Biotech companies are addicted to capital like "crack addicts are addicted to crack," because of the $1 billion-plus price tag that it takes to bring a drug to market, Gregory Brown, founder and managing director of Cowen Healthcare Royalty Partners, told CNBC Monday.
"The healthcare sector is all about the assets. The assets are products, and much of the phrama industry is now facing patent cliffs, where 40-50 percent of their revenues are going to drop off a cliff. The only way to fill that ... is to make acquisitions," Brown said.
Three biotech companies that will change the treatment of disease are some of the most likely acquisition targets:
Human Genome Sciences has the first newly approved drug (Benlysta) for Lupus in over 50 years.
Acorda Therapeutics is a small biotech company that has oral therapy (Ampyra) for multiple sclerosis.
Forest Laboratories is a specialty pharma company with a couple of products that account for close to 80 percent of their revenues. These products will come off patent between 2012 and 2015. However, they are big enough that they could also be a buyer.
Companies that are targets have some level of weakness that makes them vulnerable. For example, in the case of Cephalon , there was a "leadership vacuum" after CEO Frank Baldino unexpectantly passed away, he added.
Separately, the FDA last month approved Bristol-Myers Squibb's YERVOY (ipilimumab) for the deadliest form of skin cancer, an area that until now has had few treatment options for patients.
In addition, Brown went on to say venture capitalists have been decreasing funding amounts to the space.
"The results haven't been there. These are long-term bets, if you have a single shot on goal and you miss, then you will probably have too many losses ... means lower returns," he concluded.
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