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No. 1 - Big Pharma Buyout Boom


MedImmune Sale Announcement Today May Begin Big Pharma Buyout Boom

The maker of the FluMist vaccine said it was putting istself up for sale, causing its shares to surge more than 10%. MedImmune (MEDI) also said that certain major drugmakers had already indicated they might be interested in a takeover. Flush with cash and facing weak blockbuster drug pieplines, Big Pharma may try to buy its way out of the problem - scooping up smaller biotech companies that have the cure for what ails them. So what's the best way to play the coming Big Pharma buyout boom?

Mike Huckman, CNBC’s pharmaceuticals reporter, joins the guys at the Nasdaq to give some insight into the recent movement in biotech and pharma stocks. Biotech as a whole was up big today, except one key player – Genentech (DNA). Huckman says DNA wasn’t up with the rest of the sector on the heels of yesterday’s earnings, and the money being rolled out of Genentech is going into the rest of the biotech names, helping to take them higher. As for MedImmune, the rumors that it would sell itself have been out there for months now. Wyeth (WYE), Novartis (NVS), GlaxoSmithKline (GSK) and Merck (MRK) are all on the rumored short list, he says.

The Top Three #1

Jon Najarian, sitting in for Eric Bolling, says that in order to load up on potential buyout targets, you need to play the options. Clearly, people have been buying options in MedImmune and other companies they think will be taken over. And when they’ve been right, they’ve been richly rewarded.

Biotech has the products, and Big Pharma has the money. It seems like a marriage made in heaven, Huckman says.

With both sectors seemingly on fire, all of the guys are recommending at least one drug stock. But like most drugs, each of their stocks have their own side effects.

Tim Strazzini is a buyer of AstraZeneca (AZN), despite its “dry pipeline syndrome.” AZN was great last year, but the pipeline has been hurting this year, he admits. That being said, he's still OK with the stock because of its valuation. In general, Tim likes consumer pharmaceutical companies because they are more diversified and don’t just deal in specialty drugs.

Guy likes Johnson & Johnson (JNJ), even though it is suffering from “restless return syndrome.” JNJ stock has been nearly unchanged in five years, but Guy thinks its acquisitons of Conor Medsystems and Pfizer’s (PFE) consumer brands business will help at some point. The stock is currently at a fair valuation, he says.

But for Guy, JNJ is nothing compared to Gilead (GILD), with its tremendous pipeline. Gilead, alongside Bristol-Myers Squibb, developed Atripla, the first one-a-day drug for HIV patients, and it also has Tamiflu, so it gets royalties from Roche.

Jeff Macke is the lone buyer of Genentech, which seems to have “guidance glaucoma” after Avastin sales missed estimates. Jeff says Genentech isn’t a likely takeover candidate, but that doesn’t mean it isn’t worth owning. It’s a non-speculative play that is well positioned with strong pipeline, he says, and it’s ready for its next growth phase.

Jon Najarian is recommending Amylin (AMLN) despite it being down 15% in one year on a diabetes drug concern. It has earnings Monday and people are giving the company rave reviews. It’s also a potential takeover target and despite the concerns, Byetta - Amylin's diabetes drug - is even beating Merck’s product, he says.

Questions? Comments?

Trader disclosure:
On APR 12 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders:
Strazzini Owns (SNDK), (NWS.A)
Macke Owns (SWY)
Najarian Owns (ARO), (AMLN), (BRCM), (CAT), (COST), (KSS), (MEDI), (PENN), (AAPL), (TLM), (EDS), (BSX)
For the record:
Strazzini Owned (SNDK), (BRCM) On 3/9/07