3 Biotechs on Their Way to Monster Status

Published: Sep 27, 2017

3 Biotechs on Their Way to Monster Status
September 25, 2017
By Mark Terry, BioSpace.com Breaking News Staff

With very, very few exceptions—namely spinoffs—big biotech companies started small and grew. Keith Speights, writing for The Motley Fool, looks at three biotech companies that are relatively small, but appear to be on a well-worn path of successful product launches and acquisitions that could take them to big-company status.

1. Exelixis

Based in South San Francisco, Exelixis develops and markets small molecule therapies for cancer. Over the last three years, company stock has grown almost 550 percent. Its big drug is Cabometyx, although it has two others, Cometriq and Cotellic, although Cabometryx and Cometriq are the same drug. The company is showing a profit and is debt-free. Cabometyx sales are climbing and is still being evaluated in other cancers.

Speights writes, “Michael Morrissey, Exelixis’ CEO, recently stated that the company plans to add oncology assets either through partnering with another biotech or making an acquisition. That’s smart. There’s a good chance that Cabometyx will win regulatory approval as a first-line treatment for kidney cancer. That would increase Exelixis’ revenue and cash flow significantly, allowing the company to reinvest to fuel more growth. Repeat this process a few times, and Exelixis’ market cap could multiply.”

2. Incyte

Headquartered in Wilmington, Del., Incyte is also an oncology company. It has been the topic of constant speculation as a juicy acquisition target for well over a year now. Top buyers often cited are Gilead, Eli Lilly & Co. and Novartis. It would be an expensive company to buy, with a market cap of $24 billion. Its first approved drug was Jakafi, and is projected to hit $2 billion annually.

When investors tire of that, they speculate on who Incyte might buy. In 2016, the company acquired ARIAD Pharmaceuticals’ European operations and an exclusive license for Iclusig for leukemia.

Speights writes, “The next big blockbuster for Incyte could be epacadostat. Market research firm EvaluatePharma expects sales of 1.7 billion by 2022 if it’s approved. That could just be the start of a string of pipeline successes. Incyte appears to be well on its way to replicating the stories of much larger biotechs.”

3. Vertex Pharmaceuticals

Located in Boston, Vertex Pharmaceuticals focuses on rare diseases, with two cystic fibrosis drugs, Kalydeco and Orkambi. Its market cap is currently $38 billion. This summer it bought CTP-656 for CF from Concert Pharmaceuticals. Although its pipeline is dominated by CF drugs, it also has candidates for acute pain and acute spinal cord injury.

Speights writes, “Over the long term, Vertex appears to have a tremendous opportunity for growth in the cystic fibrosis market and potentially in other genetic diseases. Even over the short term, the stock should perform well with continued success for Kalydeco and Orkambi and the likely approval of its combination of tezacaftor and Kalydeco. Vertex could very well become a giant in the genetic disease market in the coming years.”

Speights notes that all three companies are likely to grow—unless they get bought by somebody. They all have large market caps, which would make them expensive targets, limiting the likelihood of an acquisition by anybody but the larger companies. On the other hand, he writes, “If efforts to reform corporate taxes in the U.S. are successful, it wouldn’t be surprising if one or more of these up-and-coming biotechs are acquired by a larger biopharmaceutical company looking to spur more growth. The greatest risk that Exelixis, Incyte, and Vertex face in becoming a monster biotech is getting eaten by a biotech that’s already a monster.”

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