If there is any arena in which takeovers pay off big time it is biotechnology. With many large-cap companies in the industry looking to repatriate huge sums of overseas money, there is a good chance we could see some red-hot mergers and acquisitions in the coming months and years.
A new Jefferies research report cites the record cash levels as one main reason we could see some big deals on the table. The report noted this:
Companies that make acquisitions tend to lag over the next year however in years when mergers and acquisitions activity is broad, Health Care acquirers outperform. We are seeing deals in many sectors so far this year and that should continue. With cash burning a hole in company pockets and the need to earn a return, we think even the acquirer’s stock will bounce.
It also noted this when comparing M&A deals:
When a Biotech company has been acquired in the past, the premium paid has tended to be hefty. The average premium in Biotech stands at 66%, the median 42%, while the overall deal premium has averaged 28%.
The firm picked out 15 companies as potential buyout candidates in the next 12 to 18 months. These four are the best known and are rated Buy at Jefferies.
This stock has been on a roll and could hold big upside potential. AveXis Inc. (NASDAQ: AVXS) is an Illinois-based biotechnology company focused on treating rare, life-threatening, diseases using gene therapy. It is developing AVXS-101 to treat spinal muscular atrophy (SMA). It initiated a pivotal trial for treatment of SMA Type 1 in the third quarter of 2017 and a Phase 1 trial in type 2 in the fourth quarter. AVXS-101 could offer SMA patients a cure to a life-threatening disease for which current therapy is inadequate.
In January, AveXis discussed outcomes from its end-of-Phase 1 meeting with the FDA on regulatory steps going forward. The FDA suggested that AveXis request a pre-BLA meeting, which the company plans to do next quarter. Many feel that the company is on track to potentially receive an accelerated regulatory pathway.
Jefferies said this:
We view the company as a likely M&A candidate at some point; however, any acquirer previously needed permission from Regenxbio (NASDAQ: RGNX). Under the revised agreement, this stipulation is no longer required. The readthrough is that AveXis management may have more space to conduct negotiations without worrying about Regenxbio response to any potential deal.
The Jefferies price target for the shares is $141, while the Wall Street consensus target is $133.12. Shares traded early Monday at $126.60.
This biopharma company has partnered with a top pharmaceutical company, and the data have been very solid. Neurocrine Biosciences Inc. (NASDAQ: NBIX) is focused on developing and commercializing therapies for neurological and endocrine disorders. Its lead asset is Ingrezza, approved for the treatment of tardive dyskinesia and in development for the treatment of Tourette syndrome.
The company partnered with AbbVie on elagolix, in development for the treatment of endometriosis and uterine fibroids, and it is developing opicapone as an adjunct therapy for Parkinson’s disease.
The Jefferies report said:
Ingrezza concluded a standout year, though management moderated expectations for first quarter 2018 revenues given Medicare donut hole and lower pricing of now predominant 80 mg capsule. However, the launch is going strong and 2018 sees pending catalysts from opicapone, elagolix, Ingrezza in Tourette Syndrome, and NBI-74778 in Congenital adrenal hyperplasia or CAH.
Jefferies has a $105 price target, and the consensus target is $105.67. Shares traded at $83.00 Monday morning.
Takeover chatter on this company has been around for some time. TG Therapeutics Inc. (NASDAQ: TGTX) is a biopharmaceutical company focused on the acquisition, development and commercialization of treatments for B-cell malignancies and autoimmune diseases.
Currently, it is developing two therapies targeting hematological malignancies and autoimmune diseases. Ublituximab (TG-1101) is a novel, glycoengineered monoclonal antibody that targets a specific and unique epitope on the CD20 antigen found on mature B-lymphocytes. TG Therapeutics is also developing umbralisib (TGR-1202), an orally available PI3K delta inhibitor.
The analysts noted:
Key Phase 3 data readouts later in the second quarter. This has three additional Phase 3 blood cancer studies and two Phase 3 multiple sclerosis studies ongoing. Potential take out target in the second half of 2018 or later.
The $23 Jefferies price target is less than the $30 consensus estimate. Shares were last seen at $15.30.
Jefferies has covered this company for years, and the low price makes it an attractive target. Rigel Pharmaceuticals Inc. (NASDAQ: RIGL) is engaged in discovering, developing and providing novel small molecule drugs that improve the lives of patients with immune and hematological disorders, cancer and rare diseases.
Its pioneering research focuses on signaling pathways that are critical to disease mechanisms. The company’s clinical programs include clinical trials of fostamatinib, an oral spleen tyrosine kinase inhibitor, in a number of indications.
The report said this:
With several upcoming catalysts for Tavalisse in three indications, if positive, we see significant upside likely from current enterprise value of ~$450M, including (1) FDA approval in initial indication for chronic immune thrombocytopenia (ITP), (PDUFA date 4/17/18); (2) encouraging Phase 2 data in IgA nephropathy in April; & (3) defined regulatory path to approval in Autoimmune hemolytic anemia.
The Jefferies price target is $5. The consensus target is $6.00, and shares traded at $3.80.
While there is no guarantee that these companies are acquired, they are outstanding stocks to own in aggressive growth portfolios on their own. The buyout factor is just another reason to consider them.