April 14, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
The American biotech sector will see a continued boom in its merger and acquisition cycle after an unprecedented first quarter saw over $100 billion in deals, with companies like Gilead Sciences, Inc. , Celgene Corporation , and Biogen, Inc. all poised to participate, said UBS analyst Matthew Roden in a note to investors Tuesday.
“Resurgent pipeline success should trigger P/E multiple expansion ahead of rising estimates and de-risking of these pipeline assets could trigger M&A,” wrote Roden, who also named BioMarin Pharmaceutical Inc. , Achillion Pharmaceuticals, Inc. and Vertex Pharmaceuticals as potential targets.
“We don’t expect deals for the sake of deals – rather, strategic moves on de-risked, valuable assets,” he said.
Roden said he thinks the most likely buyers in biotech industry will be Gilead Sciences, Inc. (NASDAQ:GILD), Celgene Corporation (NASDAQ:CELG), and Biogen Inc (NASDAQ:BIIB).
“Sufficient cash remains on hand for S&P500 companies to help continue M&A consolidation trend whose volumes in late 2013 and 2014 (through early November) were reminiscent of multi-year booms such as those begun in 1998 and 2005,” he said.
Roden said that investors should remember that most M&A cycles last between three to five years, with most analysts seeing 2014 as the first year in the cycle. Last year recorded M&A activity worth $235 billion.
Roden estimated that biotech firms will see a red-hot growth rate of around 20 percent until 2017. That means the sector is ripe for new deals that combine well-stocked coffers with combines looking for synergy, said UBS.
“While analyzing the recent trend of acquisitions and buyouts, we note that the main reason behind the acquisitions is to get hold of a particular investigational candidate, orphan drug, or a potential novel treatment for some disease,” said Roden. That lead him to name several other possible takeover targets, including Puma Biotechnology for its promising cancer drug neratinib.
“[Puma] in adjuvant setting de-risks a multi-billion dollar revenue stream,” wrote Roden, who point out Puma has seen its share price leap more than 200 percent over the past year.
Achillion Pharmaceuticals, Inc. is also in the crosshairs for its experimental hepatitis C drugs, ACH-3422 and ACH-3102, which will release data in the first half of 2015. Investors and boards of directors at Big Pharma also like the fact that ACH-3102 has already received Fast Track Designation from the U.S. Food and Drug Administration (FDA). Achillion, too, saw a massive boost from the recent 66 percent gain in the NASDAQ Biotech Index, shooting up 260 percent year-over-year.
Other solid targets? BioMarin Pharmaceutical Inc., for its orphan drug pipeline and Duchenne muscular dystrophy (DMD) drug; Medivation Inc (NASDAQ:MDVN), for oncology drug Xtandi; and Alexion Pharmaceuticals Inc. for its six upcoming label expansions or product launches in the next three years.
