtz's part since these are nearly all of the big industry players.

Many of the companies seek to shore up their offerings in the face of a slowdown in mature products, thanks in part to increasing competition and the rise of biosimilars, which are drugs similar to medicines that have already been approved.

To follow is a rundown on three of the companies Holtz thinks are the most likely to be acquired:

Alexion Pharmaceuticals Inc. (ALXN) - Boston

Long rumored buyout candidate Alexion is one of the biggest bargains among mid- to larger-cap biotechs based on its price-earnings ratio and enterprise value-to-earnings before interest, depreciation and amortization ratio, according to Fierce Biotech.

The biggest concern among potential buyers is that Alexion is basically a one-product company. Its costly treatment for ultra-rare and rare diseases—Soliris-- generated revenue of $4 billion last year, but its patent expiration is approaching and companies like Amgen are developing biosimilars of the blockbuster.

At about $122 a share, Alexion is trading near its 52-week high. About two weeks ago, the company said it was raising its annual guidance for 2020 by more than $200 million and would return about $3 billion to shareholders in a stock buyback.

Of the 21 analysts covering the stock, all but three rate it a buy or strong buy with a median target price of about $143.

Amarin Corp. PLC (AMRN) - Dublin, Ireland

What makes Amarin appealing is its drug Vascepa, a cholesterol treatment that could achieve blockbuster status. The drug racked up sales of $430 million in the U.S. last year and its potential was expanded substantially last December when the Food and Drug Administration approved it to be used with another type of cholesterol drug to reduce cardiovascular risk.

Amarin would likely prove less alluring if it loses its appeal of a recent court decision against the patents protecting Vascepa in the U.S. from competition until 2030. If the company fails to prevail, competitors like Hikma Pharmaceuticals (LSE:HK) and Dr. Reddy's Laboratories Ltd. (RDY) stand ready with generics that could badly hurt sales.

If Amarin wins the appeal, the company would be a nice addition to a buyer looking to boost its position in cardiovascular medicine.

Amarin trades at just more than $5, near its 52-week low. The stock has lost about 80% of its market value since mid-November. Five Yahoo Finance analysts rate the shares buy or strong buy with an average target price of $11.40.

Biomarin Pharmaceutical Inc. (BMRN) -San Rafael, California

Biomarin shares got hammered in mid-August when the FDA gave a thumbs down to its gene therapy to treat hemophilia A. The company now trades at about $77, a long way off of its one-year high of nearly $132. The gene therapy remains under review in Europe, but its U.S. introduction could be delayed by a few years.

The agency ruling put a big blemish on what was expected to be a possible buyout in the $2 billion range. That's the exact amount Biomarin is bringing in from sales of its rare disease drugs.

Still, Biomarin could fill the need for pharma companies looking to get into the gene therapy business. After all, the company offers one of the most interesting and large-scale opportunities, particularly with its weakened share price, according to FierceBiotech.

Based on analyst price targets, Biomarin is a bargain. Of the 24 industry professionals following the company, 19 rate it a buy or strong buy, with an average target price of more than $110.

Disclosure: The author has positions in Amgen, Bristol-Myers, Johnson & Johnson, Gilead, Pfizer and Sanofi.

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About the author:

Barry Cohen
Barry Cohen has nearly 40 years experience in communications and marketing, the majority in senior positions at large international health care companies, including Abbott Laboratories and Bayer Inc.

He has contributed to a number of financial websites, writing primarily about the stocks of health care companies.

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