Biotech Values

[Shengli]

Four Biotech Takeout Candidates

http://blogs.forbes.com/matthewherper/2010/09/10/four-biotech-takeout-candidates/
By MATTHEW HERPER
Inspired by recent mergers in the biotech sector, Sanford C. Bernstein biotechnology analyst Geoffrey Porges screened 10,000 companies to come up with a list of 25 that look like possible takeout candidates — and then picked four of those he thinks are most likely to get scooped up.

Some of Porges’ criteria are obvious: buyers like newly launched products, drugs that don’t face a lot of regulatory uncertainty, and lately large drug companies have been making plays for smaller ones whose stocks have been depressed by some surprise bad news — Porges points out that Sanofi’s bid for Genzyme and Celgene’s purchase of Abraxis Bioscience as evidence.

More important, Porges kept in mind two forces that are shaping the pharmaceutical industry. First, drugs are increasingly a specialty business, with companies focusing on treatments for genetic diseases, uncommon cancers, and other rare ailments. Big, broad, blockbuster treatments are out, and narrowly focused and very expensive treatments are in. Drugs are for sick people.
Second, large drug companies are trying to avoid traditional small molecule drugs that will face large generic uptake after their patents expire. They prefer proteins, cell therapies, and other newer types of medicines that will continue to generate revenue even if patents expire and generics emerge. Here’s the list:

ViroPharma

Makes Cinryze, a recently launched treatment for hereditary angioedema, an ultra-orphan disease. Currently demand for the product is exceeding supply. Downsides to an acquirer: the stock price is near a 52-week high, and there is risk of competition.

Geron

The developer of drugs aimed at processes involved in aging and embryonic stem cell treatments has always been long on promise but short on results. But its treatments against cancer and spinal cord injury represent “high risk, high reward” opportunities for potential acquirers.

Allos

Sells the highly focused, very expensive cancer drug Folotyn. The stock has not performed well, but the ultra-orphan cancer niche and the idea that the acquirer could do better that current management might appeal to buyers.

Pharmacyclics

An exception, it makes small molecule drugs, but for cancer. Porges writes that the most promising program is in Bruton tyrosine kinase (Btk) inhibitors. Its lead compound showed what Porges says was “intriguing” activity in a form of lymphoma. Most interesting: the promising drugs came from gene-mapper Celera when it decided to get out of drug development — they could be proof genomics works for drug development after all.


Matt, are there any other rare genetic disease companies that should be on the list. What about Alexion?

Matthew Herper
The Medicine Show
Porges ranked Alexion, Dendreon, United Therapeutics and Onyx as being somewhat likely of a near-term takeout. They’re all perennial buyout candidates, and I think any of them would make sense for a large pharmaceutical company at some point.

But Dendreon has the overhang of the Medicare coverage decision, Onyx is partnered with Bayer, and I’m not sure Martine Rothblatt would sell United — and that’s one case where investors would stand behind her. Alexion probably similar in that regard,