Amgen originally offered to purchase Onyx for $120 per share almost seven weeks ago, but quickly found that offered rebuffed by Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX), who was intent on shopping itself around and holding out for a better price. With Amgen now upping its offer to $9.5 billion, or $130 per share, some of the more serious bidders are beginning to bow out of the fray.
One of the potential bidders that have decided to step aside is oncology and hematology powerhouse Novartis AG (ADR) (NYSE:NVS). According to a Bloomberg report, Novartis AG (ADR) (NYSE:NVS) chairman Joerg Reinhardt is capping any future acquisition target at $10 billion, but he has no interest in acquiring Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) at such a steep price. That doesn’t, however, mean Novartis AG (ADR) (NYSE:NVS) isn’t on the prowl.
Source: Andrew Hecht, Flickr.
Novartis on the prowl
Novartis AG (ADR) (NYSE:NVS) is certainly no stranger to the dangers of the patent cliff. Like many of the world’s largest pharmaceutical companies, it’s seen some of its biggest money-making drugs fall victim to generic competition. Last year saw the loss of high blood pressure medication Diovan, which had contributed $5.7 billion (about 10% of annual sales) in revenue in 2011, and breast cancer medication Femara. Looking ahead to next year, its blockbuster leukemia treatment Gleevec will lose its patent exclusivity.
New drugs are helping to curtail this steep revenue drop-off, including relapse-remitting multiple sclerosis drug Gilenya, which saw sales rise 66% in the second quarter over the year-ago period, and kidney cancer drug Afinitor, which delivered a 77% spike in sales. But, there’s still nothing that can turn around an ailing pipeline quicker than an earnings-accretive acquisition.
Two companies on the radar
Here are two companies that I feel would be a good fit for Novartis AG (ADR) (NYSE:NVS).
Incyte Corporation (NASDAQ:INCY) — current market cap, $4.18 billion.
Incyte Corporation (NASDAQ:INCY) would make a lot of sense as a potential buy candidate for Novartis AG (ADR) (NYSE:NVS) given that the two companies already have an ongoing licensing pact with FDA-approved myelofibrosis drug Jakafi. Under the current deal, Incyte Corporation (NASDAQ:INCY) has the rights to Jakafi within the U.S. with Novartis claiming worldwide rights to the drug everywhere else. Jakafi (known as ruxolitinib in testing) is also being studied as a treatment for polycythemia vera, pancreatic cancer, and solid/hematologic tumors.
Incyte Corporation (NASDAQ:INCY)’s pipeline isn’t too complicated with numerous pharmaceutical pacts, either. Aside from a licensing deal with Eli Lilly & Co. (NYSE:LLY) over baricitinib, which is currently being studied in three trials (rheumatoid arthritis, psoriasis, and diabetic nephropathy), every other pipeline hopeful is either owned by Incyte Corporation (NASDAQ:INCY), or licensed in some full or partial form to Novartis. With peak sales of Jakafi expected to be about $1 billion, and taking into account the potential of its remaining pipeline, as well as sales that would be taken by Eli Lilly & Co. (NYSE:LLY) via baricitinib, I could see Incyte Corporation (NASDAQ:INCY) command a $5.5 billion to $6 billion price point.
BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) — current market cap, $9.24 billion.
I would certainly quantify BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) as much less likely a purchase than Incyte, but I wouldn’t rule out its allure to Novartis, which is struggling to find ways to replace Diovan and Femara’s rapidly tapering revenue.
The hesitation I could see Novartis AG (ADR) (NYSE:NVS) having in purchasing a company like BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is twofold. First, BioMarin Pharmaceutical Inc. (NASDAQ:BMRN)’s area of focus is on ultra-rare diseases, and its treatments often focus on some form of enzyme-replacement therapy. Novartis’ focus tends to be on solid tumor and blood-borne cancers, with only a very minimal focus on rare diseases, so this would be quite the step out of its normal comfort zone. Second, BioMarin’s valuation is already pretty steep, at $9.24 billion.
Despite these concerns, I still feel there is hope a deal here could get done. What BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) would bring to Novartis are four currently approved ultra-orphan treatments (three in the U.S. and one in the EU) that have absolutely no competition and hefty annual price tags that insurance companies seem more than willing to pay. This would give Novartis some cushion when its next round of big patent expirations rolls around in a few more years. Because investors have already priced BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) so loftily because of its unique position in the diseases it treats, I could see a deal getting done with little upside from here — perhaps $10 billion to $10.5 billion.
The article 2 Biotech Stocks That Could Be on Novartis’ Buyout Radar originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool recommends BioMarin Pharmaceutical.
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