Big pharmaceutical players, known as Big Pharma, depend on patents to fend of generic threats to their blockbuster drugs. So when a patent expires, cheaper generic products flood the market. The sales of the premium drug take a nose dive once similar compounds are available at cheaper rates.
Therefore, it is imperative for big-pharmaceutical players to continue the hunt for new candidates. In this lies the enormous potential of small biotechnology companies with promising candidates.
Patent cliff
The entire healthcare sector is heading towards a patent cliff. Blockbuster drugs like Lipitor and Seroquel IR are facing generic threats. Amongst the Big Pharma players, AstraZeneca plc (ADR) (NYSE:AZN) has suffered the most due to patent expirations. This is primarily because the company has a weak pipeline as compared to other leading players. If we look at the rest of the industry, Pfizer Inc. (NYSE:PFE) has an extremely strong pipeline while Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) already thrives in the generic space.
AstraZeneca plc (ADR) (NYSE:AZN) has recently announced that it is buying fish-oils drug maker Omthera for $443 million. The new CEO, Pascal Soriot, had earlier announced that he wishes to strengthen cardiovascular, cancer and respiratory pipelines. This acquisition increases chances that the cash rich AstraZeneca plc (ADR) (NYSE:AZN) will make an oncology related purchase next. The following biotechnology companies are working on some promising oncology candidates and have the ability to attract leading players like AstraZeneca plc (ADR) (NYSE:AZN).
Cancer vaccine
In a recent move, Galena Biopharma Inc (NASDAQ:GALE) has acquired U.S. rights for Abstral. The drug received FDA approval back in 2011 as a relief for cancer pain. According to reports, the U.S. market for TIRFs, such as Abstral, is around $400 million.
Galena Biopharma Inc (NASDAQ:GALE) has a market capitalization of around $200 million and is also trading at a 100% discount to its mean sell-side target price of $4.90. It is a perfect fit for any company looking to expand its oncology portfolio. At current valuations it can be a perfect fit for AstraZeneca, which is looking to strengthen its Oncology franchise.
A retrovirus
Oncolytics Biotech, Inc. (USA) (NASDAQ:ONCY) is a Canadian biotechnology company that focuses on the development of oncology treatments.
Its primary candidate is Reolysin, a formulation of the retrovirus already present in most humans but does not show any adverse symptoms. The company has tested Reolysin in approximately 32 different trials out of which 16 have already concluded. This formulation of the Reolysin retrovirus attacks cells that have RAS pathways and according to studies almost 67% of all cancers are RAS-activated. This fact is a testament to the huge potential of Reolysin.
The stock has lost almost 50% of its value since February after rising on positive Phase III trial data on Reolysin treatment of head and neck cancer. Massive profit taking after a substantial rally is the primary reason behind this 50% slide. The trigger was the company announcement that it planned to make a public offering of common shares.
Oncolytics Biotech, Inc. (USA) (NASDAQ:ONCY)’s potential is immense, and it’s a perfect fit for any major player looking to expand its Oncology franchise. The stock is highly undervalued at current prices and offers a 70% upside on mean sell side target price of $6.5.
Bottom-line
The demand for small biotechnology companies with promising candidates is high. Any news or indication of an acquisition deal can result in a huge rally and this makes them a very good investment.
Mohsin Saeed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article 2 Drugs With Acquisition Potential originally appeared on Fool.com.
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