4 Top Small Cap Biotech Acquisition Targets
Today, I list small cap companies I believe are top acquisition targets for large pharma. I combine speculation, rumors and buzz I am hearing, and company financial position as a few factors for consideration. Buy-outs are hard to predict in general, and in many ways, holding stock in a company that receives a tender offer is similar to holding a winning lottery ticket. The companies mentioned in this article are worthy speculation investments, regardless of whether one or all of them are acquired.
Trius Therapeutics (NASDAQ: TSRX) is a biopharmaceutical company focused on the discovery, development, and commercialization of innovative antibiotics for serious infections. Trius was one of my catalyst trade picks in March and I believe that it is time to revisit this company. Trius just announced a notice of allowance of U.S. patent application related to tedizolid phosphate combination with daptomycin. When a low dose of tedizolid phosphate is combined with daptomycin, the amount of bacteria resistant to daptomycin is significantly reduced. In the company's press release it stated:
As detailed in the patent application, tedizolid phosphate, at concentrations substantially below its current therapeutic dose to treat skin infections, unexpectedly prevents the formation of daptomycin resistant mutants of Staphylococcus aureus. Tedizolid appears to be unique in this mutant prevention activity given that seven other medicines tested, including linezolid, the only other drug of the same class as tedizolid, failed to show the same mutant prevention activity.
The company is also expecting to file an NDA in the second half of 2013 for oral torezolid phosphate for acute bacterial skin and skin structure infections. Tedizolid is on track for approval in mid-2014. MSRA has become a hot topic serious issue as of late, so we expect TSRX to be a big runner in the months ahead.
In addition, it has been speculated that Trius is a buyout candidate. As detailed in an article by Prop Think's Jason Napodano, Cubist Pharmaceuticals (NASDAQ: CBST) might be interested in acquiring Trius because it would solve it's problem with daptomycin resistance and also extend the market exclusivity of daptomycin to beyond 2017. I agree with Jason when he says, "We believe investors should pay up to $12 per share for Trius -- Cubist could pay a whole lot more." With sales of daptomycin expected to reach about $1 Billion for Cubist Pharmaceuticals in 2013, it would make sense that they would want to extend their exclusivity period and increase its efficacy.
Trius could represent an opportunity for investors to capitalize on a potential buyout or partnership deal.
Buy out price target opinion: $15-$17
Antares Pharma (NASDAQ: ATRS)
I continue to hear buzz that Antares could be acquired sometime before the end of this year.
Pfizer is the best candidate to buy Antares as both companies already have a working relationship in the form of a "secret deal" that I speculate is an Advil gel based formulation. Company CEO Paul Wotton mentioned last year that Pfizer came to Antares to inquire about one of Antares products, but company Vice President Jack Howarth said that Antares sought out Pfizer for the same deal. Someone is obviously "mistaken" here. I first heard the buyout rumors surrounding Antares in December of 2011, well before the company "appointed" Jack Howarth as a Vice President. Jack is not an official "insider" at Antares, yet has informed some Antares investors that he holds over 400,000 shares of the company. So who does Jack work for? Jack's last official job was with King Pharma, a company Pfizer acquired a few years ago.
The main reason I believe Pfizer will acquire Antares is for its patent profile it holds in regards to biosimilars.
Biosimilars/biobetters, or follow-on biologics, are terms used to describe officially approved subsequent versions of innovator biopharmaceutical products made by a different sponsor following patent and exclusivity expiry on the innovator product (biosimilars being "similar," biobetters being "better").
Follow-on manufacturers do not have access to the originator's molecular clone and original cell bank, the exact fermentation and purification process, or to the active drug substance.
In other words, companies do not need to wait for patent expiration of a biologic to get its hands on the formulation. In fact, because biosimilars/biobetters do not use the exact composition of the biologic drug it is "following after," it is not considered a "copy," therefore, it is not a generic, but a new composition capable of its own unique patent protection. Many large pharmas are gearing up for what I believe to be the wave of the future in biopharmas - biosimilars and biobetters.
Antares has been locking down patents for the past few years with biosimilars, and many speculate the company has a raft-load of these patents secured. Since biosimilars are likely to be the future of biopharma, Antares has placed itself as a strong acquisition target, and as mentioned, I believe Pfizer will be the buyer.
Also, starting in June, there will be warrant expiration occurring. Last year I predicted that Antares would see a pop in its stock price to over $5 a share when the stock was selling for around $3. I based my prediction primarily on the fact of warrant expiration at the time.
I am predicting a similar occurrence this year, and expect a price approaching $5 by the middle of this summer.
Buy out price target opinion: between $7 to $10 a share.
AcelRx Pharmaceuticals (NASDAQ: ACRX)
AcelRx CEO Richard King has continuously stated that the company plan is to bring ARX-01 to market in the U.S by themselves, and to seek out a potential partner for the rest of the global market. Unlike many developmental stage biotechs, AcelRX seems poised to take that route if necessary. In this 8k released on Jan 25th, the company announced a material definitive agreement for the manufacturing of Sufentanil NanoTabs for use with the company's Sufentanil NanoTab PCA System, or ARX-01. Additionally, King discussed his rollout plan, scalability, and projected sales force numbers on the conference call. Rumors of potential suitors are linked to nearly every biotech that nears FDA approval, and AcelRx is no exception.
Big Pharma will almost certainly come calling soon, and King has done an admirable job positioning the company for any partnership or buyout talks. With a healthy cash position, a realistic rollout plan, a marketable story of patients and nurses preferring ARX-01, and a manufacturing agreement already in place, King will be negotiating from a position of strength. These factors, along with the back buzz I am hearing that there is actual interest, I think it's a good bet AcelRX gets acquired in the next 6 to 12 months.
Buy out target price opinion: $17
ACADIA Pharmaceuticals (NASDAQ: ACAD)
On Thursday April 11th, ACADIA announced that the FDA has agreed to allow the company to file a New Drug Application (NDA) for the treatment of Parkinson's disease psychosis (PDP). The FDA agreed that the data from the pivotal Phase III -020 study, together with supportive data from other studies with pimavanserin, were sufficient to support the NDA filing.
On the news, the stock gaped up from a prior session's close of $7.97 to close the next trading session at $13.10. Since then, the stock has pulled back a bit, currently trading around $12 a share.
PDP is a large unmet need market, and could bring the company billions in revenues, which would support a much higher valuation from the current levels. It is also possible the FDA will allow an expedited review based on the fact that there are currently no treatments on the market for PDP. A stock price north of $20 a share is possible this year if everything pans out for the company, and I think it will.
Lots of buzz here with ACADIA as just about every day, I converse with people who hear "rumors" about big pharma knocking at ACADIA's door. Pimavanserin could be a multi-billion dollar drug if ultimately proved successful, so I tend to give the acquisition rumors here a lot of credit.
Buy out price target opinion: $27-$30
Disclosure: I am long ATRS, TSRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.