Biotech Takeover Talk

07/25/2016 9:00 am EST

Focus: STOCKS

John McCamant

Editor, Medical Technology Stock Letter

We continue to see M&A activity in the biotechnology space, notes sector expert John McCamant, editor of industry-leading The Medical Technology Stock Letter.

With meager interest rates, the ever-growing balance sheets (some as large as or larger than Third World countries) cannot sit in cash and only be used for share buybacks and dividend payouts.

The drug/bio industry is made up of a list of never-ending combinations of merged companies, joint ventures and licensing agreements.

With the floodgates open, what then are the characteristics of the ideal acquisition candidate in this environment? With so many companies and so many differences, there really is no single formula.

However, a few qualities do stand out. First, in order to have any near-term financial impact to Big Pharma/Big Bios, the target will have a currently marketed product large enough to count, such as Incyte Corp. (INCY).

In light of current trends and the potential for exponential growth, in this case thanks to federal plans for addressing the opiod epidemic, we would also add Alkermes Plc (ALKS) to that list.

Any company with a next-generation compound 1-3 years away from market that would be a replacement for a company’s current product line, we believe, could fit the mold, too.

Small cap Anthera Pharmaceuticals (ANTH) has two such possibilities in b-mod -- replacing Benlysta made by GlaxoSmithKline (GSK) and Sollpura, which is replacing Creon, made by AbbVie (ABBV). Both compounds will deliver Phase III results over the next 3-6 months.

And, of course, the un-partnered, wholly-owned blockbuster is always a juicy M&A candidate. Novavax (NVAX) makes perfect sense.

And though already partnered, Five Prime Therapeutics (FPRX) has a product portfolio that could easily be folded into Bristol-Myers Squibb (BMY).

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By John McCamant, Editor of The Medical Technology Stock Letter

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