3 Biotech Kingmakers Hunting For Acquisitions

There’s a lot been said about the biotech bubble, but with a robust M&A market helping generate new growth opportunities for pharma companies, we’re not ready to call it a bubble just yet.

Parts of the pharma space has been a real head-scratcher of late.

Teva Pharmaceuticals'(NYSE: TEVA) pursuit of Mylan (NYSE: MYL) was brought to an abrupt end last week when Teva agreed to buy up the generic drug business of Allergan (NYSE: AGN).

This ends a long game of cat and mouse between Teva and Mylan. With that, Mylan shares are down more than 15% over the last week.

As part of its defense, Mylan launched a bid for Perrigo Company (NYSE: PRGO). We’ll soon see whether Mylan was serious about buying Perrigo.

However, it’s not all rosy in the pharma space.

One of the largest biotechs around, Biogen (NASDAQ: BIIB), with a $75 billion market cap, has lost 22% of its market value in the last 30 days.

That doesn’t mean biotech isn’t worth owning. Big pharma is one of the great places to play the boom in mergers and acquisitions. And there’s likely more to come as many of the industry’s largest players look to stave off slowing growth.

Here are the industry’s three kingmakers and where they’ll likely go hunting for new deals:

Pharma Kingmaker No. 1: Biogen

The recent troubles with Biogen could mean that it gets active in the merger and acquisition market. Granted, Biogen hasn’t had troubles in the conventional sense, but more a slowdown in growth. It recently lowered its revenue and earnings guidance for the rest of this year.

With that, Biogen is likely on the hunt to buy a company that can have an immediate impact to the top and bottom lines.

The other beauty of Biogen is that it has the balance sheet to get a relatively large deal done, carrying less than $600 million in debt. One prime target could be Vertex Pharmaceuticals (NASDAQ: VRTX), which recently got FDA approval to for a medicine to treat the most common form of cystic fibrosis.

Given its balance sheet, it could also target a larger company. Alexion Pharmaceuticals (NASDAQ: ALXN) is a $45 billion market cap pharma company that focuses on rare diseases. It has one drug approved, Soliris, but that one drug is bringing in big sales.

Pharma Kingmaker No. 2: Allergan

Next up is Allergan (NYSE: AGN), which is getting a nice chunk of cash from the deal with Teva. After Actavis and Allergan merged last year, it became a beast in the industry, with a $130 billion market cap. Now, it’s slimming down a bit and Allergan could well use that money to continue being a consolidator in the pharma space.

It bought up Naurex, an antidepressant maker, last month. And the company is interested in making big deals.

One of the more likely targets is Amgen (NASDAQ: AMGN). Amgen is a sizable pharma at $137 billion market cap, but one of the more underrated in terms of potential. It will have close to 10 drugs coming to market in the next two years, which is expected to add $3 billion to revenues. And there’s the real possibility that the company becomes cash flow positive by year-end.

Pharma Kingmaker No. 3: Pfizer 

Lastly, Pfizer (NYSE: PFE), the behemoth in the industry with a $220 billion market cap, is on the prowl. With growth slowing, it’s in the market for a big acquisition. It tried buying up AstraZeneca (NYSE: AZN) last year, in what would have been a tax inversion deal.

Pfizer recently made comments that it’s still interested in doing a tax inversion. Mylan, with shares down big of late, could be interesting for Pfizer. It’s domiciled in the U.K., which fits Pfizer’s desire to do a tax inversion.

Then there’s Allergan, whose selling off its generic drug business to become a smaller company focused on Botox. A steady growth market that could give a boost to Pfizer’s product line. But more importantly, it would fit Pfizer’s inversion scheme — with Allergan being domiciled in Dublin.

As well, Allergan, with a market cap over $100 billion, is still big enough to move the needle for Pfizer in terms of meaningfully adding to its bottom line.

The other interesting idea is that with the recent fall in Biogen stock, it could be a target itself. Both Allergan and Pfizer are big enough to swallow up Biogen. Such a move would give either a bigger presence in the research and development focused part of pharma.

In the end, the red hot pharma sector is still quite interesting. There’s still a number of deals likely in the market. And what’s more interesting is that nearly all the possibilities include one of the kingmakers above.