Could Affymetrix Be Next Takeover in BioHealth? (AFFX, CALP, LIFE, QGEN)
Everyone wants to know which stocks in biotech and medical technology will be the next buyout target. It is rare that research reports or interviews from traditional brokerage firms point out an obvious takeover candidate, but that is exactly what came about in shares of Affymetrix Inc. (NASDAQ: AFFX) this morning. We first saw a move today in the company’s stock options volume on the heels of an analyst’s comments today.
The company is into consumables and systems for genetic analysis in the life sciences and clinical healthcare markets with its integrated GeneChip microarray platform including disposable DNA probe arrays consisting of nucleic acid sequences. It also operates or sells in North America, Europe, Latin America, India, the Middle East, China and the Asia Pacific regions. It has collaboration partnerships with Caliper Life Sciences (NASDAQ: CALP), CapitalBio Corporation, Life Technologies Corporation (NASDAQ: LIFE), Pathwork Diagnostics, and Qiagen (NASDAQ: QGEN). Of these partnerships, Qiagen and Life Technologies are both far larger than Affymetrix.
Macquarie is a prominent firm in the financial services arena, but it is still not known by many investors in the U.S. Macquarie’s Jonathon Groberg gave an interview to Dow Jones today pointing out that Affymetrix is the most compelling value in the life science tools market, and also believes this would make a very attractive target for a larger firm to acquire. We wanted to look past what the analyst said and evaluate the opportunities for the company.
At $5.00 today (after a 6% gain on the day), this is right in the middle of a $1.78 to $10.06 trading range of the last 52-weeks. It now has a market cap of roughly $358 million, and shares were effectively at a recent low before today because of a late-October slide from $9.00 to under $5.00.
Macquarie’s Groberg believes the firm could beat sales targets in 2010 because of new products. For a comparison, Thomson Reuters has estimates at $320.8 million in revenues for 2009 and $339.56 million in 2010. We would also point out that Affymetrix is thinly covered. The analysts following it have an average price target of between $7.00 and $8.00 on the stock.
The DEC-2009 $5.00 CALLS have already traded 1,985 contracts today. That might not sound like much, but the open interest was only 625 contracts and these options expire in only 9 days. The January-2010 $5.00 CALLS have seen 457 contracts trade versus an open interest of 2,135 contracts.
The company is also well capitalized. While it lists $247.2 million in long-term debt and $327.7 million in total liabilities as of September 30, the company has over $64 million in cash, $220.8 million in short-term investments, and $56 million in long-term investments. Unfortunately, the company i snot expected to be profitable in 2009 nor in 2010. To save cash, it has moved some operations internationally and closed some domestic facilities.
To go back to what Macquarie’s analyst noted, that was $12.00 based on two-times sales. Our take is that this sales multiple is a fair one if a buyout was considered, but it is worth noting that no takeover seemed imminent before this talk today.
Jon C. Ogg
