This could be the biggest year ever for investing in biotech takeover targets – all due to the patent cliff.
The "patent cliff" refers to the sharp revenue drop a pharmaceutical company faces when the patent on one of its drugs expires. At that point, other drug companies can begin replicating name-brand drugs, cutting into the billions of dollars in revenue that large-cap pharmaceutical companies are used to.
In 2014, nearly $50 billion in pharmaceuticals will be going off patent, according to Bloomberg.
Sanofi (NYSE ADR: SNY), Novartis AG (NYSE ADR: NVS), Roche Holding Ltd. (RHHBY), AstraZeneca PLC (NYSE ADR: AZN), and Eli Lilly & Co. (NYSE: LLY) will all be losing more than $6 billion each in annual revenue this year due to expiring patents.
These large-cap pharmaceutical companies, instead of starting from scratch on a new patent, want an easier and more effective way to replace their lost "cash-cow" revenue. They will look to acquire biotech companies – and their phase II or phase III drugs.
The ideal candidates are small-cap biotech firms whose pipelines include late-stage drug candidates or other promising pharmaceuticals.
With that criteria in mind, here are six small-cap biotech firms on the list of takeover targets to watch in 2014…
Biotech Takeover Targets in 2014
Insmed Inc. (Nasdaq: INSM) primarily develops inhalation therapies for the treatment of lung diseases. Insmed's most notable project is ARIKACE, an inhaled antibiotic for patients suffering from cystic fibrosis and non-tuberculous mycobacteria. Currently, ARIKACE is in phase II trials in the United States and phase III trials in Canada and Europe.
INSM stock has gained an impressive 241% in the last year and currently trades at $19.73. Insmed has a market cap of just $772 million, which also makes it an attractive takeover option for large-cap pharmaceutical companies.
Acorda Therapeutics (Nasdaq: ACOR) provides treatments for people suffering from multiple sclerosis (MS), spinal cord injuries, and other nervous system disorders. The biggest product for Acorda is Ampyra, which helps MS patients who have difficulty walking. The company reported that through the first nine months of 2013, Ampyra sales had risen by 13%. Ampyra is already approved by the U.S. Food and Drug Administration (FDA), and Acorda currently has three FDA-approved drugs in its portfolio.
ACOR stock reached an all-time high of more than $40 per share last April, but has drawn back quite a bit since then. Currently, ACOR shares trade at $28.47. ACOR's market cap is $1.18 billion.