Big Merger Monday Conjures Up Thoughts of Potential Biotech Targets

This week we had a Merger Monday truly deserving of the moniker. Charles Schwab Corp. agreed to buy TD Ameritrade Holding Corp. in a $26 billion deal, Louis Vuitton parent LVMH agreed to acquire Tiffany & Co. for a cool $16 billion and Kirkland Lake Gold Ltd. reached a deal to buy Detour Gold for just under $5 billion. However, the deal that caught my attention was the planned acquisition of The Medicines Company by drug giant Novartis for nearly $10 billion. Nothing gets the animal spirits going in the small and midcap biotech space than a new and significant acquisition. Sure enough, the SPDR S&P Biotech ETF rose more than 4% on Monday as buyout speculation spiked for at least a day. The planned Medicines Company buyout put fellow cholesterol concern Amarin Corp. in the spotlight. Some have suggested that Pfizer Inc. and Amgen Inc. AMGN could be interested as they already have significant footprints in this space. Others have speculated a suitor could be Gilead Sciences Inc. , which is looking to expand outside its core HIV franchise. I take these and most other buyout rumors with a large grain of salt. In the case of Amarin, the stock has already had a massive run over the past 18 months. I also think it might be tough to go to your board to justify spending more than $10 billion on a company with a main asset that is basically a better fish oil. I just never have seen the moat on this name, although I made a nice profit on it earlier this year. The Medicines Company deal also is boosting the shares of fellow RNA therapy concern Alynlam Pharmaceuticals Inc. . Alynlam recently received its second U.S. Food and Drug Administration (FDA) approval in the just over a year after the company's first medicine, Onpattro, became the world's first approved RNAi therapeutic in 2018. In addition, Alynlam licensed the rights to inclisiran to The Medicines Company quite some time ago. Alnylam is still entitled to royalties that range from the mid-teens up to 20% and inclisiran's pending rollout should benefit from Novartis' much larger sales force. Alynlam also has several other drug candidates in the pipeline. I would not be chasing this one after its big move this week, but if you don't have an existing position I would look at anything under $100 a share as a good level to establish an initial holding. Outside this sub-sector of the market, keep an eye on Global Blood Therapeutics Inc. . The company has not been the subject of many takeover rumors, but it makes sense as a logical acquisition target. Global Blood Therapeutics shares have had a nice run this week as the FDA approved its first drug voxelotor, an oral, once-daily therapy designed to modulate hemoglobin affinity for oxygen for the treatment of sickle cell disease, or SCD. Approval came months earlier than expected and has triggered a rash of upward price target revisions from analysts. Even with recent rise in GBT shares, the equity has less than a $4 billion market cap, which makes it a fairly bite-size purchase for a larger player, especially for a name already in the rare disease space such as Alexion Pharmaceuticals Inc ALXN. Oxbryta which is voxelotor's new brand name, should do well in the marketplace. The compound is the first approved treatment that directly inhibits sickle hemoglobin polymerization, which is the root cause of SCD. Approximately 100,000 individuals suffer from SCD in the U.S. and another 60,000 in Europe. The company also has nearly $700 million in cash on the balance sheet and is in a good place to roll out Oxbryta should it continue as a stand-alone entity. I would probably not chase the current rally in Global Blood Therapeutics. However, if the stock dropped back in the mid to high $50s, I would probably pick up a few shares if I did not already have holdings in this name.

Big Merger Monday Conjures Up Thoughts of Potential Biotech Targets

The planned acquisition of The Medicines Company by Novartis spurs prospects of other deals in the drug business.

Columnist Conversation

This Weekend on Real Money

We're Adding to a Position on Weakness

AAP Podcast: This Company Is Not Going 'Solo'

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.