• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Healthcare

10 Biotech Stocks Investors Should Put on Their Shopping List for 2018

Biotech M&A activity will pick up markedly in 2018, and these companies are likely to be the most active in that space.
By BRET JENSEN
Nov 25, 2017 Updated Nov 28, 2017 | 10:00 AM EST
Stocks quotes in this article: AMGN, ALXN, FOLD, SRPT, BMRN, SHPG, GILD, KITE, TSRO, GLPG

In my column last week, I laid out the current landscape in Biotech land. I ended the piece saying that M&A activity, which has been dormant in 2017 and at multi-year lows, will pick up markedly in 2018. In this second part, I am looking at the players that are likely to be the most active in that space.

Venture capital-funded new biotech startups have garnered nearly $10 billion so far this year, an all-time record. I base my thesis that M&A will spring to life in 2018 on these three key observations:

  1. There is little organic growth at the major drug and biotech giants. They desperately need to replenish developmental pipelines and find new growth engines. Raising prices on existing drugs, especially those off patent, is no longer a viable option to boost growth.
  2. For the most part, industry leaders have robust cash flow and balance sheets that give them plenty of financial "firepower". Amgen (AMGN) recently stated it could do $40 billion in acquisitions if it found the right deals. These entities also have hundreds of billions of dollars "stranded" in their overseas operations.
  3. One way or another, everyone should know what the outcome of the current tax reform efforts are in D.C., either late this year or early next. This clarity could get the deals flowing.

There are a variety of players that should be active in the M&A space next year. New management at Alexion Pharmaceuticals (ALXN) has made it known they will be a player in M&A, either as a target or as an acquirer, as they desperately look for ways to lessen their overwhelming dependence on Soliris. This compound accounts for nearly 100% of revenues and earnings at the company.

If the company wants to be the "hunter", fellow smaller rare disease concerns like Amicus Therapeutics (FOLD) or Sarepta Therapeutics (SRPT) might make sense. Both have wholly owned and approved drugs and would be less than $5 billion deals.

If the company wants to do something much larger and almost a "merger of equals", BioMarin Pharmaceuticals (BMRN) could fit the bill. It is one of true mid-caps in the biotech space, with a market cap of $15 billion, and is also focused on rare diseases. Shire (SHPG) bought out Baxalta back in early 2016 for over $30 billion. The new CEO and some managers at Alexion came over from Baxalta. But Alexion is probably too big a lift for Shire at the present, as it still is integrating the Baxalta purchase.

I also think Gilead Sciences (GILD) will be an active suitor in 2018, as the company's flagship hepatitis C drugs continue to see declining sales. The company bought Kite Pharma (KITE) for some $12 billion in late August of this year to expand its footprint in oncology. I expect future acquisitions will be smaller, given management guidance.

If Gilead wants to continue to expand into the disease area, something like Tesaro (TSRO) might fit well. The company recently launched Zejula, targeting ovarian cancer, and the management seem receptive to offers. Also, the stock is selling for half its levels earlier in the year.

Outside oncology, Galapagos (GLPG) might be a target. Gilead owns a good chunk of this name already, through a collaboration agreement to develop Filgotinib, which is currently being evaluated in three Phase 3 trials for rheumatoid arthritis and six Phase 2s in other indications. A "standstill" agreement between the two companies ends at the close of 2017.

Investors should keep their eye on these 10 stocks, should M&A pick up in 2018 as I expect.

-- This article originally appeared Nov. 22 on Real Money Pro, our dynamic market information service for active traders. Click here to get more articles like this from Bret Jensen, Doug Kass and others each day.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jensen was long AMGN, FOLD, GILD, SRPT and TSRO, although positions may change at any time.

TAGS: Investing | U.S. Equity | Healthcare | Markets | Mergers and Acquisitions | Stocks

More from Healthcare

Johnson & Johnson Appears to Be Running Out of Steam

Bruce Kamich
Jun 22, 2022 8:25 AM EDT

The shares of the healthcare giant have been in a long-term uptrend but could break that trend in the weeks ahead.

Anthem's Long-Term Uptrend Is Losing Its Vigor

Bruce Kamich
Jun 22, 2022 7:40 AM EDT

The technical signals of the health benefits provider are weakening.

Here Are 2 Prudent Healthcare Trades

Bret Jensen
Jun 17, 2022 11:30 AM EDT

The country might be heading into recession, but folks still need to get their medicine, good times or bad.

Here's the Level to Zero In on for UnitedHealth Group

Bruce Kamich
Jun 13, 2022 7:29 AM EDT

Shares of the diversified healthcare company have held up fairly well despite the decline in the broader market but soon could be put to the test.

3 Dividend-Paying Healthcare Stocks That Age Well

Bob Ciura
Jun 5, 2022 12:30 PM EDT

Within the next 15 years, people 65 or older are expected outnumber those under 18, for the first time in U.S. history.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:04 AM EDT PAUL PRICE

    Two Good Signs -- Especially for Small-Cap Investors

  • 12:10 AM EDT PAUL PRICE

    More Insider Buying in American Woodmark (AMWD)

    American Woodmark , which I've discussed here fr...
  • 08:55 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 10 personality traits of successful traders an...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

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.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login