With larger companies generating outstanding free cash flow, as well as having the ability to add more debt capacity, the RBC team thinks the buyout equation is a simple question of when and not if. They list four companies that are now the highest on their radar for a takeover bid.
Akorn
The RBC team sees solid growth for this company through 2018. Akorn Inc. (NASDAQ: AKRX) is engaged in the development, manufacture and marketing of multisource and branded pharmaceuticals. In 2013 the company purchased Hi-Tech Pharmaceutical for $640 million in cash. The combination of Akorn and Hi-Tech transformed the niche pharmaceutical company into a larger, more diversified generic player. This combination also brought critical mass and scale to Akorn’s business and has strengthened its position with retail and institutional customers.
Akorn has manufacturing facilities located in Decatur, Ill.; Somerset, N.J.; Amityville, N.Y.; Hettlingen, Switzerland and Paonta Sahib, India, where the company manufactures ophthalmic, injectable and specialty non-sterile pharmaceuticals.
The RBC team points out the overhang from an ongoing 2014 10-K restatement should be settled soon, and that should mark a pick-up in interest. With strong 15% EBITDA compounded annual growth rate projected through 2018, and a very solid pipeline, the company is an attractive target. Possible suitors include Valeant Pharmaceuticals and Perrigo.
The Thomson/First Call consensus price target for the stock is $57.43. Shares closed most recently at $42.42.
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Agile Therapeutics
This company has seen solid insider buying lately. Agile Therapeutics Inc. (NASDAQ: AGRX) recently saw a 10% owner come in and purchase stock. Aisling Capital bought 811,966 shares of the stock at $5.85, for a total price of $4.8 million. The price was part of a private placement conducted by the company to raise $20 million.
Agile Therapeutics is a women’s health specialty pharmaceutical company focused on the development and commercialization of new prescription contraceptive products. The company’s product candidates are designed to provide women with contraceptive options that offer greater convenience and facilitate compliance. The lead product candidate, Twirla, (ethinyl estradiol and levonorgestrel transdermal system), also known as AG200-15, is a once-weekly prescription contraceptive patch currently in Phase 3 clinical development.
The RBC team does not see Phase 3 results until this time next year or later, but given the good clinicals they feel a company like Allergan, among others in the contraception space, could have an interest.
The consensus price target is set at $17, but the stock closed Thursday at $9.47 per share.
Flexion Therapeutics
This is another company with pending Phase 3 data that could be high on the radar. Flexion Therapeutics Inc. (NASDAQ: FLXN) is a clinical-stage specialty pharmaceutical company focused on the development and commercialization of novel pain therapies. The company is currently advancing a portfolio of local, injectable drug candidates that have the potential to provide better and more persistent analgesia compared with existing therapy. The company’s lead program, FX006, is an intra-articular sustained-release steroid in development for patients with moderate to severe osteoarthritis pain.
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The RBC team sees a very low hurdle to placebos in the clinical trials and expects that after the release of positive Phase 3 data next year, interest should really pick up. Given that some 27 million adults suffer from osteoarthritis pain, the market could be as large as $1.5 billion for the product. They also think companies with a pain franchises, like Allergan, Teva Pharmaceutical and Endo International, could have an interest.
The consensus price target is $36.79. Shares closed trading on Thursday at $22.43.
Insys Therapeutics
This is another company involved in pain control. Insys Therapeutics Inc. (NASDAQ: INSY) is a specialty pharmaceutical company that develops and commercializes innovative drugs and novel drug delivery systems of therapeutic molecules that improve the quality of life of patients. Using proprietary sublingual spray technology and capabilities to develop pharmaceutical cannabinoids, Insys addresses the clinical shortcomings of existing commercial products. Insys currently markets two products: Subsys, which is sublingual Fentanyl spray for breakthrough cancer pain, and a generic version of Dronabinol (THC) capsules.
The RBC team thinks the company is transitioning from the Subsys story to one where they expect at least one new branded approval per year going forward with still limited value given to the strong pipeline. They also expect Insys to leverage the company’s validated spray technology across a host of therapeutic areas. They see Mallinckrodt and Endo International among those that could have an interest.
The consensus price target for the stock is $36.38, but the shares closed Thursday at $37.04.
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While there is absolutely no guarantee that any of these companies catch a bid and be bought out, they all have outstanding pipelines and prospects. For aggressive accounts, they look like solid holdings with a very decent prospect of a takeover bid down the road.
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