Could Vertex Pharmaceuticals be a prime acquisition target?

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Many investors expect Vertex Pharmaceutical (NASDAQ: VRTX) could make other acquisitions in the not too distant future with its growing cash reserves. However, there is a different possibility for great biotechnology. In this Motley Fool Live video registered on June 23, 2021Motley Fool contributors Keith Speights and Brian Orelli discuss whether or not Vertex is a prime acquisition target.

Keith Speights: Very good. Brian, we talked earlier this week about possible companies Vertex Pharmaceuticals could acquire. Vertex is being pressured by at least one analyst to use its growing stock of cash to embark on a buying frenzy.

But with Vertex’s stock price falling after its clinical setback with this AATD program, do you think the company could in fact be a prime acquisition target itself?

If so, which companies could be potential buyers of Vertex?

Brian Orelli: Vertex is quite big, but I think it could still potentially be bought at that price. The market cap is around $ 48 billion and the company is worth around $ 41 billion, which is closer to what someone would pay who would more likely buy it at a premium.

It is roughly the same size as Celgene when it was purchased by Bristol Myers Squibb, which acquired in 2019 for 50 percent as a bonus. It is certainly doable by the big pharmaceutical companies.

I don’t think Bristol Myers Squibb is the right fit. It’s quite heavy in oncology. Ditto for the Merck, especially after its release [Organon] , whatever [laughs] the name of that spin-off company was, and they created a lot of their other drugs that made them even more active in oncology, so I’m not sure that necessarily fits Merck.

For the American pharma that leaves Eli lilly (NYSE: LLY), and Pfizer (NYSE: PFE). I feel like Pfizer might be a better bet there if they were going to acquire it, just because they seem a bit more eclectic than Lilly, who seems to be more focused on diabetes and other places. , I have the impression that Pfizer is a little bigger and everywhere.

Looking abroad I think it’s a bit more difficult because you have to start looking at exchange rates. A few years ago, or maybe I was dating myself and it was over a few years ago, there was a series of acquisitions by Japanese companies and it turned out that the yen had really appreciated against the US dollar, which made US companies cheaper for Japanese companies to buy.

I guess I ignore this factor because I think it’s too hard to tell. Novartis (NYSE: NVS) might be a good choice, they are interested in rare diseases and they have gene therapies, so I think Vertex’s partnership with CRISPR Therapeutics could fit in there.

Let me throw a wild card here, and we’ll call this reckless prediction: how about a merger of equals with Biogen (NASDAQ: BIIB)? I mean, sure, Biogen did it once with Idec, even though that was back when they were a lot smaller. It even called itself Biogen Idec for many years.

This would give Biogen some stability in its declining sales in multiple sclerosis and then allow it to increase sales of the Alzheimer’s drug Aduhelm. I think that would probably be a good solution, but I’m not sure either of the companies will be really interested in doing it.

Speights: Now Brian, I like that reckless prediction there, but in a merger of equals it’s usually not a merger of equals. One of the players tends to [laughs] be a little more dominant in the transaction between these two. Do you think it would be Vertex or Biogen in charge if something happened with the merger of these two companies?

Orelli: I think right now it’s probably Vertex because while their pipeline isn’t that big, their revenue is declining. I think both of them prefer Vertex simply because even though their revenue or growth is slowing down, they sure don’t go down yet, and I don’t think they will over the years, I think they will. are just starting to launch in Europe.

I think their new drug is in Europe, and therefore I think it will allow them to continue to increase their sales for years to come, even as they maximize their use in cystic fibrosis.

So of course, like we said, they really need to find this pipeline candidate that’s at an advanced stage of development, and they don’t have it right now. I think this is the reason the price has dropped so much. Hopefully they can find something they can buy to get investors interested.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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