5 Top Drug/Biotech Merger & Acquisition Targets for 2019

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As far as M&A activity in the biotech/drug sector is concerned, 2018 started with a bang with expectations of record breaking activity in the year. The new tax reforms left more cash in the hands of drug/biotech companies that could be invested for M&A activity. The first few months lived up to the bullish expectations but the number of mergers and acquisitions dwindled thereafter, probably because potential acquisition targets demanded a premium.

Key acquisitions this year included Bayer's $63 billion buyout of Monsanto, Sanofi's SNY multi-billion dollar buyouts of Ablynx and Bioverativ, Celgene's CELG purchase of Juno Therapeutics, Novartis' (NVS) acquisition of AveXis and Roche's (RHHBY) purchase of Foundation Medicine. Meanwhile, Irish firm, Shire is due to be acquired by Japan's Takeda early next year for a whopping sum of almost $62 billion. Glaxo, earlier this month, announced a definitive agreement to acquire small cancer biotech, TESARO, Inc. (TSRO) for $5.1 billion. The deal is expected to close in the first quarter of 2019. Also, Glaxo's $13 billion buyout of Novartis' 36.5% stake in their consumer health care joint venture in June was given a heads up by the investor community.

Overall, the outlook for pharma/biotech M&A deal remains bullish for 2019 due to growing availability of capital for these firms and a lot of innovation happening in the sector.

Drug/biotech companies regularly merge with or acquire competitors in mega deals to achieve critical mass both in research and development (R&D) and sales and marketing. Meanwhile, smaller biotech research firms investigating new therapies or interesting pipeline candidates have also attracted the attention of larger counterparts in the last few years.

Historically, the drug/biotech industry probably sees more merger and acquisition (M&A) activity than any other industry to get access to innovation, share pipeline development costs, eliminate competition and bolster product portfolios.

The major drug/biotech players struggling with organic growth need an infusion of new growth drivers into their pipeline/product portfolios - either from internal development or from the purchase of assets. Given that it takes several years and millions of dollars to develop new therapeutics from scratch, large pharmaceutical companies sitting on huge piles of cash may prefer to buy innovative small/mid cap biotech companies to build out their pipelines.

In this article, we discuss some mid- and large-cap names that may be logical acquisition targets next year for big dug/biotech companies like Gilead, Amgen, Pfizer, Merck, Johnson & Johnson and others. What matters for buying a drug/biotech stock is the current sales performance of its drugs/products, prospects of future sales growth, and the quality of the pipeline. The fields that have attracted a lot of industry attention lately are immuno-oncology treatments and drugs to combat rare diseases.

The five companies discussed herein have most of these factors going in their favor. Acquisitions of small drug/biotech companies are difficult to predict and are quite frequent. Hence, these have been excluded from the discussion.

BioMarin Pharmaceutical Inc. BMRN

Companies whose product portfolio/pipeline includes rare disease drugs are in great demand as it is a less competitive space and the expensive treatments can bring in huge profits. BioMarin is one such drug developer. Its market cap is around $17 billion.

BioMarin has seven commercially approved rare disease drugs with some more in the pipeline, which makes it worthy of being considered for a buyout. BioMarin's key orphan disease drugs - Vimizim and Kuvan - continue to do well, backed by strong underlying patient demand trends. The newest rare disease drug in its portfolio, Palynziq's commercial launch is off to an encouraging start. BioMarin believes the injection has peak commercial opportunity of roughly $1 billion as it demonstrated dramatic Phe reductions in PKU patients in pivotal studies. BioMarin's impressive rare disease pipeline is also progressing well. Growing pipeline focus toward gene therapy agents is encouraging

There has been speculation about BioMarin's takeover for a long time. Companies like Gilead, Amgen and Roche may be interested in buying BioMarin.

Vertex Pharmaceuticals, Inc.VRTX

Vertex's holds a dominant position in the cystic fibrosis (CF) market. Consistent increase in eligible patient population for Vertex's CF drugs, Kalydeco & Orkambi, is driving sales growth. Vertex is also working on getting its CF medicines approved for even younger patients, approvals for which can further expand the eligible patient population and drive sales.

Vertex's third CF medicine Symdeko, a tezacaftor/ivacaftor combo was approved in the United States in February and is off to a strong start. Symdeko has been a significant contributor to growth in 2018. Approval of Symdeko in EU in November should further boost sales in 2019.

Vertex's CF pipeline is also accelerating rapidly. Studies on Vertex's triple combination CF regimens are moving fast. The CF triple-pill regimes are crucial for long-term growth as these have the potential to treat up to 90% of CF patients. Meanwhile, Vertex's non-CF pipeline, though in early stage, looks interesting.

Vertex, with a market cap is around $44 billion, could prove to be a good acquisition option for Pfizer

Incyte Corporation INCY

Incyte's strong oncology portfolio makes it a lucrative target for companies like Gilead, Amgen and Bristol Myers. The market cap of Incyte is around $14 billion.

The primary reason behind Incyte being a strong buyout target is its key marketed product, Jakafi, a JAK inhibitor. It is the first and the only product to be approved for polycythemia vera (PV) and myelofibrosis ("MF") - two rare blood cancers. Jakafi is seeing strong sales performance driven by strong patient demand for both indications. In order to expand the patient population and increase the commercial potential of the drug, the company is working on expanding its label further.

Another asset of interest to investors is Olumiant, also a JAK inhibitor, marketed in the EU and the United States (only the lower 2 mg dose) for rheumatoid arthritis (RA). Meanwhile, Incyte's pipeline boasts interesting targeted therapies like pemigatinib, itacitinib and capmatinib among others.

Alexion Pharmaceuticals, Inc. ALXN

Like BioMarin, Alexion is also focused on the development and commercialization of life-transforming drugs for the treatment of patients with ultra-rare disorders. Its key drug is Soliris, approved for three severe and ultra-rare disorders - paroxysmal nocturnal hemoglobinuria (PNH), atypical hemolytic uremic syndrome (aHUS) and generalized myasthenia gravis (gMG) - has consistently done well.

Alexion is working on expanding the drug's label to include additional indications, which if approved, can boost further sales growth. It has two other drugs for rare diseases called Strensiq and Kanuma, which are emerging as key growth drivers, benefiting from continued patient additions. Alexion also has a robust pipeline of several candidates under development including Soliris follow-up candidate, Ultomiris (formerly ALXN1210). Ultomiris could be approved for the PNH indication in February next year.

Roche, Pfizer, or Novartis may be interested in buying Alexion. The market cap of Alexion is more than $25 billion.

Alnylam Pharmaceuticals, Inc. ALNY

Alnylam, though a relatively smaller biotech compared to the previous four, has become a hot acquisition target after approval of its key pipeline candidate, Onpattro (patisiran) in the United States and Europe this year.

Onpattro is the first-of-its-kind RNA interference (RNAi) therapeutic approved for the treatment of the polyneuropathy of hereditary transthyretin-mediated (hATTR) amyloidosis in adults. Onpattro is the first and only FDA-approved treatment for this indication. Meanwhile, Alnylam also boasts two late-stage pipeline candidates in its portfolio, givosiran for acute hepatic porphyrias and inclisiran for hypercholesterolemia. Sanofi could be interested in buying Alnylam considering their ongoing partnership for rare genetic disease programs

The market cap of Alnylam is around $8 billion.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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