Here are 8 promising biotechs priced for a buyout if their products can deliver:
BioMarin Pharmaceutical Inc. (BMRN): It's not the most profitable company, but BioMarin Pharmaceuticals certainly has some promising products in its portfolio. The company first achieved profitability in 2008, and its two largest revenue drivers in 2010 were Naglazyme (14% growth to $193 million) and Kuvan (20% growth to $99 million). A 15% increase in operating expenses last year, the result of increased sales efforts and clinical trials, has recently hurt BioMarin's bottom line, and analysts expect a $-.10 EPS next quarter as a result. Analysts at Deutsche Bank downgraded BioMarin to a "hold" on February 18th, and Wells Fargo set a $28.00 price target on the stock in December.
Despite weakness in some of its technicals such as a high Price/Sales ratio and low operating margin percentage, BioMarin's solid array of products in its pipeline make it a good prospect for acquisition. A 14.6 PE Ratio compared to the industry average of 44.8 indicates it is a good value as well. Shares currently trade at $25.36.
We think Novartis (NVS) would be an interested buyer, given that BioMarin has an ongoing relationship with the Swiss giant.
Dendreon Corporation (DNDN): Four billionaires recently purchased shares in this biotech firm focused on the development and commercialization of novel cancer therapies. The likely reason – the Centers for Medicare & Medicaid Services announced last Wednesday that it would support reimbursement for Provenge, the first "cancer vaccine." Provenge, an expensive prostate cancer therapy, prolongs patients' lives by an average of fourth months, and was deemed to be superior enough to existing alternatives that Medicare decided to pay $93,000 for each course of the therapy. The drug already looked like a potential blockbuster, but the recent news only increases its potential market and likelihood of becoming a moneymaking machine. The drug faces one last regulatory hurdle, but is expected to pass it this summer. Expect larger pharmaceutical companies to come sniffing around once it does. Dendreon trades at $38.13.
Keryx Biopharmaceuticals Inc. (KERX): Trading at $5.38, Keryx develops pharmaceuticals for the treatment of life-threatening diseases such as diabetes and cancer. Keryx has three products in clinical trials for various cancers, but one that stands out is Perifosine. Perifosine is in Class 3 clinical trials, and is a potential first-class, oral anti-cancer agent for colorectal cancer and multiple myeloma. The drugs' two Phase 3 programs are being conducted under Special Protocol Assessment (SPA) agreements with the FDA, and have been given the "Fast Track" designation. The drug is in Phase 1 and 2 trials for other types of tumors as well. If Perifosine does gain regulatory approval, the drug could be a potential blockbuster for Keryx, given its ability to prevent multiple forms of cancer. With a Market Cap of $289 million, Perifosine could make Keryx an ideal takeover candidate.
Human Genome Sciences (HGSI): Human Genome Sciences has many late-stage products in its pipeline to potentially add to its recently approved lupus drug, Benlysta. Benlysta has great potential; the Lupus Foundation of America estimates that 1.5 million Americans suffer from lupus, and close to 200,000 suffer from moderate to severe forms of the disease. Benlysta has been very effective in treating more severe cases of lupus, and a less potent form of the drug is in Phase III development to treat milder cases. HGSI prices Benlysta at $30,000 dollars a year, and its unique method of treatment could become part of the standard in lupus treatment. This all combines to make Benlysta a potential blockbuster. Human Genome has two other major drugs in Phase III development aimed at larger markets as well: Darapladib, which treats cardiovascular disease, and Syncria, which treats Type II Diabetes. Both face stiff competition, so proving clinical efficacy will be crucial. HGSI's robust product line-up and $5.0 billion market cap make it a takeover target. Shares trade at $27.61 at the time of this writing.
MannKind Corporation (MNKD): MannKind Corporation focuses on the development of therapeutic products for patients with diabetes and cancer. MannKind holds the proverbial ace up its sleeve in Afrezza, an inhaled insulin that offers many advantages over injected insulin. These advantages include quicker absorption into the body, levels of glucose control similar to state-of–the-art insulin, and a lower risk of side-effects such as hypoglycemia and weight gain. However, with few other drugs of note in its pipeline, shrinking cash reserves, and close to $2 billion in deficits, Afrezza is likely MannKind's only hope for real profit.
Don't expect the product anytime soon though. On January 19th, MannKind Corp. announced that the FDA wouldn't approve Afrezza without further human studies, which could delay approval by two years. According to MannKind here and here, the FDA is concerned with safety data, labeling changes, and comparability of the firm's latest inhaler with the one used in trials. It also doesn't help that Exubera, an inhaled insulin from Pfizer (PFE) and Nektar (NKTR), was pulled from the market in 2007 because of a questionable link to lung cancer. If Afrezza does succeed, the company's $3.66 share price, near its 52-week range low of $3.40, makes it an attractive buy. We just wouldn't hold our breath on it.
Vivus (VVUS): Vivus develops products targeted towards the treatment of obesity and erectile dysfunction. Vivus got some great news recently about its weight-loss drug Qnexa. Studies found that patients who took Qnexa over a two-year period experienced improved blood pressure, better lipid levels, and significant weight loss. Patients taking the drug also reduced the number of hypertensive medications they used by 19%. The positive news comes at a good time for Vivus, as the FDA declined approval for the drug in October citing cardiovascular health risks. The recent results should alleviate those worries, but regulators are still concerned about a link between one of the drug's ingredients and an increased risk for birth defects. If the drug does gain FDA approval, many experts tout Qnexa as "the most promising weight-loss drug in more than a decade." We'll see if it gets to that point. Vivus trades at $6.69 at the time of this writing.
Orexigen Therapeutics Inc. (OREX): Like Vivus, Orexigen has a weight-loss pill, Contrave, awaiting FDA approval. The FDA rejected Contrave in February, citing concerns about its cardiovascular side effects. Orexigen received good news from studies on Monday; data from a late-stage study showed that patients taking Contrave maintained normal blood pressure patterns around the clock during a full year of treatment. The results indicate that the drug does not have cardiovascular effects, and should help the drug's status in the eyes of the FDA. While Contrave seems closer to approval than Arena's Lorcaserin and Vivus's Qnexa, we're still skeptical about the safety of weight-loss drugs in general, and don't place great expectation on any of the drugs reaching the market. Some analysts predict that the next weight-loss drug to make it to market could be a billion dollar seller. While the reward sounds great, the risk involved with all three drugs make us doubt that they will get to that point. Orexigen trades at $3.06.
Arena Pharmaceuticals Inc. (ARNA): Arena develops weight-loss drugs targeted towards preventing obesity. Arena is crossing its fingers that Lorcaserin, its most advanced clinical product, can earn FDA approval after being rejected in October due to safety concerns. Arena is developing the drug with Eisai Inc. (OTCPK:ESALY), and has made resubmitting the drug's application its top priority. The drug's approval can't come soon enough; Arena lost $124.5 million last year, equivalent to a $1.14 loss per share. With dim profit and growth prospects, Arena needs the shot in the arm a drug like Lorcaserin would provide. If Lorcaserin can gain approval, then Arena may warrant a look. Arena trades at $1.36 at the time of this writing.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.