Which Hot Biotech Name Will Be Acquired Next?

 | Mar 17, 2018 | 2:00 PM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

mdvn

,

pfe

,

kite

,

gild

,

celg

,

tsro

,

clvs

,

exel

,

blue

Let's go to to my Biotech Mailbag to answer two of the common questions we have received so far in March.

What Will It Take for Biotech to Break Out?

The main biotech indices are near highs they have not been able to decisively break above since late 2015. This was approximately half way through a bear market that took the sector down some 40% from peak to trough.

The sector has had a decent 2018 to date but is once again just below what have been strong resistance levels. Since I don't see a big rally in the cards for the overall market, something specific will have to happen for this high-beta part of the market to finally break through its current ceiling.

In my view, that would have to be the return of M&A across the industry. We had a good start to the year with some $30 billion of deals announced in the first five weeks of the year, but deals have been largely dormant since. Until we see transactions picking up again, the sector could remain in a trading range.

What Part of the Industry Is Ripe for Acquisitions?

I think the drug and pharma giants will pick up the pace of deals in the quarters ahead. They have clarity now thanks to tax reform and hundreds of billions of dollars from their overseas operations to "repatriate." They also have solid cash flow as well as an increasingly urgent need to replenish pipelines. Oncology has been one of the hottest sub-sectors in the industry for deals for quite some time. Medivation (MDVN) was acquired by Pfizer (PFE) in a bidding war for some $14 billion in August of 2016.

More recently Kite Pharma (KITE) was purchased by Gilead Sciences (GILD) for $12 billion late last summer which was followed by Celgene's (CELG) $9 billion deal for Juno Therapeutics JUNO to open this year. These were both in the emerging CAR-T space where Kite and Juno were two of the largest stand-alone plays.

The logical next "domino" to fall should be bluebird bio (BLUE) which has had a nice rally, in part because of the purchases of its brethren. However, Celgene has a huge collaboration with bluebird, which probably would scare off other likely suitors. I also think Celgene will spend some time digesting Juno before doing another significant acquisition.

Of the more traditional oncology plays, Tesaro (TSRO) , has been open to exploring strategic options. The stock is also seeing some major insider buying after a big recent decline in its shares. A likely acquirer might be concerned around slow initial sales of ZELUJA. I think Clovis Oncology (CLVS) is probably a more logical buyout target. The name also seems to near the top of every analyst firm's top potential biotech buyout list. In addition, they see a nice ramp up of indications Rubraca will be approved for in the years ahead.

Exelixis (EXEL) , whose drug Cabozantinib has taken market share much faster than initially expected, would be another potential logical target in the space.

This is an excerpt from Jensen's regular biotech mailbag column on Real Money Pro, our sister site for Wall Street professionals. Click here to check out more great columns from him, Doug Kass and other Real Money Pro writers.

Columnist Conversations

With much of the chatter about rising bond yields, I wanted to compare what is happening now with what happene...
Looking like a tough open, but not as brutal as you would expect after Tuesday.
If the slide in the chip space doesn't halt off Texas Instruments' (TXN) good guidance tomorrow, raise cash a...
Today is another day that proves that shorting puts naked is beyond ignorant and the worst way I know to lear...

BEST IDEAS

REAL MONEY'S BEST IDEAS

News Breaks

Powered by
Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.