For quite some time now analysts and investors have been speculating that big pharma would go on a biotech buying binge. So, will the announcement by Biogen Idec late Friday that it's putting itself on the market be the spark that ignites an M & A explosion in the sector? Perhaps.
But before I get to that I wanted to share some analyst opinions about the leap in BIIB. "ChangeWave Biotech Investor" newsletter editor Michael Shulman is telling his subscribers, "…I like the company very much, but potential acquirers may not like it as much as the stock price reflects. It's time to take profits and close the position."
But Bernstein biotech analyst Geoffrey Porges thinks there's still upside. He writes in a research note to clients this morning, "Our analysis suggests a takeout valuation for Biogen Idec in the range of $85-$1000, with the average of the approaches we used suggesting a $92 takeout valuation…." While Wachovia's George Farmer says, "Even if a deal is reached, we would not be byers at current trading levels." He believes the move in the stock late Friday was mostly fueled by short covering--investors who were betting against the stock getting out of it before they lose their shirts. Wachovia and Bernstein make a market in BIIB.
And in a separate note titled, "Biotech M & A Fever," Farmer is telling clients which are the most likely and unlikely names to get taken out if the fever indeed spreads. He writes that biotechs that already have revenues are in the sweet spot, "…we believe companies such as GILD, AXLN, PDLI, ONXX and OSIP, could be acquisition candidates…and finish strong going into year-end."
On the flip side, Farmer believes that companies still developing drugs are less likely to be bought although the shares could rise on speculation that they will get acquired. "Such names in our coverage universe fitting this profile include HGSI, EXEL, SGEN, VRTX, ALTU, PGNX and ITMN." Wachovia makes a market in all of the stocks. Farmer or someone on his team is long--betting the stock will go up--PDLI and Wachovia owns at least one percent of those shares.
As for the potential acquirers, Farmer throws out Pfizer, Sanofi-Aventis, GlaxoSmithKline and AstraZeneca. And specifically for interested parties in buying BIIB, Porges says PFE, GSK and SNY are the "highest probability bidders" and that JNJ, MRK, BMY, Roche and DNA could also be taking a look.
In general, big pharma is swimming in cash and has a shallow drug development pipeline. You can bet M & A will be a popular question on the upcoming earnings conference calls. Genentech's up first after the bell today.
Questions? Comments? Pharma@cnbc.com