Spurred by a buoyant stock market, corporations flush with cash, and a friendly regulatory environment, 2018 is widely expected to be a big year for M&A activity among U.S. businesses. Biotech is one sector in particular that should see lots of buyout action, according to Dow Jones MarketWatch, which names these five companies as particularly attractive and likely takeover targets: BioMarin Pharmaceutical Inc. (BMRN), Bluebird Bio Inc. (BLUE), Acadia Pharmaceuticals Inc. (ACAD), Incyte Corp (INCY), and Cara Therapeutics Inc. (CARA). (For more, see also: Biotech M&A Spree Could Push Sector to New Record Highs.)
Shares of BioMarin are up 7% over the 52 weeks through January 25, have a forward P/E ratio of -348, and a market cap of $15.9 billion, per Yahoo Finance. The company has been a buyout candidate for a long time, per MarketWatch, as a rare disease drug specialist with a "half-dozen viable products on the market." Biomarin also "continues to improve its product pipeline" and has "reliable double-digit expansion in revenue."
The biggest hurdle to being acquired is its market cap, and valuation at about 10 times revenue, MarketWatch notes. However, they add, Big Pharma is cash-rich. Indeed, some of the leading drugmakers are sitting on huge hoards of overseas cash that are likely to be repatriated as a result of tax reform.
Both BioMarin and Incyte (see below) also have been mentioned by Zacks Investment Research as attractive acquisition targets. Additionally, The Wall Street Journal notes that slowing revenue growth in Big Pharma creates a major impetus for M&A activity. (For more, see also: 8 Stocks Poised to Gain on Takeovers in 2018.)
Shares of Bluebird are up 203% over the past 52 weeks, have a forward P/E of -29, and a market cap of $10 billion. Bluebird has introduced a highly successful treatment for multiple myeloma, a fairly common form of blood cancer. Given that there are few good treatments for this disease, MarketWatch expects that Bluebird will have a blockbuster on its hands once the FDA grants approval. The company also has several other late-stage trials underway.
The clinical trials on the blood cancer drug were conducted in partnership with giant ($84 billion market cap) Celgene Corp. (CELG), which raises both the credibility of these trials and expectations of a looming takeover offer. "Celgene would have to be nuts to take a pass on Bluebird," MarketWatch says, adding that, if they do, another Big Pharma name is likely to make a move this year.
The stock is down 3% over the past 52 weeks, has a forward P/E of -17, and a market cap of $3.8 billion. Acadia was granted approval by the FDA in 2016 for the first-ever treatment for hallucinations and delusions that often come with Parkinson's disease. Since then, the company has been working on treatments for mental illnesses such as depression, schizophrenia, and Alzheimer's disease. MarketWatch believes that any effective drug in these areas is bound to be a blockbuster. In fiscal 2017, revenue exploded from $17 million to more than $125 million, and are projected to double in fiscal 2018, per MarketWatch. (For more see also: Why Biotech Acadia May Be Undervalued By 40%.)
The stock is down 21% over the past 52 weeks, has a forward P/E of 449, and a market cap of $19.9 billion. Incyte was hurt by the rejection of an arthritis medication in 2017, but it is making progress on a treatment for melanoma and has an established money maker in its chemotherapy drug Jakafi, which MarketWatch says "would drive instant benefits" for an acquirer.
The stock is up 17% over the past 52 weeks, has a forward P/E of -8, and a market cap of $501 million. Among its late-stage clinical trials are non-opioid, less addictive alternatives for controlling chronic pain, per MarketWatch. Given the widespread concerns over growing opioid abuse and addiction in the U.S., this would be a major breakthrough.
With hundreds of thousands of potential customers, a Cara pain relief drug that wins FDA approval could be an instant blockbuster. However, doctors are unlikely to switch from prescribing established pain medications unless Cara's alternatives are demonstrably superior, and that may be a high hurdle to vault, MarketWatch adds.