Wall Street Watchers' Picks: 2016’s Top 10 Most Promising Biopharma Companies File IPO Prospectus

Today, analysts, investors, journalists, and other Wall Street observers are making a series of predictions that you may find unreliable. However, last year, GEN published a list titled “Top 9 Acquisition Targets for 2015,” which included Medivation. This year, Pfizer is acquiring Medivation for $14 billion, a deal aimed at strengthening the alliance between leading oncology pharmaceutical giants. Let us now examine which companies may present promising investment opportunities.

Despite an increase in the total volume of block trades, the value of mergers and acquisitions (M&A) in the first eight months of this year actually declined compared to the same period last year. According to the monthly biotechnology report, the total value of biotech M&A from January to August 2016 fell to $77.448 billion from $72.47 billion, even though the number of transactions rose from 655 to 869 between January and August 2015. These data are sourced from Zephyr’s database on M&A, IPO, private equity, and venture capital transactions.

This phenomenon largely reflects current M&A trends, where most buyers now favor small-scale investments—such as multi-million-dollar “bolt-on” acquisitions aimed at integrating drugs or pipelines into their portfolios—rather than the multi-billion-dollar mega-mergers involving large hospital systems that were common nearly a decade ago. Regardless of deal size, the growing number of M&A transactions indicates an increasing trend of biopharmaceutical companies being acquired or merged with other firms, as exemplified by the companies analyzed in this article. VCBeat (WeChat ID: vcbeat) has carefully compiled and organized this content for you.

As in previous years, the 2016 acquisition targets include a mix of new companies and those already featured on last year’s list. For each company mentioned, this article will provide a detailed explanation of how the acquisition negotiations unfolded and the underlying reasons. These small and mid-sized biopharmaceutical companies will continue to dominate the spotlight of Wall Street speculation, driven by factors such as new product approvals, sales growth, and successful clinical programs, all of which are expected to generate billions of dollars in revenue.

In April this year, Acadia received FDA approval to conduct research on its “Nuplazid”™ (pimavanserin) program, with pimavanserin indicated for hallucinations and delusions associated with Parkinson’s disease psychosis. As a result of this program, Acadia Pharmaceuticals has become the most watched individual entity on acquisition platforms this year.

Since the FDA announced its approval of the project on April 29, Arcadia’s stock price has surged by 80%. Another contributing factor is the objective forecast for Arcadia’s drug sales. Healthcare analyst Brian Feroldi predicts that Nuplazid could generate over $3 billion in revenue, breaking annual sales records. He also identifies Arcadia as a potential acquisition target for one of the top five pharmaceutical companies, noting that the $3 billion figure may still be conservative. If Nuplazid receives label expansion approvals, it could pursue targeted studies for treating dementia-related psychosis in Alzheimer’s disease or schizophrenia.

Feroldi concluded, “I believe these reasons are sufficient to attract the attention of many large pharmaceutical companies, which is why I was not at all surprised when one of them offered $10 billion, or at least $5 billion, to fully acquire Acadia. Current expectations are too conservative; Wall Street is beginning to take a serious look at the Nuplazid program, and M&A activities are becoming increasingly substantive.”

Two biotechnology giants have been widely speculated to be potential buyers of Arcadia. Michael Yee of Morningstar (a renowned equity research firm) stated that Biogen has expressed interest in acquiring Arcadia, while Ken Cacciatore, an analyst at Cowen & Co., believes Teva Pharmaceuticals is also a possible acquirer. In a report to investors, Ken Cacciatore suggested a potential valuation between $6 billion and $10 billion, which is higher than the price estimate provided for Arcadia by Charles Duncan, an analyst at Piper Jaffray.

Needham believes that potential acquirers of Arcadia, including Teva, also include AstraZeneca, Allergan, Eli Lilly, Lundbeck, Merck, Novartis, and Takeda Pharmaceutical.

Bloomberg and Reuters last month cited anonymous sources, possibly the same ones, stating that Roche was exploring financing options for acquiring Alexion. As Roche did not immediately deny the report, CNBC’s Jim Cramer and The Wall Street Journal predicted that the pharmaceutical giant would ultimately acquire Alexion. Other market observers similarly believe that Alexion will eventually be acquired, although they have not yet identified Roche as a potential buyer. On June 29, Barron’s included Alexion in its list of 15 biotechnology companies likely to be acquired. Do Kim, an analyst at BMO Capital Markets, also believes that Alexion is a potential M&A target.

However, Adam Feuerstein of The Wall Street Journal holds a contrary view, predicting that no acquisition will take place, “because Roche wants to delve deeper into the market for niche drugs, but acquiring Alexion would not generate cost-saving synergies, as the two companies have no overlapping research and manufacturing capabilities.”

The story behind the acquisition is driven by rising sales expectations for Alexion’s flagship drug, Soliris® (eculizumab). To date, it remains the only and first approved therapy for paroxysmal nocturnal hemoglobinuria (PNH), to reduce hemolysis, and for atypical hemolytic uremic syndrome (aHUS), to inhibit thrombotic microangiopathy. Feuerstein pointed out that Soliris’ sales are expected to reach approximately $1.5 billion this year, with this surge peaking to generate annual sales between $3 billion and $6 billion.

Based on these analyses, we have reason to believe that Alexion is highly likely to generate profits from Soliris exceeding the 2016 sales forecast, as it already generated $1.366 billion in revenue in the first half of the year, representing a 10.5% year-over-year increase. Soliris accounted for 94% of Alexion’s revenue. Although the company’s sales of enzyme replacement therapies, including Strensiq® (for perinatal/infantile-onset hypophosphatasia [HPP]) and Kanuma® (sebelipase alfa) for lysosomal acid lipase deficiency (LAL-D), may reduce this revenue proportion.

On July 21 of this year, Galenica Group announced its acquisition of Relypsa for $1.53 billion, a move that has led many to speculate that Ardelyx will also find a buyer in the near future.

Wedbush analyst Liana Moussatos told The Wall Street Journal, “Ardelyx has a therapy that is very similar in nature to Relypsa’s Veltassa®, so if there is interest in acquiring Relypsa, there may be similar interest in Ardelyx.” In a July 21 report, Moussatos and fellow Wedbush analyst Kelechi Chikere noted that Sanofi is a primary potential buyer for Ardelyx, given that Sanofi entered into a two-year agreement with Relypsa last year to provide commercial support aimed at boosting sales of Relypsa’s flagship product, the oral suspension Veltassa.

In August, Citigroup analysts Yigal Nochomovitz and Yang Huang included Ardelyx in a list of six biotechnology companies “expected to be potential next M&A targets.” A month earlier, Bret Jensen’s investor, Alley, stated that the company had a project for the treatment of hyperkalemia, coded DX227675, which had entered Phase III trials, as well as another project called tenapanor, for the treatment of dialysis patients with irritable bowel syndrome with constipation (IBS-C) and end-stage renal disease (ESRD). Jensen said that the company could file up to three New Drug Applications (NDAs) next year, and he believed that Allergan appeared to be a logical acquirer for Ardelyx, given Allergan’s interest in expanding its gastrointestinal therapy assets.

Last year, tenapanor failed to meet the endpoints in a Phase II trial involving patients with chronic kidney disease (CKD) for the treatment of type 2 diabetes and proteinuria. Subsequently, Ardelyx made an upfront payment of $15 million, followed by a $10 million payment for research and development expenses, to secure global priority rights from AstraZeneca. In 2015, tenapanor successfully developed a therapeutic regimen for treating patients with irritable bowel syndrome with constipation (IBS-C) and hyperphosphatemia in chronic kidney disease on hemodialysis.

Biogen attracted significant investor attention in August, as The Wall Street Journal reported, citing anonymous sources, that the company had become an acquisition target for Merck & Co. and Allergan.

Beyond the report, an interesting highlight is Biogen’s robust corporate progress: its GAAP net income in the second quarter reached $1.05 billion, a 13% year-over-year increase, reinforcing its dominant position in the nearly $20 billion annual multiple sclerosis (MS) drug market. The leading product in this market is Biogen’s Tecfidera® (dimethyl fumarate), which generated $1.933 billion in revenue for Biogen in the first half of this year, representing a 13% increase compared to the same period in 2015. However, Tecfidera’s second-quarter revenue of $987 million fell short of the average estimate of $1.099 billion projected by analysts surveyed by Bloomberg News.

A company-wide slowdown in sales growth prompted Biogen to cut 11% of its workforce (approximately 880 employees) in a restructuring last year, while also terminating several drug development programs in its pipeline. Over the past year, Biogen has appointed a new CEO to lead its sales and R&D operations and has sought to narrow its therapeutic focus to neurology and ophthalmology. Meanwhile, it has spun off its hemophilia business into an independent company, aiming to complete its initial public offering next year.

Given that current CEO George Scangos is planning to retire, coupled with the company’s strong quarterly performance and a promising drug pipeline, market realist Sarah Collins viewed Biogen as a particularly attractive acquisition opportunity on September 9. On September 24, Brian Nichols of BNL Financial included Biogen among the ten biotechnology companies “most likely to see their stock prices surge following mergers and acquisitions.”

BioMarin Pharmaceutical has long been a regular fixture on GEN’s list of acquisition targets, appearing on the list every year since GEN first published it in 2013. Rumors have circulated that Roche is interested in acquiring BioMarin for $15 billion. According to a report from Betaville (which cited anonymous sources), Roche was identified as a potential buyer; following the report’s release, BioMarin’s share price rose by 9% on the morning of July 7.

Many news outlets, financial firms, analysts, and others have repeatedly speculated that BioMarin will eventually be acquired by another company in some manner. This year, according to an analysis by The Wall Street Journal, these potential acquisition motivations further drove BioMarin’s strong performance in the first and second quarters. In the first half of the year, BioMarin’s revenue increased by 18.5% compared to January–June 2015, reaching $536.9 million, which exceeded half of Reuters’ $1 billion forecast.

Net revenue from Vimizim® (elosulfase alfa), the enzyme replacement therapy for Morquio A syndrome, nearly doubled in the second quarter, contributing to a 72% increase in the first half of the year to reach $179.4 million. Additionally, Kuvan® (sapropterin dihydrochloride), the first and only FDA-approved treatment for phenylketonuria (PKU), was another driver of BioMarin’s revenue growth, with its net product revenue increasing by 51% year-over-year to $166.9 million.

Some analysts believe that Medivation, having lost Pfizer, will attempt to snap up other large biotechnology companies. In an August 22 note to clients cited by CNBC, Jefferies analyst Jeffrey Holford stated, “Many investors we have spoken with believe that BioMarin could be among the recent acquisition targets.” Analysts from The Wall Street Journal, Jefferies, and Goldman Sachs have identified Sanofi as a potential buyer for BioMarin, but this speculation has been negated by the fact that Sanofi attempted to acquire Medivation earlier this spring.

On September 21, Gabelli analyst Kevin Kedra told Barron’s that Allergan might acquire Gilead, raising the question: “If [Allergan CEO Brent Saunders is playing a long game, aiming to acquire Gilead through smaller strategic acquisitions, particularly given Gilead’s role as a developer of non-alcoholic steatohepatitis (NASH) drugs.” Kedra believes Allergan’s offer to acquire Tobira could reach as high as $1.695 billion.

Max Nisen of Bloomberg Gadfly has publicly challenged Kedra’s forecast. If Allergan were to take the treatment of liver disease seriously, it would make sense to acquire an industry leader in this field. However, everything Allergan has done so far suggests that it is merely positioning itself as a competitor to Gilead’s NASH drug. Meanwhile, after acquiring Tobira, Allergan purchased another, smaller NASH-focused company, Akarna Therapeutics, for $50 million.

Other market observers, such as Sean Williams of The Motley Fool, view Gilead as a merger and acquisition target. Gilead’s stock price fell by approximately one-third between June 2015 and the most recent month. One contributing factor was a decline in sales, driven by insurers securing steeper discounts for its hepatitis C drug Harvoni® (ledipasvir/sofosbuvir).

Another setback for Gilead Sciences: On September 22, six months after halting the development of Zydelig® (idelalisib) in combination with other therapies for six cancer indications due to adverse events including deaths, Gilead also discontinued its Phase II/III clinical trial of GS-5745 in patients with ulcerative colitis. Williams stated that Gilead remains an attractive acquisition target for either Pfizer or Merck. Ken Kam of Marketocracy wrote in Forbes on July 20 that acquiring Gilead would be “game-changing,” noting that Merck needs such a strategic move and arguing that “the combined company would achieve faster profit growth than either company could alone.”

The revenue growth of the commercially available drug Jakafi® (ruxolitinib) has enabled Incyte to continue expanding its footprint in the United States and Europe, while the company begins to build its commercial infrastructure aimed at discovering and developing new therapies for oncology and inflammatory diseases. On July 14, Dr. Simos Simeonidis, Managing Director at RBC Capital Markets and a senior biotechnology analyst, stated in Barron’s that the combination of revenue growth and robust R&D capabilities makes Incyte an ideal acquisition target.

Jakafi is indicated for patients with intermediate- or high-risk myelofibrosis and polycythemia vera (PV) who have had an inadequate response to or are intolerant of hydroxyurea. In June, Incyte raised hopes for an expanded PV indication when it announced that Phase 3 data at 28 weeks demonstrated Jakafi’s superiority over the best available therapy for this blood cancer. Brian Abrahams of Jefferies told CNBC that Incyte’s robust oncology pipeline growth potential makes it an attractive acquisition target for numerous companies.

Jakafi’s success has made it an ideal acquisition candidate in this environment. On July 25, John McCaman, editor of TechStocks, wrote that Incyte’s three clinical-stage compounds—baricitinib (Phase III for rheumatoid arthritis; Phase II completed for psoriasis and diabetic nephropathy), ruxolitinib cream (Phase II for alopecia areata), and INCB52793 (Phase I/II for advanced malignancies)—could generate billions in revenue, a key asset for acquirers seeking to bolster their core resources through acquisitions.

Also in August, Gabelli described the company as a particularly attractive target for BioMarin Pharmaceutical, while Todd Hagopian of Markedcracy listed Incyte as one of Gilead’s four potential acquisition targets.

Intercept Pharmaceuticals’ research into developing treatments for non-alcoholic steatohepatitis (NASH) has successfully attracted significant attention from analysts and market observers. On February 12, Reuters reported, citing anonymous sources, that Intercept Pharmaceuticals was considering selling its product after receiving interest from potential buyers. Six months later, Reuters provided a note to investors via BMO Capital Markets analyst Do Kim, indicating that Intercept had become an acquisition target for numerous companies.

Last month, Credit Suisse analyst Alethia Young highlighted key reasons for investor interest in Intercept: its lead product, Ocaliva® (obeticholic acid), has advanced to Phase III trials for NASH, surpassing Gilead Sciences’ NASH candidate simtuzumab (currently in Phase II), and its therapeutic regimen is poised to become a cornerstone of the treatment paradigm.

On September 24, Nichols stated, “It is only a matter of time; large pharmaceutical companies have paid a heavy price for this NASH program.” He noted that Ocaliva improved fibrosis symptoms in 35% of patients, compared with 19% in the placebo group. As a developer of NASH therapeutics, the company operates in what is arguably the most competitive and urgent segment of biotechnology today.

RBC Capital Markets analyst Michael Yee analyzed that Intercept faces potential acquisition offers ranging from $5 billion to $10 billion annually. On May 7, Wedbush Securities analyst Liana Moussatos stated that Intercept could be acquired for as much as $10.3 billion, more than five times the $1.745 billion Allergan paid to acquire NASH drug developers Tobira Therapeutics and Akarna Therapeutics. Meanwhile, Needham and Barron’s have also identified Intercept as an acquisition target.

As a pioneer in chimeric antigen receptor (CAR) T-cell therapy, and coupled with the clinical missteps of its competitor Juno Therapeutics, Kite Pharma has been positioned by analysts as a potential prime acquisition target. Last month, Kite reported positive data for its lead product candidate, KTE-C19, from the Phase II portion of its Phase I/II trial in patients with non-Hodgkin lymphoma (NHL), marking a crucial step toward the eventual submission of a Biologics License Application before year-end.

On the other hand, Juno Therapeutics acknowledged in its July regulatory filings that four patients died in trials associated with its CAR-T cell candidates. Three of these deaths occurred during the Phase 2 ROCKET trial of JCAR015, its candidate for acute lymphoblastic leukemia (ALL), and the fourth occurred during the JCAR014 trial, which was designed to treat ALL as well as non-Hodgkin lymphoma (NHL) and relapsed or refractory (r/r) chronic lymphocytic leukemia.

After Juno Therapeutics withdrew from the competitive arena due to its own missteps, Kite Pharma became the first developer of CAR-T cell therapy on the market, positioning it as a major player in this highly competitive oncology sector. On July 20, Forbes praised Gilead for successfully developing its groundbreaking hepatitis C treatment.

Two months later, another Marketocracy analyst, Todd Hagopian, stated that Bluebird Bio and Kite could rapidly bring CAR-T cell therapies to market. His exact words were: “I believe the CAR-T market will be enormous in the future, and Kite will be a pioneer in this sector. This could make Kite the most attractive acquisition target for Gilead.”

Todd Campbell of E.B. believes that Kite can choose among multiple acquirers, and given its accelerated growth and potential for a future IPO, Kite Pharma may attract billion-dollar bids from several large companies.

On June 29, Tesaro announced the successful completion of the Phase III NOVA trial for niraparib, a poly (ADP-ribose) polymerase (PARP) inhibitor. Consequently, Tesaro has emerged as a top target for potential acquisition by investors. The median progression-free survival (PFS) for patients treated with niraparib was 21.0 months, compared with 5.5 months in the placebo group.

These results more than doubled the value of Tesaro’s stock, as Wall Street observers regarded the company as a leader in the production of PARP inhibitors (PARPi). However, competition in this therapeutic area is intense; for example, AstraZeneca has already launched a PARPi, the ovarian cancer drug olaparib, on the market. Meanwhile, in August, Clovis Oncology received FDA approval to proceed with its New Drug Application (NDA) for rucaparib, an investigational agent for ovarian cancer.

Nowadays, Tesaro is listed as a potential acquisition target for several biopharmaceutical giants, including Amgen, Celgene, Pfizer, and Gilead Sciences. In a note to investors, Jing He, an analyst at Gabelli & Co., wrote: "Although the PARPi deal will not change Gilead's overall direction, it is expected that the company will more actively expand its pipeline drug research."

Baird’s analyst team offered another perspective. Tesaro’s drug pipeline has been the primary driver behind its surge in popularity, featuring TSR-011, a first- and second-generation anaplastic lymphoma kinase (ALK) inhibitor, and a Phase I neurokinin-1 (NK-1) receptor antagonist designed to prevent nausea and vomiting in patients undergoing chemotherapy.