We have said it before, and we will stress it once again, one of the best ways for big pharmaceuticals and biotech companies to grow is through acquisitions. In a new report, Cowen sees the potential for super-mergers and a large group of smaller targets that may be in the sights of bigger companies now.

The Cowen team has gone through the biotech sector and pinpointed various companies with specialty drugs and treatments. We screened the list for one top company in each category that could be buyout candidates, and also ones that are rated Outperform at Cowen.

Ocular Therapeutix

This biopharmaceutical company is a potential buyout candidate in ophthalmology. Ocular Therapeutix Inc. (NASDAQ: OCUL) is focused on the development and commercialization of innovative therapies for diseases and conditions of the eye using its proprietary hydrogel platform technology. Its lead product candidates are in Phase 3 clinical development for post-surgical ocular inflammation and pain, and Phase 2 clinical development for glaucoma and allergic conjunctivitis.

The stock got crushed recently when the eye pain and inflammation treatment OTX-DP did not meet one of its goals in a late-stage clinical trial. The company is meeting with the FDA to discuss results.

The Cowen price target for the stock is $49. The Thomson/First Call consensus target is a whopping $52.33, but that may be coming in soon. Shares closed Wednesday at $21.55.

Kythera Biopharmaceuticals

Kythera Biopharmaceuticals Inc. (NASDAQ: KYTH) is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market. The company’s leading drug ATX-101 is for treating submental fat, or what is called double-chins. ATX-101 is patented formulation of a pure, non-animal-derived version of deoxycholic acid that enables the breakdown of dietary fat. An FDA action is expected literally any day now.

Previously, the FDA’s Dermatologic and Ophthalmic Drugs Advisory Committee voted unanimously to support the approval of its pipeline ATX-101, so it would seem that the likelihood of a positive outcome could be expected.

The Cowen price target is $85, and the consensus target is $64.40. Shares closed Wednesday at $46.65.

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Neurocrine Biosciences

This company continues to report success partnering with AbbVie on the company’s top drug candidate Elagolix trials, which are now in Phase 3. Neurocrine Biosciences Inc. (NASDAQ: NBIX) has reported that the data from the trials has been clinically and statistically meaningful, with the most recent data being presented in January.

Cowen and other Wall Street analysts also believe that its drug NBI 98854 will become the standard of care for patients suffering from Tardive Dyskinesia, a neurological disorder that may be caused by long-term or high-dose use of antipsychotic drugs.

The Cowen price target is $45 and the consensus target is set at $50. The stock closed Wednesday at $42.34 per share.

Achillion Pharmaceuticals

This stock may be a small cap home run for investors. Achillion Pharmaceuticals Inc. (NASDAQ: ACHN) is developing a drug in the same class as Idenix’s, which Merck paid a sizable premium for, and many observers see it as the only real buyout target left in this field.

The company’s drug candidates for treating chronic hepatitis C (HCV) infection include Sovaprevir, a NS3/4A protease inhibitor, which has completed a Phase 2a clinical trial; ACH-3102, a NS5A inhibitor that is in Phase 2a clinical trial; ACH-3422, a NS5B nucleotide polymerase inhibitor, which has completed preclinical studies; and ACH-2684, a NS3/4A protease inhibitor that has completed Phase 1a and 1b clinical trials. Many on Wall Street feel the company is close to completion on a marketable product.

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The Cowen team thinks that a combined ACH-3422 is expected in early 2016 and could potentially provide a complete combination for entry into the massive HCV market.

The Cowen price target was unavailable, but the consensus target is $17.44. Shares closed most recently at $9.49.

Cempra

Cempra Inc. (NASDAQ: CEMP) is a clinical-stage pharmaceutical company focused on developing antibiotics to meet critical medical needs in the treatment of bacterial infectious diseases. The Cowen team points out that the company is a very positive story as many of the other players have left the antibiotic market. Solithromycin is the company’s potent fourth generation Macrolide antibiotic. The oral data in Phase 3 was out in January and was very positive. It is polymorph patent extends to 2032, which is significant. With other drugs also well along in clinicals, the company may be a target for a bigger biotech.

They point out in the report that Solithromycin Phase 3 SOLITAIRE-IV pneumonia data due by the end of this year. Not only could that be huge, but positive data could get a quick FDA approval as this is such a desperate need. It also could get big pharmaceutical companies things about a bid for the company.

Cowen has a price target of $44. The consensus estimate is lower at $39.90. The stock closed Wednesday at $34.31.

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All these companies have outstanding possibilities and are solid buyout candidates. It is important to remember that clinical failures or negative FDA decisions could prove disastrous. These stocks are only appropriate for very aggressive accounts.

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