Biogen Leads List of Drugmakers Left to Make a Needed M&A Splash

(Bloomberg) -- Biotechnology investors who have popped corks to celebrate the wave of deals in the first half of 2019 can set their sights on the remainder of companies that have stayed passive to start the year.

Biogen Inc. and Gilead Sciences Inc. headline a group of large-cap drugmakers that have remained out of favor for investors hoping to see a string of smart deals as they look to replenish their drug pipelines. The need comes after Bristol-Myers Squibb Co. agreed to snap up beleaguered Celgene Corp. in a record deal, and AbbVie Inc. placed a $63 billion bet on Botox maker Allergan Plc.

Here are some of the companies that Wall Street can expect to make a splash through the end of the year:

Biogen Inc.

Haves: The drugmaker remains the leading developer of branded medicines to treat multiple sclerosis, with sales of its blockbuster Tecfidera expected to bring in $4.28 billion this year, data compiled by Bloomberg show. Bulls have argued that with valuations near record lows, the company needs only a few small victories to turn the tide.

Needs: The company would benefit from a gamble in the neuroscience space by picking off an asset in areas including Duchenne muscular dystrophy, depression or in “other much bigger markets that will move the needle sooner,” Jefferies & Co. analyst Michael Yee wrote in March. Biogen could unleash $20 billion for deals with companies like Neurocrine Biosciences Inc. and Biohaven Pharmaceutical Holding Co being the most sensible, Bloomberg Intelligence’s Curt Wanek said.

What’s next: Biogen may now fit the profile of a company looking for a rescue in a similar fashion to Celgene and Allergan, though patent concerns related to Tecfidera may give pause to a potential buyer. The company’s $877 million deal to buy gene therapy developer Nightstar Therapeutics Plc won praise as a way to diversify the company. The Street, however, wanted more to help move the needle.

Gilead Sciences Inc.

Haves: Strong commercial franchises in HIV, hepatitis C and cell therapy have notched strong sales so far this year. Investments in cell therapy and in building global sales for its pipeline of drugs have won praise from bulls expecting a continued turnaround given catalysts through year-end.

Needs: Analysts have floated ideas for the company to bulk up its cancer footprint, but the breadth of Gilead’s pipeline keeps its options wide open. The company’s recent struggles in treatments for the fatty liver disease NASH open the door for it to snap up companies targeting the potentially lucrative opportunity.

What’s next: As new Chief Executive Officer Daniel O’Day continues to settle in, Wall Street will only get more anxious for a deal or string of deals to bolster its pipeline. The jury is out on whether O’Day will make a move in NASH or double down in an area like inflammation to further support Galapagos NV-partnered filgotinib. Analysts including Robert W. Baird & Co.’s Brian Skorney suggested that the company could pick off Celgene’s blockbuster Otezla at a discount.

Amgen Inc.

Haves: Agmen’s portfolio of blockbuster drugs paired with the potential to add another in the coming years have won praise for a company that delivers a dividend on par with pharmaceutical heavyweights. Expectations for it to successfully launch copycats of competitors’ cancer drugs -- paired with growing sales for cholesterol and migraine medicines -- hold potential.

Needs: The company faces looming risk from its legacy portfolio, with Enbrel and Neulasta exposed to potential biosimilar threats. Amgen has come up in conversations with investors and analysts as a potential suitor of Amarin Corp. and its promising fish-oil capsules. Some highlighted a potential interest to team up with a company like BeiGene Ltd for a checkpoint inhibitor.

What’s next: A decision from an important patent case related to its best-selling Enbrel has been under the microscope since the year began. Bulls continue to see upside for shares to the tune of a double-digit gain on that decision, and possession of one of the larger war chests has continued to entice investors. Everything from bolting on smaller companies to making a game-changing deal for Alexion Pharmaceuticals Inc. are on table, depending on whom you ask.

Merck & Co.

Haves: Merck’s sheer dominance in the battle of immuno-oncology assets is best shown by expectations for its best-selling Keytruda to top $17 billion in sales by 2022. Growth opportunities for drugs like Lynparza and Lenvima have won praise from sell-side bulls, with shares near the highest level since January 2001.

Needs: Potential to spin off its animal-health unit to free up cash in the way that Eli Lilly & Co. spun Elanco Animal Health Inc. and Pfizer Inc. exited Zoetis could draw praise. A muted presence in biologics or biosimilars may present opportunity, though a recent Wall Street Journal report highlighted a thirst for small- and medium-sized deals.

What’s next: The drugmaker is preparing for the exit of CEO Kenneth Frazier, which could present a fork in the road for deal expectations. The company highlighted R&D and touted its own pipeline at an investor event last week, which may put expectations for a string of bigger, more lucrative deals on ice.

To contact the reporter on this story: Bailey Lipschultz in New York at blipschultz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Mark Schoifet

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