Pfizer M&A blitz could heighten investor interest in biotechnology sector
Pfizer’s recent shopping blitz, which has involved four acquisitions since its proposed $160 billion deal for rival Allergan fell through in April, igniting increased interest in biotechnology stocks, with investors on the prowl for the next potential takeover bet.
Pfizer late last month said it would buy rights to drugmaker AstraZeneca’s portfolio of approved and experimental antibiotic and antifungal pills in a deal valued in excess of $1.5 billion. The same week, it unveiled a $14 billion buyout agreement to acquire oncology-focused biotech Medivation.
“The big time biotech M&A wheels are in motion,” said John McCamant, editor of the Medical Technology Stock Letter, an investment newsletter on biotechnology. The high multiple that Pfizer (PFE) is paying for Medivation (MDVN) sets a “rough gauge of today’s valuation for takeovers of the larger, more successful companies with blockbuster sales ($1 billion) at a relatively early stage of their growth curve,” he said.
McCamant notes that the buyout agreement has encouraged investors to watch for the next M&A deals since Pfizer agreed to pay $81.50 a share, way above the previous offer of $58 a share by French pharmaceutical company, Sanofi (SNY). Several mega-cap pharmaceutical companies “have declared they would be out shopping despite widespread concerns” about drug pricing and the upcoming presidential elections, he said.
In McCamant’s view, Sanofi is now considered the most aggressive of the M&A shoppers as it had spent months pursuing — and losing — Medivation. Other perceived potential acquirers include AstraZeneca (AZN), Gilead Sciences (GILD), Merck (MRK), Celgene (CELG) and Roche (RHHBY), which all participated in the Medivation bidding process, according to McCamant. Amgen (AMGN) and Biogen (BIIB) have also announced plans to make acquisitions. Biogen itself has been rumored as a recent buyout target.
The intriguing question is which biotechs have realistically become potential takeover targets. Oncology remains the sweet spot for M&As in biotechs, McCamant said, as “the market for new cancer drugs has never been better, as an aging and wealthy population remains willing to pay a significant premium for life extending and more effective and safer drugs.”
McCamant suggests that Incyte (INCY), BioMarin (BMRN),and Regeneron (REGN) are three biotechs likely to be acquired. He notes that Incyte appears to be a logical buyout choice for Gilead, as Incyte’s small-molecule oncology pipeline would be transformed Gilead into a “player in oncology overnight.” Incyte is currently trading above $80 a share, but is worth $120 a share on fundamentals alone, according to McCamant’s valuation.
Biomarin would be a logical fit for Sanofi, says McCamant, because their focus on rare diseases would dovetail nicely with Sanofi’s Genzyme division. Shares of Biomarin are currently trading at $94 a share. In a buyout, the stock would be worth more than $145 a share, the price target that McCamant estimates based on its current assets.
Regeneron would be a natural fit with Sanofi, as well, since it already owns a 22.5 percent stake in the company, notes McCamant. The two companies are already jointly developing new drugs.