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Investors don’t need to find the pharma company with the next big drug if they want to trade the war against cancer. The M&A market could offer returns that are just as good.
Both Bristol-Myers Squibb [BMY
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] and Merck [MRK
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] are on the hunt for acquisitions, Cramer said, and Dendreon [DNDN
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] and Onyx Pharmaceuticals [ONXX
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] make great targets. Of course these latter two either make powerful cancer treatments or have them in the pipeline, but that’s only part of the play.
Dendreon is probably best known for Provenge, its prostate-cancer drug that’s in late-state development. Analysts expect the Food & Drug Administration to review the drug for the next six months before it reaches the commercial market in mid-2010, if Provenge is approved. Sales could reach as reach as high as $730 million in 2011 and maybe more than $4 billion in 2020.
Provenge isn’t Dendreon’s only cancer franchise, but right now it’s the most important. So the stock almost lives and dies based on FDA’s blessing. DNDN is up 507% year-to-date thanks to the positive clinical-trial data released so far, Cramer said, and “it could go even higher” if the feds give it a thumbs-up.
Onyx Pharma sells its main drug Nexavar, which is used to fight kidney and liver cancer, in partnership with Bayer. Sales for 2008 clocked in at $678 million, and last quarter were $229 million, which was up 27% year-over-year. Plus, Nexavar is being tested for other indications, namely in breast and thyroid cancer, so there’s the potential for even bigger profits down the line.
After reporting a better-than-expected quarter on Tuesday, Onyx is far less speculative than Dendreon. But there is a catalyst to look forward to here. The Chinese government will release its national reimbursement list later this month, and Bayer, the largest multinational pharma company in China, has been lobbying hard to get Nexavar on it.
Like Celgene [CELG
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] and Allos Therapeutics [ALTH
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], Onyx will present at December’s American Society of Hematology conference, thanks to its acquisition of Proteolix. This privately held biotech makes a promising multiple myeloma drug in late-stage development that doctors are “very excited” about, Cramer said, in addition to having a solid pipeline of blood-cancer treatments.
When Nexavar was approved for liver cancer in November 2007, Onyx’s share price hit a high of $60.02, but now it’s down to $26.57, just $4 above the 52-week low. The stock’s down 22% year-to-date, Cramer said, making it “pretty cheap.”
Remember, these are speculative stocks, Cramer said, even though Onyx is slightly less so. But they’re buys for “the young at heart” and “just plain young” who want stocks “that could hit the ball out of the park.”
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