Risk comes from not knowing what you are doing. - The Oracle of Omaha (Warren Buffett)
Merger and acquisition (“M&A”) is part of the general growth strategy in the bioscience sector. Accordingly, large pharmaceuticals are facing the patent cliff of their flagship products. In response, the management that is “fortunate because they are capable” are pushing for various growth strategies. Two prudent growth approaches are either the organic pipeline innovation or the acquisition of valuable assets through M&As. Notably, Gilead Sciences (NASDAQ:GILD) bought out Kite Pharma (NASDAQ:KITE) back on Aug. 17, 2017, for its revolutionary cancer breakthrough, the chimeric antigen receptor/T-cells receptor (“CAR-T”) platform for the staggering amount of $11.9B. In following a similar suit, Celgene Corporation (NASDAQ:CELG) acquired another stellar CAR-T innovator, Juno Therapeutics (NASDAQ:JUNO) for roughly $9B on Feb. 2 this year.
Figure 1: Cascadian stock chart. (Source: StockCharts).
While large M&As tend to deliver much enthusiasm in the market, smaller deals are also exciting (and provide excellent learning points). That being said, Ablynx(EBR:ABLX) agreed to the tender offer by Sanofi (NYSE:SNY) for $4.7B on Jan. 29: this is significantly higher than the $3.1B offer by Novo Nordisk (NYSE:NVO) that was rejected earlier. Of note, the aforesaid purchased highlights one of our criteria (that we’ll elucidate later). In other words, the offer has to be a premium to the market value.
There is also a recent small M&A deal that is interesting for readers. On Feb. 8, 2018, Seattle Genetics (NASDAQ:SGEN) - an oncology-focused firm that is leveraging on antibody therapeutics - commenced the tender offer for all of the outstanding shares of Cascadian Therapeutics (NASDAQ:CASC) at $10 per shares. In this report, we’ll explicate how this M&A fits into the criteria that we use to forecast upcoming M&A in this exciting and lucrative bioscience space (one that delivers substantial wealth for shareholders as well as hopes for countless patients worldwide). Moreover, we’ll go over other learning points for investors to help you assess other potential upcoming M&As.
Figure 2: M&A stocks chart. (Source: Google Finance).
In our prior research, we stated that one of the elements of Integrated BioSci Investing is the focus on opportunistic investment. And, M&A is such an event that can unlock substantial value for shareholders in the relatively short time frame (as depicted in figure 2). We have a good number of firms under our coverage that got acquired (and rewarded investors with substantial profits). The Kite Pharma and Juno Acquisition deliver over 82% and 45% profits for subscribers, respectively.
As alluded, we follow certain criteria that guided us in the forecasting upcoming M&As. The first criterion is that there is pipeline synergy (we’ll go into greater details later). Second, the acquirer usually seeks for robust growth (to offset the declining or plateauing sales of certain flagship product). Third, the acquisition prospect usually has at least one approved therapeutic with significant market potential. Fourth, the offering price approximately at least 40% higher than the market value. Be that as it may, the aforementioned criteria only provide a rough guidance. Not all requirements are needed for an acquisition. And yet, there is a higher chance of a buyout if all criteria are present.
So how do our criteria applied to the mentioned Cascadian Therapeutics acquisition by Seattle Genetics? Of interest, Seattle Genetics is already commercializing its flagship product brentuximab vedotin (Adcetris) in both US and Canada. To push for further growth of its oncology-focused pipeline, the firm seeks for pipeline synergy with the purchase of Cascadian for its developing combinations anti-cancer molecules (as shown in figure 3); hence, this satisfied our first requirement.
While the second requisition was not met (as there isn’t a patent cliff for Seattle Genetics), the company, nonetheless, is seeking robust pipeline growth (as depicted in figure 4). Additionally, the third requirement was not met (as Cascadian does not have an approved product). The fourth criterion was satisfied: Seattle Genetics tendered the shares of Cascadian at $10 (which is at least 40% higher than the market value of the stock prior to the aforementioned news).
Of note, there is a higher level intelligence research that explored this thesis in great details. In the Integrated BioSci Merger and Acquisitions Report, we also update our 2018 list of top M&A candidates (and provided other pertinent points).
Author’s Notes: We’re honored that you took the time out of your busy day to read our market intelligence. Founded by Dr. Hung Tran, MD, MS, CNPR, (in collaborations with Dr. Tran BioSci analyst, Ngoc Vu, and other PhDs), Integrated BioSci Investing (“IBI”) marketplace research is delivering stellar returns since inceptions. To name a few, Nektar Therapeutics (NASDAQ:NKTR) procured more than 343% profits; Spectrum Pharmaceuticals (NASDAQ:SPPI) delivered over 175% gains; Kite Pharma netted 82%; Atara Biotherapeutics (NASDAQ:ATRA) appreciated +224%. Crispr Therapeutics (NASDAQ:CRSP) garned plus 104%. Exelixis Inc (NASDAQ:EXEL) earned greater than 52% capital appreciation. Our secret sauce is extreme due diligence coupled with expert data analysis. The service features a once-weekly exclusive in-depth Integrated BioSci Alpha-Intelligence article (in the form of research, reports, or interviews), daily individual stocks consulting, and model portfolios.
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Disclosure: I am/we are long ALPN.