Takeda Pharmaceutical (TKPYY), Japan's largest drugmaker, is reportedly setting aside up to $20B as it hunts for acquisitions in the U.S. Research firm Citi has pinned Synergy Pharma (SGYP) as the likeliest target, but several names in the space are on the move Wednesday as investors weigh chances of a takeout. Additionally, Allergan (AGN) announced a tuck-in deal with a large premium this morning, agreeing to buy Vitae Pharmaceuticals (VTAE) for $21 per share in cash.

TAKEDA ON THE HUNT: The Financial Times reported this morning that, according to its sources, Takeda Pharmaceutical is searching for acquisitions in the U.S. and has earmarked $10B-$15B for the effort. The Japanese drugmaker is targeting oncology, gastrointestinal and central nervous system researchers, the sources told the publication, adding that Takeda could stretch to $20B and may target one large deal or multiple smaller additions. One unnamed investment banker noted that he's seeing a general uptick in M&A inquiries from Japanese drugmakers such as Astellas Pharma (ALPMY) as they look to reduce their exposure to a slowing domestic market. The Financial Times, however, noted that attractive targets are becoming increasingly scarce, with Credit Suisse analyst Fumiyoshi Sakai remarking, "The U.S. market will be tough for Takeda after 2020 and they will need to fill the hole left by the patent losses. There may not be good assets around but they have no choice but to pursue acquisitions." 

CITI PICKS OUT LIKELY TARGET: Weighing in on the news, Citi analyst Liav Abraham said he views Synergy Pharma as the "most likely potential target" in his coverage universe. The analyst explains that Synergy's $140M cash pile can't effectively launch its gastrointestinal lead plecanatide in competition with Allergan's Linzess, and he also notes Takeda's existing presence in plecanatide's focus areas of constipation and IBS. Abraham continues to model peak plecanatide sales of $500M.

TAKEDA COLLABORATIONS: Takeda is jointly developing the oncology treatment adcetris with Seattle Genetics (SGEN), and has bought the rights to gastrointestinal treatment TD-8954 from Theravance (TBPH). The Japanese giant is also in a strategic partnership with Ultragenyx (RARE) for rare genetic diseases.

POTENTIAL TARGETS: Evoke Pharma (EVOK) and Ironwood Pharma (IRWD) are among gastrointestinal researchers, while ACADIA (ACAD) and Adamas (ADMS) operate in the central nervous system space. Exelixis (EXEL), bluebird (BLUE) and ARIAD (ARIA) are among companies developing oncology candidates.

VALEANT ASSETS: On May 26, the Wall Street Journal and Bloomberg reported that Takeda approached Valeant (VRX) with a takeover bid this spring, prior to the embattled Canadian drugmaker hiring new CEO Joseph Papa. Research firm Piper Jaffray remarked that it was "difficult to fathom" why a buyer would have interest in the entirety of Valeant, though it opined that the company's GI assets could draw "significant" interest. As the year progressed, Joe Papa gave multiple interviews in which he forecast non-core asset sale announcements towards the end of 2016.

ALLERGAN DEAL: This morning, Allergan said it will acquire Vitae for $21 per share, in cash, for a total transaction value of approximately $639M. The acquisition will strengthen Allergan's dermatology product pipeline, with the addition of VTP-43742, a Phase 2 RORgammat inhibitor for the potential treatment of psoriasis and other autoimmune disorders. Vitae had closed yesterday trading at $8.10 per share.

PRICE ACTION: Shares of Synergy Pharma are up 6.4% to $5.18 in afternoon trading, while Seattle Genetics is up 3.3% and Theravance is higher by 5.3%. ACADIA and Ariad are up 3.7% and 3.8%, respectively.