With all the M&A activity--hostile as well as friendly--now underway in biotech, one of the hottest games in finance is predicting which developer will be the next to appear on the list of buyout targets. Cowen Healthcare Royalty Partners' Gregory Brown turned to some old favorites when he laid out his top picks for CNBC.
Human Genome Sciences ($HGSI), which languished for years as it wandered through a treacherous maze of clinical trials only to end up with a surprise hit with the first new lupus drug in more than half a century, tops the list. That's no big surprise, though. HGS has been touted as a likely takeover target ever since Benlysta began to look like a winner in Phase III, with a number of analysts guessing that GlaxoSmithKline would take its partnership to the next level and swallow the blockbuster drug in one big, acquisitive gulp.
Then there's Acorda ($ACOR), which impressed the industry as it rolled out the oral MS drug Ampyra in 2010. Acorda has managed to foster a success by maintaining a close relationship with the patient community it serves. Acorda has also long been considered a takeover target, being small enough to snap up in one of the bolt-on acquisitions favored by a number of large players. And just days ago the market was buzzing about a potential patent extension that could add significantly to the revenue it earns from the drug. Owning new products with a lengthy period of patent protection ahead helps burnish their prospects for any would-be buyer.
Brown also followed the chatter with his suggestion that Forest Laboratories ($FRX) could be a takeover target. Its more mature specialty drug products are facing generic competitors in the next few years, but Brown can see enough upside to tempt a bidder. The same was said in 2008, 2009 and 2010.
There's nothing new about what's driving the buzz. Pharma companies face a well defined threat in the shape of generic competition and the loss of blockbuster revenue drivers. In many instances R&D has failed to deliver anything close to the number of new products that will be needed to fill the growing hole. And that leaves biotech buyouts involving approved products as the most certain way to impress investors--at least in the short run.
- here's the report from CNBC