These biotech names are ripe for takeover: Cramer

We could be witnessing the beginning of a merger wave in biotech, where smaller firms are acquired by big drug companies looking for a new source of growth, Jim Cramer said Tuesday.

Amgen's $10 billion takeover of Onyx Pharmaceuticals, in addition to Gilead Sciences' acquisition of Pharmasset two years ago, shows that these mergers are a "win-win," the "Mad Money" host explained. Amgen rallied 7 percent on the merger news Monday, and Gilead is up 226 percent since the deal was announced in November 2011.

So who's next? Cramer thinks there are three candidates that stand out as possible acquisition targets.

Medivation

This $4.25 billion biotech launched a prostate cancer drug, Xtandi, in partnership with Astellas Pharma about nine months ago.

So far, the news is good—patients who took the drug survived an average of 4.8 months longer than patients with a placebo, and taking the drug led to a 37 percent reduction in the risk of death. The drug has already generated $230 million in sales, and could ultimately hit $2.2 billion in sales in 7 or 8 years.

Jayson Punwani | E+ | Images

Medivation is doing further studies on the drug for earlier stage prostate cancer patients, and is testing it against Johnson & Johnson's prostate cancer drug, Zytiga. Plus, the company is also doing breast cancer trials for the drug.

"If the prostate cancer data that comes out in the next couple of months is positive, I could easily imagine Medivation catching a bid, a big one that could come at a major premium to where it's now trading," Cramer said.

Seattle Genetics

Seattle Genetics develops targeted anti-cancer treatments. Its big drug is Adcetris, which has already been approved for the relapsed Hodgkin's lymphoma.

Big pharma has already shown interest in the $5 billion biotech firm—major companies like Abbott Labs, Bayer, Genentech, GlaxoSmithKline and Pfizer have all licensed Seattle Genetics' targeted oncology platform. Those partnerships could bring in $3 billion just from potential milestone payments, Cramer noted.

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He thinks Seattle Genetics could get taken over for $7-$8 billion, a 40-60 percent premium from where it's trading now.

BioMarin

This is the "better" play of the bunch, Cramer said. The $9 billion company is mainly focused on developing orphan drugs for rare metabolic diseases. It has a number of these drugs on the market, and more in the pipeline. It also has a breast cancer treatment in early development.

Cramer wouldn't be surprised by an $11-$12 billion offer, which would be a 22-33 percent premium on where it is trading right now.

But remember, never buy a stock solely for takeover speculation, Cramer warned. Be sure to also pay attention to the fundamentals and what the market's doing.

That said, he thinks Medivation and Seattle Genetics are in the "speculative sweet spot," and BioMarin gives you a less risky way to play the theme.

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