Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) is trading higher after rejecting a takeover bid. As other stocks in its sector also trade higher in sympathy, will any of them become takeover targets, too?
What’s Creating The Buzz
The analysts, bloggers, and columnists were out in full force last Monday morning to assess the true “worth” of Onyx. The company markets cancer drugs Nexavar and Stivarga with Bayer, and solely develops Kyprolis. According to most analysts, Onyx has the potential to produce peak sales between $4 billion and $4.5 billion, and would add value to any company developing cancer therapeutics.
Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) is trading higher by 51% at $131, now that many investors expect a $150 per share bid after the company rejected a $120 offer from Amgen. At $150, Onyx would be valued at $11 billion for its $4 billion-$4.5 billion in peak sales potential.
While I have little doubt that Amgen, Bayer, or one of many other Big Pharma companies will acquire Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX), there are countless stocks rallying in sympathy. Investors apparently believe that they, too, are acquisition targets. Here are two that I believe may also be acquired, each with a strong presence in oncology.
High Margins and Blockbuster Sales Make This Company a Target
Pharmacyclics, Inc. (NASDAQ:PCYC) is a market leader in the development of chronic lymphocytic leukemia. Its lead product, Ibrutinub, is being tested in seven different clinical trials, and is estimated to produce sales north of $3.5 billion by 2019.
Like Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) and its partnership with Bayer, Pharmacyclics is partnered with Johnson & Johnson in a deal to develop Ibrutinub that could be worth $957 million. Pharmacyclics will be responsible for 40% of the product launch costs and receive 50% of the revenue — in short, it got a very good deal.
If $3.5 billion in peak Ibrutinub sales are reached, Pharmacyclics, Inc. (NASDAQ:PCYC) should earn $1.75 billion. Most importantly, analysts project that because of the company’s low costs, a profit margin of 40% is possible for Pharmacyclics. Therefore, Pharmacyclics could earn $700 million in annual profits, and it should have many years of exclusivity due to the diversified development of the drug. This makes Pharmacyclics, Inc. (NASDAQ:PCYC) very attractive.
Currently, Pharmacyclics, Inc. (NASDAQ:PCYC) is trading with a market cap of $6.3 billion, after an 8.5% gain on Monday. If we consider the $1.75 billion in revenue that could be created from peak sales of Ibrutinub, the high profit margins, and then the anticipated success of its other two Phase 2 blood cancer and pancreatic cancer products — which have peak sales north of $1.5 billion combined — then we can see why Pharmacyclics, Inc. (NASDAQ:PCYC) might be attractive to big pharma.
A Cheap Blockbuster Company Could Be Next
Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) gained13.5% on Monday, in response to the Onyx offering. The company has a newly approved blood-cancer drug called Islusig, which analysts believe could produce peak sales of $2.5 billion annually.
Two things make Ariad attractive as an acquisition target: The company receives 100% of the revenue on sales of its drugs and it is significantly cheaper than Pharmacyclics or Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX). Ariad currently trades with a market cap of $3.7 billion, meaning it could most likely be acquired for 40% less than either of the two companies noted above.
Moreover, Islusig is being tested on seven different indications including various blood cancer indications lung cancer, and gastrointestinal tumors, which informs us that new patents will protect its exclusivity for many years. In addition, Ariad also has an early stage Phase 2 lung cancer drug, AP26113, which analysts project could create sales of $1 billion if it is successful.
Hence, we have a company that is significantly cheaper than either Onyx or Pharmacyclics and also has the potential to create $3.5 billion in total sales; assuming all pieces fall in place. This might explain why the company is rallying in response to Onyx, and rightfully so.
Conclusion
I am a retired R&D specialist, who worked in pipeline development and in assessing drug synergies for the better part of my career, with two different big pharma companies. While I never worked specifically with such large acquisitions in oncology, I do believe that with expiring patents, big pharma has these three companies on their radar.
With that said, each of these three companies are worth more than their sales alone. When big pharma looks at a potential acquisition they are looking at synergies and if patents and or a technology can be modified to produce new therapeutics. With these three being among the more innovative in cancer research, I think all are rightfully trading higher in response to the Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) offer.
In my opinion, Ariad is the most attractive of these possible takeover targets. Big pharma wouldn’t have to worry about the potential legal proceedings or the countless stacks of paper that comes with buying a company that already has a partner. Ariad is at the forefront of small molecule development and discovery, and is developing products to treat drug resistant cancers. To big pharma, such a technology could be highly attractive in the development of other therapeutics and in understanding more about treating the most complicated of cancers.
Sherrie Stone owns shares of Ariad Pharmaceuticals. The Motley Fool has no position in any of the stocks mentioned.
The article Will This Biotech Acquisition Buzz Lead to More Buyouts? originally appeared on Fool.com.
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