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Biotechnology is likely to be an attractive sector to invest in for 2012. There are a number of factors that should support investor interest in this field. Biotech and healthcare companies are relatively immune to economic weakness because many treatments are must-haves for patients. This means well-funded biotechs with revenues can remain largely insulated from economic shocks.

Pharmaceutical companies are still facing patent expirations for a number of blockbuster drugs. Many of these companies have record levels of cash on the balance sheet that is doing little to increase shareholder value. The combination of cash on the balance sheet and the need to replace revenues from drugs that are facing generic competition, has led many pharmaceuticals to takeover biotech companies. For example, Bristol-Myers Squibb (BMY) recently agreed to acquire Inhibitex (INHX) for about $2.5 billion. Inhibitex was an attractive acquisition target due to a hepatitis C treatment it has developed. With more deals likely to come forward in 2012, it makes sense to consider other potential biotech stocks that could become the next acquisition target. With that in mind, here are a few stocks that investment analysts believe could be takeover targets. The first three stocks below made the list for Morningstar's "Top Takeover Candidate Investment Ideas" and the other stocks also have analysts predicting a potential takeover:

Abiomed, Inc. (ABMD) makes heart pumps and other cardiac assistance products. This company has very specialized medical technology which is becoming increasingly popular with doctors and patients. Abiomed recently reported record results. Third quarter fiscal 2012 revenues came in at $32.2 million, which is a 18% increase when compared to the same period of fiscal 2011. The company also reported a profit of $2.9 million, or $0.07 per diluted share, which compares favorably with the net loss of $0.8 million or $0.02 per share in the prior year.

This company has a strong balance sheet with about $70 million in cash and no long-term debt. The market capitalization is around $852 million. Abiomed is likely to benefit from aging baby boomers over the next 25 years. This company would be an easy target for many larger companies to acquire due to the under $1 billion valuation and the growth potential. This stock has been in an uptrend recently, so I would wait for pullbacks to around $19, where it has recently found support.

Here are some key points for ABMD:

  • Current share price: $22.37
  • The 52 week range is $9.98 to $24.74
  • Earnings estimates for 2012: 3 cents per share
  • Earnings estimates for 2013: 21 cents per share
  • Annual dividend: none

Myriad Genetics, Inc. (MYGN) makes molecular diagnostic tests for a variety of cancers. These tests help assess a persons risk of developing prostate, breast, and other cancers. Myriad is seeing strong growth and recently reported revenues of $122.8 million for the second fiscal quarter, which was an increase of 22% over the $100.4 million reported in the second fiscal quarter of 2011. Earnings came in at 33 cents, which is an increase of 27% over the same period of the prior year.

Myriad also boosted revenue guidance for 2012, to a range of $465 million to $475 million, versus the previous guidance at $445 million to $465 million. This company has been repurchasing shares and it has about $428 million in cash on the balance sheet. When you consider the strength of the balance sheet, solid profits, and the continued growth prospects, it's easy to see why analysts at Morningstar consider this company to be an attractive takeover target. This stock has been trending higher, but it might be possible to buy it on pullbacks around $22 per share, which is where it recently has found support.

Here are some key points for MYGN:

  • Current share price: $23.80
  • The 52 week range is $17.51 to $25.89
  • Earnings estimates for 2012: $1.26 per share
  • Earnings estimates for 2013: $1.46 per share
  • Annual dividend: none

Charles River Laboratories (CRL) provides a range of products and services to the biotech and pharmaceutical industry. The company offers preclinical, biopharmaceutical, discovery and other services. Charles River is well-positioned to benefit from the growth of the biotech industry, and recent financial results confirm this trend. The company recently reaffirmed guidance for 2012 and reported that full year sales for 2011 came in at $1.14 billion, with GAAP earnings of $2.24 per share. This solid earnings report sent the stock higher in the past several days. Even at current levels, these shares are trading at only around 12 times forward earnings. However, it makes sense to wait for some of the short-term euphoria to fade before buying this stock. Analysts at Morningstar consider Charles River to be a takeover target.

Here are some key points for CRL:

  • Current share price: $35.75
  • The 52 week range is $25.52 to $42.84
  • Earnings estimates for 2012: $2.68 per share
  • Earnings estimates for 2013: $2.96 per share
  • Annual dividend: none

Idenix Pharmaceuticals, Inc. (IDIX) is developing treatments for viruses and other infectious diseases. Of particular interest to investors and takeover suitors is "IDX184", a treatment for hepatitis C virus (HCV) infections. This candidate is currently in phase IIb clinical trials, but it could have blockbuster potential. With the recent acquisition of Inhibitex for its hepatitis C drug, many investors and analysts believe Idenix could be another solid takeover target.

Idenix has a solid balance sheet with about $64 million in cash and no long-term debt. However, the company is expected to post losses, so this is a higher-risk stock. Idenix shares were trading at about $7 before the Inhibitex deal was announced, so it makes sense to wait for a pullback.

Here are some key points for IDIX:

  • Current share price: $11.91
  • The 52 week range is $2.67 to $15.25
  • Earnings estimates for 2012: a loss of 49 cents per share
  • Earnings estimates for 2013: a loss of 49 cents per share
  • Annual dividend: none

Momenta Pharmaceuticals, Inc. (MNTA) is developing complex generic drugs. The lead product is a treatment for deep vein thrombosis blood clots. For 2011, Momenta reported net income of $180.4 million, or $3.55 per diluted share. This company has a great balance sheet and as of December 31, 2011, it had cash balances of over $300 million. This company has been considered a takeover target for a long time, with some speculating that a large company like Novartis (NVS) could be the suitor. Momenta has a partnership with Sandoz-- which is the generic drug division of Novartis. Investment analyst Steven Bulwa discusses the company risks and opportunities as well as the takeover potential in this article.

Here are some key points for MNTA:

  • Current share price: $15.16
  • The 52 week range is $10.15 to $21
  • Earnings estimates for 2011: 66 cents per share
  • Earnings estimates for 2012: $1.08 per share
  • Annual dividend: none

Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Source: Biotech Stocks: Analysts Identify 5 Potential Takeover Targets