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Are These Biotech Companies Buyout Candidates? Deal Or No Deal?

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2019 saw more than 25 acquisition deals being executed in the biotech sector, of which 14 were billion-dollar deals. Bristol-Myers Squibb (BMY) acquiring Celgene for $74 billion in January remains the most expensive acquisition of this year.

In the wake of generic drugs eating into the sales of off-patent branded drugs, growing pressure from regulators to reduce the prices of drugs, drying pipelines, and ever-increasing R&D costs, there has been an increasing consolidation within the drug industry.

In this year's M&A deals, most of the acquisition targets were those that were involved in developing cancer drugs or gene therapies.

Let's take a look at some of the biotech companies that have been in the acquisition crosshairs for quite some time.

1. Amarin Corporation plc (AMRN)

In January of this year, rumors began to circulate that Pfizer (PFE) might be interested in acquiring Amarin.

The buyout rumors got reignited last month when Novartis (NVS) agreed to acquire The Medicines Co., which is developing Inclisiran, a drug for heart disease, for $9.7 billion.

Like the Medicines Co., Amarin also has a heart drug by the name Vascepa in its kitty. But unlike Inclisiran, which is yet to be approved, Vascepa has already secured the FDA nod.

Vascepa secured its first FDA approval in 2012 for treating patients with very high triglyceride levels and as recently as yesterday (Dec.14) was approved for wider use, i.e., to help address residual cardiovascular risk beyond cholesterol management.

Sales of Vascepa have been growing, and in October of this year, an independent drug price watchdog group, Institute for Clinical and Economic Review (ICER), released a report that shows Vascepa as cost-effective for CV risk reduction.

AMRN closed Friday's trading at $24.12, up 4.92%.

2. Alexion Pharmaceuticals Inc. (ALXN)

Alexion Pharma is no stranger to takeover rumors. This developer of rare disease drug Soliris has been in acquisition crosshairs since 2016 - with Roche, Pfizer, Novartis and Amgen been reported as potential buyers.

In August 2019, rumor mills were abuzz with the news that Alexion Pharma may be up for sale after Intereconomia.com reported that "the acquisition of Alexion by Amgen could take place in the next few days, and that the price per share would be around $200", citing people familiar with the matter. But that deadline has long passed.

Meanwhile, earlier this month, U.K.-based Elliott Advisors, one of the largest stakeholders in Alexion, urged the company to take a proactive approach and put itself up for sale to maximize the chance of an optimal outcome. However, the Company has turned down Elliott's recommendation.

ALXN is down 22% from its all-time high of $141.86, recorded on April 10, 2019, and trades around $110.

3. BioMarin Pharmaceutical Inc. (BMRN)

BioMarin is almost every analyst's favorite takeover candidate. This biotechnology company, which operates in hemophilia and ultra-orphan disease drug space, has seven approved treatments, a strong pipeline, and steadily growing revenue.

In 2013, there were reports that Roche was eyeing BioMarin for a possible acquisition. Rumors again surfaced in 2016 that Roche would acquire BioMarin in a deal that could be in the range of $130 to $150 per share.

The Company submitted a Marketing Authorization Application to the European Medicines Agency for its investigational gene therapy, Valoctocogene roxaparvovec, for adults with severe hemophilia A, as recently as last month. This submission marks the first marketing application submission for a gene therapy product for any type of hemophilia. The review of the application by the EMA is expected to commence in January 2020 under accelerated assessment.

BioMarin remains on track to submit a Biologics License Application for Valoctocogene roxaparvovec to the FDA by the end of this year.

BMRN briefly touched $100.13 on February 5, 2019. The stock has lost 14% of its value since February and trades around $80.

4. Clovis Oncology (CLVS)

Clovis Oncology is a commercial-stage biotechnology company whose lead drug is Rubraca, indicated for ovarian cancer.

Takeover rumors initially swirled around Clovis Oncology in 2013 when Rubraca, was in clinical trial stage. Now, it is three years since the PARP inhibitor has been approved.

Rubraca competes with other PARP inhibitors like Lynparza and Zejula. Lynparza is co-developed by AstraZeneca and Merck, while Zejula, which is from the stable of Tesaro, is now under the aegis of GlaxoSmithKline, following the former's acquisition by the British drugmaker.

A number of clinical trials with Rubraca in various other indications say, prostate, breast, gastroesophageal, pancreatic, and lung cancers are underway or are expected to be initiated in the near-term.

Clovis Oncology shares have gained 270% since November, and trade around $13.

5. Incyte Corporation (INCY)

Incyte has an attractive pharmaceutical portfolio comprising of Jakafi, a blockbuster drug for rare blood cancer indications, and 3 other marketed drugs, and a well-stocked pipeline.

In early 2017, the rumor mill was spinning with whispers of Gilead (GILD) close to acquiring Incyte. But following Gilead's decision to acquire Kite Pharma in August of that year, the rumors died down.

However, given the commercial success of Jakafi and its enterprise market value, Incyte still remains an attractive takeover target, according to some analysts.

Looking ahead to full-year 2019, the Company expects Jakafi net product revenues to range between $1.65 billion and $1.68 billion, reflecting 20% to 22% growth over the prior year.

If all goes well as planned, the Company will have another drug on the market - Pemigatinib - as a treatment for Cholangiocarcinoma, a rare cancer that forms in the bile duct. The FDA decision on Pemigatinib is expected by May 30, 2020.

INCY has gained 43% year-to-date and trades around $91.

Closing Thoughts

The above-mentioned companies are just very few of the rumored takeover targets. It remains to be seen if the takeover rumors are just wishful thinking or will turn into reality.

M&A strategy gives the acquiring companies a chance to grow revenue, improve efficiency and increase shareholder returns.

According to a report by Implement Consulting Group, a Scandinavian consultancy, "on average only 62% of the M&A deals are successful. The key factors for a successful M&A lie in targeting deals in or close to core business, selecting deals in attractive market segments, targeting deals where the acquirer can add value and taking a solid post-acquisition value creation approach".

Oncology and gene therapy were the subjects of acquisitions this year. A report from industry analyst IQVIA suggests that "significant deal activity, both in terms of volume and value, will continue to be seen in oncology, with next-generation biological therapies such as neoantigen-directed approaches likely to attract considerable big pharma interest".

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