More Buyout and M&A Candidates in BioHealth (INCY, LLY, NVS, CELG, CADX, HSP, SLXP)
It seems that if there is one segment that everyone agrees will continue to see consolidation, it is the biotech, drug, and specialty pharmaceutical sector. A report this week from UBS has highlighted several possible deals that it could imagine from its universe of analysts and there were four possible deals in biotech and pharma that were touted and which we think were worth mentioning.
The companies covered as possible targets were Incyte Corporation (NASDAQ: INCY), Celgene Corporation (NASDAQ: CELG), Cadence Pharmaceuticals Inc. (NASDAQ: CADX), and Salix Pharmaceuticals Ltd. (NASDAQ: SLXP). We have sort of handicapped each scenario with our own outlook and shown how these compare to an overall analyst consensus.
Incyte Corporation (NASDAQ: INCY) is called a biotech takeover target as it is partnered with Eli Lilly Co. (NYSE: LLY), a larger company which has shown a past appetite for making deals with partners. On LLY-104, Lilly owes Incyte $616 million in remaining milestones and which it splits operating profits equally. The firm believes that Lilly could acquire Incyte in order to consolidate economics on a key product in the pipeline. With a typical premium of about 50%, that would imply a price of at least $30.00 per share based upon a $20 price target. If you include the current pipeline and technology platform, the belief is that $30.00 would be a floor. Another Incyte partnership is with Novartis (NYSE: NVS) on ruxolitinib, but the outlook is less dependent on that product and partnership. At $18.58, the Thomson Reuters consensus price target is $22.57 and the 52-week range is $10.21 to $21.15.
Both Incyte Corporation (NASDAQ: INCY) and Celgene Corporation (NASDAQ: CELG) are rated Buy at UBS.
Celgene Corporation (NASDAQ: CELG) is one biotech we do not really agree with UBS on, but only because we imagine it being an acquirer to grow its enterprise. After all, its market cap is almost $27.5 billion. Still, UBS noted that Celgene is trading below an estimated intrinsic value if the company achieves success on its pipeline and receives its milestones. The idea here is a Big Pharma buyer somewhere under $80.00 per share with a value of $40 billion or so. UBS did at least note that the absolute likelihood of a deal happening here is not very high but it is more attractive compared to other large biotechs when considering patent terms, growth, and its strategic positioning. At $59.39, Thomson Reuters has a consensus price target of $66.91 and the 52-week trading range is $48.02 to $63.46.
Cadence Pharmaceuticals Inc. (NASDAQ: CADX) was given a very short write-up in the specialty pharmaceutical sector. It was noted as being that Hospira Inc. (NYSE: HSP) could drive significant SG&A synergies by leveraging its own sales force. UBS also only has a neutral rating, but this is in that sweet spot with a market cap of $585 million. We would note that the consensus Thomson Reuters data shows revenues growing from about $21.5 million in 2011 to just over $110 million in 2012. With shares around $9.22 today, the 52-week range is $6.41 to $10.00 and Thomson Reuters has a price target of $10.14 from its analyst pool.
Salix Pharmaceuticals Ltd. (NASDAQ: SLXP) is also only given a Neutral rating at UBS, but its $2.24 billion market cap is one that UBS could be driven higher on synergies by leveraging its sales force to juice sales in Xifaxan. It is hard to get excited about the deal size projected too with a likely value of $2.5 to $3.0 billion.
As a reminder, just because M&A deals are dreamed about does not mean that a deal is imminent or even in the works. It is our take that some of the broad list of over 40 companies throughout many sectors not tied to healthcare or biohealth may have more attractive candidates for M&A. That is what makes a market.
JON C. OGG
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What is the title of the UBS report mentioned in this article? I tried finding it on the UBS website, but no luck.
How can I obtain a copy of the UBS report? Please advise.