2 Biotech Stocks That Could Soon be Acquired
Sherrie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While a company is in the clinical phase of development, there are roughly four catalysts that could move the stock higher.
1. Expansion of intellectual property and patents (creates moderate movement)
2. Partnership (creates moderate-large movement)
3. Phase data (creates large movement)
4. Acquisition (creates largest movement)
The final catalyst is the one that I am reviewing today. I am looking at two companies that look to be attractive acquisition targets. These are companies that have a product or technology that is unique yet effective, and that could add to the product offerings of another larger biopharmaceutical company.
A legitimate contender in the fight against cancer
As we saw with Pharmasset in 2011, Gilead Sciences paid a huge premium to acquire the company for a collection of assets. As an acquisition target, this is often what a company seeks. They want a late-stage proven candidate but also a host of other drugs in the pipeline that build on that technology.
This fact makes Celldex Therapeutics (NASDAQ: CLDX) especially attractive. The company has a breast cancer drug, CDX-011, that significantly increased survival in a population of seriously ill patients. This drug has been the basis for its 200% one-year gain, as it specifically targets an expression called GPNMB, and solidifies Celldex as a legitimate player in immunotherapy.
Then, the company has a Phase 3 drug, Rindopepimut, that treats brain cancer, and has shown consistent benefit in treating patients in three different Phase 2 studies. Moreover, the company has six products in clinical studies, all in treating cancer, making it a legitimate contender in the fight against cancer.
What makes Celldex attractive, aside from its pipeline, is the fact that it has been very successful at developing treatment regiments that maximize the immune system via targeted therapies, antibodies, and immune system modifiers. Its two late stage products, CDX-011 and Rindopepimut, have peak sales potential of $700 million and $500 million respectively; about equal to its current market capitalization.
When we try to find a potential suitor, you realize that it could be a dozen different companies. Celldex could create several approved products and billions in sales within the next five years. Roche, Merck, Amgen, Bristol-Myers, Johnson & Johnson, or just about any large pharma with an oncology program. If you consider that Celldex is trading at just one times peak sales – and the average acquisition is 3-4 times peak sales – you can see that Celldex could become attractive very quickly.
If you can’t beat them… Buy them!
Sometimes a product is so good that it causes potential acquirers to “think,” and wonder what a company’s patents and technology could create. Such is the case with ACADIA Pharmaceuticals (NASDAQ: ACAD). Its drug Pimavanserin has succeeded in the treatment of Parkinson’s Disease psychosis and looks to be the best anti-psychotic in development right now; preparing to control a massive market.
Pimavanserin is also being tested to treat Schizophrenia and Alzheimer’s Disease psychosis, and combined could generate $1 billion in sales (or more). The company’s pipeline is not nearly as advanced as Celldex, but it does have a promising pipeline for chronic pain, although it’s still too early to predict its likely outcome.
Over the last year, ACADIA Pharmaceuticals has seen its stock rise 1,000% (not a typo) for the mere reason that no one expected such good results from its Parkinson’s Disease study. Yet, with it emerging as a leader, it now becomes very attractive to those companies with the marketing teams in place and with current antipsychotic medications in the market.
Pimavanserin is special because it does not produce many of the side-effects found with other antipsychotics, and now with the FDA saying “no Phase 3 necessary” I tend to believe that big pharma is taking a close look at ACADIA. Once Pimavanserin is available to the market, several blockbuster drugs could see sales significantly decline, as Pimavanserin would be the better drug.
One company that I think could be looking to acquire ACADIA Pharmaceuticals is Johnson & Johnson (NYSE: JNJ). The company has been quiet in the acquisition space of high-profile companies, and ACADIA could add some excitement for investors. Moreover, its blockbuster drug Risperdal (over $1.5 billion annually), is used freely for off-label indications, including Parkinson’s Disease psychosis.
Currently, there are no approved drugs for Parkinson’s Disease psychosis, as no company has been able to show a clinical effect; besides ACADIA. Thus, the launch of Pimavanserin could cripple the sales for such products (Risperdal) that are used off-label for certain antipsychotic indications. Thus, while Johnson & Johnson remains a possible acquirer, and could keep its blockbuster drug with the acquisition, other companies such as Eli Lilly (Zyprexa) and Bristol-Myers (Abilify) might also want to maintain their blockbuster sales; and can do so with an acquisition of ACADIA Pharmaceuticals.
I worked in the biopharmaceutical space for more than two decades, from a sales rep, to a trainer, and all the way to an R&D specialist. When assessing a new technology, I always looked for what both ACADIA and Celldex offer.
Celldex, with its massive pipeline and immunotherapy presence, could lead to further development and massive combined sales. ACADIA, with Pimavanserin, is going to control much of the antipsychotic market, and when threatened, big pharma buys. Thus I wouldn’t be surprised if both companies are receiving serious interest and are acquired at some point in the next year with massive premiums.
Sherrie Stone owns Celldex Therapeutics and ACADIA Pharmaceuticals. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!