Biopharma M&A Wave to Continue, Piper Jaffray Says (GILD) (BIIB) (AMGN) (AGN) (ABBV)

Analysts at Piper Jaffray said the M&A wave in Biopharma is not over yet and they see a number of big players making deals over the near-term.

"With debt still easily accessible, balances sheets generally strong and payor consolidation creating pricing and growth pressures, the field remains ripe for additional activity," Piper Jaffray analysts said.

For potential biotech mergers, the analysts note most investors expect Gilead Sciences (NASDAQ: GILD) to be acquisitive and increasingly hope Biogen (NASDAQ: BIIB) will be too. They also think Amgen (NASDAQ: AMGN) would benefit from one more mid-size deal.

In the specialty pharmaceutical space, Allergan (NYSE: AGN) is broadly expected to deploy its pending sizeable cash position after divesting its generic business to Teva Pharma (NYSE: TEVA), while Shire plc (NASDAQ: SHPG) has indicated interest for Baxalta (NYSE: BXLT).

For pharmaceutical mergers, they said forces remain in play to see ongoing large pharma M&A, while AbbVie (NYSE: ABBV) is positioned as both a potential acquirer or a target.

Below is analyst commentary around some potential merger deals:

Amgen: "AMGN faces the obvious near-term challenges of biosimilars, encroaching its mature franchises while at the same time its pipeline is getting off the ground. We believe AMGN would be well served by adding some additional cushion to offset any potential NT biosimilar decline by buying either commercial stage assets in their early/middle stage of lifecycle, or ones approaching commercialization that fit cleanly into the company’s existing infrastructure."

Gilead: "Most agree the best fit for GILD is a derisked, later-stage asset or collection of assets, particularly in light of the company’s fairly modest internal pipeline relative to its growth needs. GILD’s core expertise is in HIV/infectious disease, hepatology and the company also has a budding oncology franchise, albeit one without an anchor product... Companies like VRTX (NASDAQ: VRTX), INCY (NASDAQ: INCY) and BMY (NYSE: BMY) have been mentioned by investors, and they would certainly be considered transformational... ISIS (NYSE: ISIS) or ALNY (NASDAQ: ALNY) are interesting considerations for GILD; each would provide a deep pipeline, reasonably derisked assets, and commercial opportunities addressed by focused sales efforts. But investors may wonder if ISIS is too encumbered with partnerships and its tendency to outlicense all its programs on favorable terms to be suited for M&A; GILD instead may simply gain access to the company’s lipid franchise, which we believe has transformational potential. ALNY also offers pipeline potential and could be an interesting and compelling fit for GILD.

Biogen: Biogen has an emerging hemophilia franchise and a strong existing MS franchise. But both face competitive threats and Tecfidera’s own long-term IP status is tenuous, we believe. The company’s pipeline relies too heavily on the Alzheimer’s amyloid antibody and an SMA candidate in-licensed from ISIS. Recent acquisition of an S1P1 inhibitor from Mitsubishi after CELG paid a premium for RCPT makes sense but leaves BIIB now trailing in the S1P1 market. Some have suggested ACAD (NASDAQ: ACAD) (OW, Duncan), although we’re not sure this would be adequate to provide long-term growth, particularly if Tecfidera goes generic sooner than many expect. GWPH’s (NASDAQ: GWPH) (OW, Schimmer) cannabinoid franchise including Epidiolex for seizures and potentially other disorders may represent a neurology franchise that could transform BIIB’s prospects, but there may be other companies better positioned to capitalize on the seizure market who would be higher bidders, particularly considering BIIB’s reluctance to pay premiums for assets. The same would apply to ITCI (NASDAQ: ITCI) and its emerging drug for schizophrenia. ALKS (NYSE: ALKS) or Lundbeck may provide the type of transformation needed to maintain BIIB’s neurology presence while delivering new longterm growth drivers, although Lundbeck is a family-owned business and may be unlikely to be a seller and BIIB has not established a reliable track record of large-size M&A... We’re also not sure BIIB would make an ideal M&A target.

Allergan: With a pile of cash coming, a transformative transaction is likely to follow. AGN will receive approximately $34B in cash via its divestiture of its generics business to TEVA. We do not expect to see the announcement of a major transaction before the divestiture closes (expected in 1Q16). That said, we do believe that management will look aggressively (if it isn’t doing so already) at a potentially transformative transaction shortly after the money is in the bank. This would essentially complete Allergan’s transformation into a big pharma company, albeit with a leaner cost structure that what we traditionally see in big pharma (particularly as it relates to R&D)

AbbVie: The only one of our companies that screens as attractive as a potential target. Given the company's long-term growth outlook is dominated by the up-coming arrival of biosimilar competition to Humira, the major goal of additional M&A for AbbVie would be further diversification. Alongside this aim, we would expect management to target assets/deals that would be accretive to the company's operating margin given the period of Humira's erosion will likely exert downward pressure on this margin in the medium to long-term. Most likely that assets/deals would fit within the company's current core areas of R&D focus - Inflammation/Immunology, Oncology, Liver disease, Women's Health, Neuroscience and Kidney disease.

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