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4 Stocks in Focus as Biotech M&A Hopes Surge on Takeda-ARIAD Deal


Quite a few deals and licensing agreements were announced yesterday by pharma and biotech stocks but the one that stood out is the Takeda Pharmaceutical Company Limited TKPYY – ARIAD Pharmaceuticals, Inc. ARIA announcement. Japanese firm Takeda will be acquiring cancer-focused ARIAD for a whopping $5.2 billion. ARIAD, which has often been considered a potential acquisition target, saw its shares shoot up 72.8% on the acquisition announcement. ARIAD has had a phenomenal run over the past one year with shares soaring 338.2% compared to a decline of 8.6% for the Zacks categorized Medical – Drugs industry.

Cancer Treatments in Demand

ARIAD is focused on bringing innovative treatments for rare cancers to market — one of the most sought after therapeutic areas in the biotech/pharma sector. In fact, some of the other deals that were announced yesterday were also related to cancer including biotech major Amgen’s research collaboration and exclusive license agreement with Immatics (development of next-generation, T-cell engaging bispecific immunotherapies targeting multiple cancers), Kite Pharma’s KITE strategic partnership with Daiichi Sankyo for axicabtagene ciloleucel in Japan, and AbbVie’s immuno-oncology focused research and license agreements with Pure MHC and Dong-A-ST.

Other therapeutic areas for which deals were announced yesterday include pulmonary arterial hypertension (PAH), immunology and gastrointestinal (GI) diseases like ulcerative colitis (UC), Crohn’s disease (CD) and irritable bowel syndromes (IBS).

M&A Hopes on the Rise

With all these agreements being announced, expectations for more such deals and merger and acquisition (M&A) announcements have gone up. Companies with innovative technologies and pipelines are highly sought after with niche disease areas like nonalcoholic steatohepatitis (NASH), immuno-oncology and multiple sclerosis in demand. Treatments for orphan diseases are also in demand. In this backdrop, here is a look at four biotech stocks that could find themselves on the radar of companies on the lookout for acquisition targets in 2017.

Actelion Ltd. ALIOF: First on the list is Swiss company Actelion, which is currently in talks with healthcare giant Johnson & Johnson regarding a possible transaction. While earlier talks with J&J failed to result in a deal being announced, the companies are back in talks after a break in negotiations. Actelion was also being pursued by French pharma giant Sanofi. Actelion’s rare disease portfolio makes it an attractive acquisition target. In addition to holding a strong position in the PAH market, Actelion’s portfolio has treatments approved in certain countries for specialist diseases like type I Gaucher disease, Niemann-Pick type C disease, digital ulcers in patients suffering from systemic sclerosis, and mycosis fungoides type cutaneous T-cell lymphoma. Actelion has had a good run over the last one year with shares gaining 70.5% compared to the Zacks categorized Medical – Biomedical and Genetics industry which declined 13.5% during this period.

Incyte Corporation INCY: Wilmington, DE-based Incyte is another company that is often considered an attractive acquisition target thanks to its flagship product, Jakafi, and a promising pipeline. Jakafi – a JAK1/JAK2 inhibitor – looks well-positioned for growth. Moreover, with Gilead presenting mixed results on its experimental JAK inhibitor, momelotinib, the competitive threat for Jakafi seems to have gone down considerably. Incyte has a robust pipeline as well with a focus on the highly sought after immuno-oncology space.

Exelixis, Inc. EXEL: Another company with acquisition potential is South San Francisco, CA-based Exelixis. Exelixis is focused on bringing cancer treatments to market. Approved products include Cabometyx (advanced kidney cancer), Cometriq (certain forms of thyroid cancer) and Cotellic (advanced melanoma). Exelixis’ earnings track record is good having surpassed expectations in three of the last four quarters. Cabometyx is experiencing rapid and broad uptake in the market with label expansion opportunities leaving room for upside. The company has quite a few pipeline catalysts lined up for the coming quarters.

TESARO, Inc. TSRO: TESARO’s PARP inhibitor, niraparib, makes the company an attractive acquisition target. PARP inhibitors are currently considered to be the next major class of therapeutics in oncology. Interest in this area has increased considerably following the announcement of impressive late-stage data on niraparib in Jun 2016. Niraparib is currently under priority review in the U.S. with a response from the FDA expected by Jun 30, 2017. TESARO has outperformed the Zacks categorized Medical-Drug industry with shares soaring 295.2% over the last one year.

While all four stocks mentioned above are Zacks Rank #3 (Hold) stocks, you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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