The Ultimate Hunting Ground For Takeover Deals: Here’s How To Profit…

It’s no secret that biopharma has long been (and will continue to be) fertile ground for mergers and acquisitions.

As we speak, Amgen (Nasdaq: AMGN) is working to finalize the $27 billion takeover of Horizon Therapeutics. Pfizer (NYSE: PFE) didn’t even finish digesting Biohaven Pharmaceuticals before it scooped up oncology specialist Seagen a few months ago for $43 billion. Not to be outdone, Merck (NYSE: MRK) just joined forces with Prometheus Biosciences in a splashy $11 billion deal that valued the latter at $200 per share, sending its stock soaring 75% on the news.

This is by no means an all-inclusive list. These massive (11-figure) transactions have become almost commonplace among the legion of hungry biotech and pharmaceutical giants. Gilead, Novartis. Sanofi. Eli Lilly. Shoppers all.

According to the Financial Times, dozens of major M&A deals were inked in the biopharma space last year, representing a total dollar volume of $127 billion. And that frenzied pace has actually picked up momentum since then. In fact, dealmaking activity in this sector is on pace to surpass $215 billion in 2023.

The word “blistering” has been used on more than one occasion.

Source: Biopharma Dive

It’s not hard to see why.

It’s All About The Pipeline

Read the press releases accompanying these deals, and you’ll run across the word “pipeline” almost every single time. Mature companies with tens of billions in annual sales are always under pressure to harness new products that will become tomorrow’s growth catalysts. That’s why they have staggering research & development budgets.

“Seagen is poised to expand the impact of its therapeutic approach with its broad and deep pipeline that includes eleven molecular entities, many with the potential to treat large patient populations.”
— Pfizer CEO Albert Bourla

But that need is even more acute today, considering the wave of key drugs across the industry that are facing patent expiration over the next two to three years. Patents provide a fixed period of marketing exclusivity. You might even call it a temporary monopoly. When that protective shield is removed, generic competition immediately starts to chip away — often pushing revenues off a cliff.

Just ask Pfizer, whose cholesterol drug Lipitor has seen annual sales plunge from a peak of $13 billion to less than $2 billion since patent expiration. Abbvie is now facing the same thing with its flagship, Humira. After hauling in a cushy $20 billion in sales last year, the arthritis treatment will soon face competition from as many as ten biosimilars entering the marketplace.

Over the next 30 months, numerous blockbuster drugs representing approximately $130 billion in annual sales are slated to lose their patent protections. No wonder their owners are desperate to replenish their portfolios.

Source: Scrip Pharma Intelligence

And thanks in part to windfall Covid vaccines and treatments, the big dogs have ample cash to go hunting — $1.5 trillion, by some estimates.

A New Wave Of Buyouts…

Meanwhile, countless biotech targets are out there with promising new therapies that could be tomorrow’s medical miracles.

According to Deloitte, the exorbitant cost to commercialize a new drug has skyrocketed to an average of $2.3 billion. Many startups lack the funding to complete clinical trials and reach the FDA approval finish line. That’s to say nothing of the financial heft needed after that for global marketing and distribution.

That’s especially true in this climate of rising borrowing costs and tighter access to capital. So, these cash-strapped small frys are happy to join up with an experienced and deep-pocketed partner. But only if the price is right, which is why premiums are exceptionally high in this sector — often 75% to 100% or more.

If you’re Amgen or Pfizer, why not let a smaller company with a brilliant idea do all the legwork? All you have to do is waltz in with a check… From small bolt-on acquisitions to the outright sale of foundational platform therapies that could spur game-changing breakthroughs, expect to see more consolidation over the next 12 to 24 months.

Closing Thoughts

This is one of the most lucrative spaces for takeover deals in the entire market. So, if you choose to scout this industry for candidates, allow me to offer a couple of pointers.

For starters, I never recommend investing in a company for the takeover potential alone. Do the usual due diligence.

Of course, some targets are obviously more desirable than others. Efficacy aside, buyers will certainly pay attention to the size and competitive landscape of the addressable market. Bourla’s statement touched on this earlier: How large is the drug’s patient pool?

Over at Takeover Trader, we have our sights on a company with a promising treatment for a debilitating disease. You’ve probably never heard of the innovative biotech company behind this novel treatment. But Wall Street has certainly taken notice. Six of the seven analysts who follow the stock have deemed it either “buy” or “strong buy”.

Judging by their optimistic targets, the stock is poised to deliver triple-digit returns to investors within the next 12 months – potentially sooner if a large acquirer intervenes.

To learn more about this pick — and get your hands on our latest research over at Takeover Trader go here now.