Biopharma: Instead of M&A, Think P&A

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Includes: ALBO, ALXN, BMY, CGRB, CRME-OLD, ELN, FRX, ISPH, JAV, OREX, SCMP, SVNTQ, UTHR, VRTX
by: Mike Huckman

Forget about mergers and acquisitions (M & A). Think about partnerships and acquisitions or what Leerink Swann, which specializes in healthcare stock coverage, is calling "P & A."

In a research note to clients today, the LS team says there's a "perfect storm" for more P & A. "We see an unprecedented confluence of highly motivated buyers (large- and mid-cap biopharma companies with substantial portfolio gaps but a surplus of cash) and sellers (biotechnology companies holding valuable assets but desperate for cash). With the quantity and quality of deals poised to rise, there is the potential to create value for shareholders of both buyers and sellers," the analysts write.

Based on its models, Leerink Swann sees the most likely big buyers being Bristol-Myers Squibb (NYSE:BMY) and Forest Labs (NYSE:FRX). The analysts think three companies, in particular, could be on BMY's shopping list: Vertex Pharmaceuticals (NASDAQ:VRTX), Alexion Pharmaceuticals (NASDAQ:ALXN) and United Therapeutics (NASDAQ:UTHR). Remember, BMY recently tried to buy ImClone Systems, but lost out to Eli Lilly (NYSE:LLY).

And LS puts out a Top-10 list of attractive P & A targets in alphabetical order: The aforementioned AXLN, plus — and some of these are little guys — Biodel (BIOD), Cougar Biotech (CGRB) (oh, the possibilities for clever turns of phrase if that company gets chased by someone), Cardiome Pharmaceuticals (NASDAQ:CRME-OLD), Elan (NYSE:ELN), Inspire Pharmaceuticals (NASDAQ:ISPH), Javelin Pharmaceuticals (JAV), Orexigen (NASDAQ:OREX), Sucampo Pharmaceuticals (NASDAQ:SCMP) and Savient Pharmaceuticals (NASDAQ:SVNT).

Leerink says there's high interest in small- to medium-sized deals.

Perhaps that should come as no surprise given Wall Street's overwhelmingly negative reaction, so far, to the Pfizer (NYSE:PFE)-Wyeth (WYE) deal. But it's all relative. "For example." the LS note says, "SNY (Sanofi-Aventis) said it is looking at small- to mid-cap acquisitions in the 5-15B Euro range, which would be large to many other companies." That works out to a range of $6.2 billion-$18.8 billion in U.S. dollars.

There are a boatload of disclosures to pass along because the Leerink note mentions so many stocks. LS has banked JAV. It may trade in shares of JAV, BMY, FRX and ELN. And it makes a market in ALXN, BIOD, CGRB, CRME, ISPH, OREX, SCMP and SVNT. Done.