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February 26, 2018

10 Takeover Targets of 2018

As M&A Rebounds, So Do Buyout Prospects for Biopharmas

10 Takeover Targets of 2018

After a relatively quiet 2017, biopharma merger-and-acquisition (M&A) activity has surged during the first two months of 2018, though the value of deals is a lot closer to 2017 than the headlines would indicate. [Rawpixel/Getty Images]

  • After a relatively quiet 2017, biopharma merger-and-acquisition (M&A) activity has surged during the first two months of 2018, judging by the parade of multi-billion-dollar deals already announced this year.

    Two of those deals were struck by Celgene, which has disclosed plans to acquire Juno Therapeutics for $9 billion and Impact Biomedicines for $7 billion. Sanofi is buying two rare-blood-disorder-drug developers—Bioverativ for approximately $11.6 billion and Ablynx for $4.8 billion. Roche joined the parade by agreeing to snap up Flatiron Health for $1.9 billion, while Takeda Pharmaceutical got the year in biopharma M&A off to a flying start with its up-to-€520 million ($641 million) purchase of TiGenix.

    Measured in dollars, this year is closer to last year than the headlines would indicate. The 2018 deals added up to a combined $34.94 billion—just under the $35.2 billion value of M&A deals for January–February 2017. The period saw Johnson & Johnson’s $30 billion acquisition of Actelion, announced in January 2017 and completed in June, as well as Takeda’s $5.2 billion purchase of Ariad Pharmaceuticals. In between those amounts was the $11.9 billion purchase of Kite Pharma by Gilead Sciences, announced in August and completed in October.

    Bloomberg recorded $95.379 billion in 2017 biopharma deals. Biopharma accounted for about half of the more than $200 billion in “life sciences” M&A recorded by EY last year, though its definition of life sciences includes medical technology.

    More M&A means a greater likelihood of biotech and pharma takeover targets being acquired. And once again, GEN is highlighting 10 biopharmas that have generated the most buzz about being bought out in recent months, based on notes to investors and comments in news outlets. Only one of the 10 companies on our 2017 list has found a would-be buyer (Juno), while Kite made GEN’s 2016 Takeover Targets list. The 2015 list featured Juno, Ariad, and a third company that eventually was acquired, Medivation (by Pfizer, for $14 billion).

    This year’s list combines six new names with four companies spotlighted last year. For each company mentioned, this list explains where talk of acquisitions has surfaced, and why.

    Small- to medium-capitalization biopharmas continue to dominate Wall Street speculation about top buyout prospects by showing promise for reasons ranging from approvals for new products and rising sales to successful clinical programs in indications that are expected to generate billions in new revenues.

  • AveXis

    AveXis generated positive vibes about its ability to attract a buyer this year thanks to positive clinical results. In November 2017, AveXis published Phase I data for its lead product in The New England Journal of Medicine, showing that all type 1 spinal muscular atrophy (SMA) infant patients who received a one-time intravenous dose of gene therapy AVXS-101 via an adeno-associated virus serotype 9 (AAV9) vector were alive and event-free at 20 months of age. 

    Martin Auster of Credit Suisse sees AVXS-101, now in a pivotal study, emerging as a foundational therapy for type 1 SMA, and eventually other SMA types. Martin Auster at Credit Suisse also thinks AveXis can launch AVXS-101 in 2019 as planned, based on recent FDA approvals of a gene therapy (Spark Therapeutics’ Luxturna™) and two cell therapies (Novartis’ Kymriah™ and Gilead Science/Kite’s Yescarta™).

    “The current M&A environment could also make AVXS [AveXis] an interesting target given proximity to revenues and pipeline,” Citi analyst Mohit Bansal observed January 26.

    That pipeline includes development of AVXS-101 for type 2 SMA (now in Phase I) and of an undisclosed preclinical AAV9-based gene therapy for Rett’s syndrome, announced January 16. “While the most important catalyst this year is the company filing for SMA type 1 approval in 2H’18, we think once that happens, the pipeline data catalysts (SMA Type 2 & Rett’s) would be in [a] 12-month window,” Bansal said. Should AveXis find itself a takeover target, he added, its stock price could zoom to between $185 and $250 a share—well above its February 16 closing price of $116.55 per share.

    Arpita Dutt of Zack’s Investment Research included AveXis among six biotechs she said in January “are often considered acquisition targets” (the other five were bluebird bio, BioMarin Pharmaceutical, Puma Biotechnology, Incyte, and Exelixis). 

  • Biogen

    Biogen has been talked about on both sides of the proverbial M&A fence in recent weeks, as both a potential takeover target and a buyer.

    Keith Speights of The Motley Fool included the company among “Top Three Takeover Targets for Pfizer” in January. He reasoned Pfizer would be attracted to Biogen’s multiple sclerosis franchise of three marketed treatments, the SMA drug Spinraza® (nusinersen), and a rich pipeline that includes Phase III Alzheimer’s disease candidate aducanumab. That pipeline was cited in December 2017 by The Motley Fool’s George Budwell, who listed Biogen among five biotechs “all likely to get taken out in 2018.” A Pfizer takeover of Biogen seems moot, given the pharma giant’s exit in January from neuroscience, and elimination of 300 neuroscience jobs.

    Strong fourth quarter 2017 results, plus its up-to-$217 million acquisition of ALS candidate KPT-350 from Karyopharm Therapeutics in January, led to talk that Biogen’s M&A activity would be as a buyer. So too did a 15% spike in Acorda Therapeutics shares on January 19, following rumors it would be bought by Biogen. “Biogen most definitely needs to do another deal, optimally a large one,” Geoffrey Porges of Leerink Partners, told CNBC. As Forbes reported, Alethia Young of Credit Suisse suggested future deals should add to Biogen’s top line and broaden its mix of treatments: “We think investors are looking for deals that could help with near-term growth and pipeline diversification away from Alzheimer’s.”

    Speaking of Alzheimer’s, Biogen’s mid-study changes to its Phase III program for aducanumab, such as increasing the sample size, jolted investors enough to trigger a February 14 selloff that sent shares down 9%. Jefferies analyst Michael Yee said Biogen “needs to go out and buy de-risked neuro/orphan companies to ‘change the narrative’ to being a binary Alzheimer's company to one with products even if Alzheimer's doesn't work.”

  • BioMarin Pharmaceutical

    So persistent is the narrative that BioMarin Pharmaceutical is a takeover target that the rare disease drug developer has appeared on every such list compiled by GEN—from the first such list in 2013, when Roche was said to have cast its eyes on the company, through last year's list.

    Todd Hagopian, whose Hagopian Institute BioMed Extreme Value (HIBEV) biotech fund at Marketocracy last year returned 38%, declared BioMarin “My favorite rare disease company right now,” based on its six marketed treatments and five pipeline candidates.

    BioMarin has projected finishing 2017 with revenue of between $1.29 billion and $1.32 billion, up 15.5% to 18% over 2017 (actual results were released after deadline on February 22). Top drivers of growth include Kuvan® (sapropterin dihydrochloride), the first and only FDA-approved phenylketonuria (PKU) treatment, which generated $300.1 million in the first nine months of 2017, up 16.4% year-over-year; and Vimizim® (elosulfase alfa), whose revenues grew to $299.3 million in Q1–Q3 2017, up 15% from a year earlier.

    “While they will be expensive, this will be a lower-risk acquisition because you absorb over $1 billion in revenue immediately, and then can use the growth forecast to help raise the overall growth rate of the acquiring company,” Hagopian told Marketocracy founder and CEO Ken Kam in Forbes on January 24.

    Despite rising revenue, BioMarin has projected a net loss for 2017 of $110 million to $130 million, which has kept its share price at between $80 and $100 since 2016, a key reason for the persistent takeover talk.

    “A strong product pipeline and an existing portfolio of proven drugs makes it worthy of consideration as a buyout candidate,” according to Jeff Reeves of MarketWatch. “At $14 billion, it is hardly the cheapest biotech out there, but Big Pharma execs know they will get something substantive in this firm.”

  • bluebird bio

    bluebird bio has been labeled a takeover target by no fewer than eight analysts and/or news outlets since December. A key reason is strong Phase I trial results generated in December by the company’s anti-B-cell maturation antigen (BCMA) chimeric antigen receptor T-cell (CAR-T) therapy bb2121, being co-developed with Celgene.

    In 21 patients with late-stage relapsed/refractory multiple myeloma (r/r MM), bb2121 yielded an objective response in 17 of 18 patients in active dose cohorts (94%), with complete response in 10 of 18 patients (though 3 of the 10 were unconfirmed). “This kind of success is simply too impressive to overlook,” Jeff Reeves extolled in MarketWatch on January 28.

    In The Motley Fool, Todd Campbell of Gundalow Advisors and E.B. Capital Markets predicted that: “If bb2121 wins approval, then it has a very good shot at becoming a blockbuster.” Should bb2121 win FDA approval as expected in 2019, bluebird would split U.S. profits with Celgene while collecting milestone payments and royalties on ex-U.S. sales: “An acquirer could find that co-commercialization opportunity in the U.S. very attractive.”

    Also attractive, Campbell added, were two late-stage pipeline candidates: LentiGlobin®, a treatment for transfusion-dependent β-thalassemia (β-thalassemia major) and severe sickle cell disease, and the cerebral adrenoleukodystrophy treatment Lenti-D™. Over the coming year, bluebird is expected to file for approvals for both. “It's anyone's guess who might step up to buy it, but I could argue the deal makes sense for any company that currently markets multiple myeloma drugs, including Celgene, J&J, Merck & Co., Amgen, and Bristol-Myers Squibb.”

    In a January 22 note to investors, Maxim Group analysts Jason McCarthy and Jason Kolbert said bluebird’s attractiveness as a takeover candidate was enhanced by the $11.9 billion acquisition of Kite Pharma by Gilead Sciences, completed in October 2017, followed January 22 by Celgene announcing its planned $9 billion purchase of Juno Therapeutics: “Cell therapy is integrating into the oncology treatment paradigm and both Kite and Juno are now off the table, which in our view could leave bluebird as the next takeover target.”

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