Is More M&A On The Way For Large-Cap Biotechs?

Following the recently-announced Teva Pharma TEVA buyout of Allergan Plc AGN, RBC Capital Markets analyst Michael Yee released a report discussing the potential for large-cap biotech companies to become buyout targets for specialty pharmaceutical companies. According to Yee, no such deal would even be feasible until “well into 2016.”

Amgen Inc AMGN speculation
Yee notes that Amgen’s stock surged 4.4 percent on Monday, outperforming its large cap peers. Conversations with investors seem to indicate that there is a belief in the market that the Allergan deal is a sign that large-cap biotech companies like Amgen could become buyout targets as well.

According to Yee, an Amgen buyout it theoretically possible on paper, but many fund managers he has spoken to see a potential deal as highly unlikely.

Fundamental case
RBC likes Amgen ahead of Q2 earnings, but not because of the possibility of a buyout. The firm has an Outperform rating on Amgen and is calling for an earnings beat and a possible guidance raise from the company when it reports.

Yee believes that Amgen’s recent cost-cutting measures will pave the way for the company to announce a more positive 2016 outlook under the company’s new CFO. “AMGN will want to prove bears wrong and execute to show legacy business is more durable and PCSK-9 and innovator drugs are outperforming,” he explains.

Other potential deals
Although an Amgen deal is unlikely, Yee believes that Amgen is the most likely target among large cap biotech companies. While deals for each company are theoretically feasible, Yee sees a “tougher argument” for possible buyouts of Biogen Inc BIIB, Celgene Corp CELG, Gilead Sciences Inc GILD or Vertex Pharmaceuticals Inc VRTX.