While a company is in the clinical phase of development, there are roughly four catalysts that could move the stock higher.
1. Expansion of intellectual property and patents (creates moderate movement)
2. Partnership (creates moderate-large movement)
3. Phase data (creates large movement)
4. Acquisition (creates largest movement)
The final catalyst is the one that I am reviewing today. I am looking at two companies that look to be attractive acquisition targets. These are companies that have a product or technology that is unique yet effective, and that could add to the product offerings of another larger biopharmaceutical company.
A legitimate contender in the fight against cancer
As we saw with Pharmasset in 2011, Gilead Sciences paid a huge premium to acquire the company for a collection of assets. As an acquisition target, this is often what a company seeks. They want a late-stage proven candidate but also a host of other drugs in the pipeline that build on that technology.
This fact makes Celldex Therapeutics, Inc. (NASDAQ:CLDX) especially attractive. The company has a breast cancer drug, CDX-011, that significantly increased survival in a population of seriously ill patients. This drug has been the basis for its 200% one-year gain, as it specifically targets an expression called GPNMB, and solidifies Celldex Therapeutics, Inc. (NASDAQ:CLDX) as a legitimate player in immunotherapy.
Then, the company has a Phase 3 drug, Rindopepimut, that treats brain cancer, and has shown consistent benefit in treating patients in three different Phase 2 studies. Moreover, the company has six products in clinical studies, all in treating cancer, making it a legitimate contender in the fight against cancer.
What makes Celldex Therapeutics, Inc. (NASDAQ:CLDX) attractive, aside from its pipeline, is the fact that it has been very successful at developing treatment regiments that maximize the immune system via targeted therapies, antibodies, and immune system modifiers. Its two late stage products, CDX-011 and Rindopepimut, have peak sales potential of $700 million and $500 million respectively; about equal to its current market capitalization.
When we try to find a potential suitor, you realize that it could be a dozen different companies. Celldex Therapeutics, Inc. (NASDAQ:CLDX) could create several approved products and billions in sales within the next five years. Roche, Merck, Amgen, Bristol-Myers, Johnson & Johnson (NYSE:JNJ), or just about any large pharma with an oncology program. If you consider that Celldex is trading at just one times peak sales – and the average acquisition is 3-4 times peak sales – you can see that Celldex Therapeutics, Inc. (NASDAQ:CLDX) could become attractive very quickly.
If you can’t beat them… Buy them!
Sometimes a product is so good that it causes potential acquirers to “think,” and wonder what a company’s patents and technology could create. Such is the case with ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD). Its drug Pimavanserin has succeeded in the treatment of Parkinson’s Disease psychosis and looks to be the best anti-psychotic in development right now; preparing to control a massive market.
Pimavanserin is also being tested to treat Schizophrenia and Alzheimer’s Disease psychosis, and combined could generate $1 billion in sales (or more). The company’s pipeline is not nearly as advanced as Celldex Therapeutics, Inc. (NASDAQ:CLDX), but it does have a promising pipeline for chronic pain, although it’s still too early to predict its likely outcome.