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3 Potential Pharma Buyout Targets

 January 13, 2012 12:21 PM

The buyout frenzy that has gripped the pharmaceutical sector during the first two weeks of 2012 will more than likely continue. A long list of expiring patents and plenty of available cash are prompting large-cap pharmaceutical companies to seriously consider takeover opportunities in small-cap biotechs.

But the top-line boost of a promising biotech acquisition doesn't come cheap. Yesterday, I highlighted the Bristol-Myers Squibb purchase of Inhibitex (NASDAQ: INHX) for $2.5 billion, a premium of more than double the company's market cap at the time. The deal landed shareholders overnight gains approaching 125%.

[Related -Can Abbvie Inc (NYSE:ABBV) Trump Gilead Sciences, Inc.'S (NASDAQ:GILD) HCV Lead?]

If the market remains this competitive for quality acquisitions, small-cap traders and investors should have numerous opportunities to cash in on the trend. Several large-cap pharma players have indicated they are actively looking toward acquisitions to fuel growth. Generic-drug making giant Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA) told Bloomberg that the company is looking for potential deals in Asia and Brazil to improve its position in emerging markets. Merck & Co. (NYSE: MRK) has also thrown its hat in the ring. The company recently told the Wall Street Journal about its desire to make key acquisitions in a quest to solidify its spot in the Hep C market.

[Related -Forest Laboratories, Inc. (NYSE:FRX): Should Astrazeneca Plc Buy Forest Labs?]

In an effort to help narrow your search, I've compiled a short list of potential small-cap buyout candidates that are all involved in Hep C drug development . Any one of these small-caps would be an excellent target for a major pharmaceutical firm looking to bolster its patent portfolio or capture market share in this emerging sector. Hep C medications are an important area of focus right now as pharmaceutical players attempt to favorably position themselves within the growing sector. And it's also one of the best places to look for potential deals…

Idenix Pharmaceuticals Inc. (NASDAQ: IDIX) – The Inhibitex/Bristol-Meyers deal revolved around the company's unique Hepatitis C treatments. Also, in this sub-sector, we've seen Gilead Sciences Inc. (NASDAQ: GILD) plan a $11 billion purchase of Pharmasset Inc. (NASDAQ: VRUS). That's why it would be wise to keep Idenix Pharmaceuticals on your radar. The stock popped double-digits earlier this week thanks partly to the Inhibitex deal— and partly because the company released positive interim data for its own Hep C drug. I would not be surprised if additional rumors related to multiple Big Pharma suitors were to emerge in the coming weeks and months.

Achillion Pharmaceuticals Inc. (NASDAQ: ACHN) – The timing on the Inhibitex deal couldn't have been more perfect for yet another Hep C drug developer, Achillion Pharmaceuticals. Achillion also released positive data earlier this week, boosting awareness among investors— and catapulting the company to the top of many analysts' lists of buyout contenders in this space. A market cap of just over $800 million makes this company the perfect size for a buyout.

Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) – Although this mid-cap is outside the acquisition "sweet-spot" due to its market cap that tops $7.6 billion, the company potentially has a lot to offer a blue chip player who wants a more mature company with a more robust pipeline. In addition to its Hep C work, Vertex is also working on a promising late-stage cystic fibrosis drug. Vertex is also earning praise from analysts after cleaning up its balance sheet and beating earnings estimates for the previous three quarters.


Greg Guenthner



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