'This Could Be the Next Big Pharma Buyout'

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Fishermangents
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'This Could Be the Next Big Pharma Buyout'

Post by Fishermangents » Sun Apr 03, 2016 10:28 pm

Motley Fool, 3 April 2016, by Brian Feroldi (TMFTypeoh)

With each passing year, a handful of the world's best-selling drugs lose patent protection, and when that happens it can blow a hole in the top line of even the largest drugmakers. To help offset the revenue decline, many big pharma companies shell out billions of dollars on acquisitions in an effort to build out their portfolio of products and stabilize their sales. Whenever an acquisition is announced, the shares of the targeted company tend to skyrocket, and any investors who were smart enough (or lucky enough) to have bought the stock before the acquisition announcement tend to score a huge profit. Knowing that, we reached out to a team of our Motley Fool healthcare analysts and asked them to share a company that they think could be the shopping list of one of the big boys in the industry. Read on to see what companies they singled out.

Johnson & Johnson’s (NYSE:JNJ) CEO Alex Gorsky has been very upfront about wanting his company to engage in M&A but keep a focus on small opportunities. Gorsky is looking for “the next Imbruvica… the next Darzalex… the next minimally invasive surgery platform with a contact lens,” as he put it at this year’s J.P. Morgan Healthcare Conference. Once such an opportunity is found, Johnson & Johnson can then leverage its expertise to grow it into a blockbuster drug.

It seems like no secret to me where this next opportunity lies: Johnson & Johnson has already expressed interest in small-cap Geron (NASDAQ:GERN) and its lead compound imetelstat. Imetelstat in phase 2 studies for a treating myelofibrosis -- and based on data so far, it looks like if it clears FDA approval it has a good shot at displacing the current new standard of care.

Why would Johnson & Johnson take the plunge and acquire Geron? I’d argue that the value proposition is extremely strong. While it’s hard to measure the valuation of a company without any revenue, Geron’s sub-$500 million market cap is tiny for a company with a promising compound that could become the big dog in a $2 billion market.

Plus, Johnson & Johnson has already invested $35 million as an upfront payment in a collaboration agreement with Geron on imetelstat. And that’s just the beginning. The agreement also puts Johnson & Johnson on the hook for up to another $900 million in potential milestone payments -- the sum of which, I’ll point out, is double Geron’s market cap. If Johnson & Johnson believes imetelstat will continue its promising track, the pharma giant would be remiss to pass up on buying Geron in its entirety now.

link: http://www.fool.com/investing/general/2 ... lnk0000004

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It seems realistic to assume that JnJ has an interest in Geron, possibly in the form of a buyout. I wonder what the selling criteria for Geron will be and at what point in time we can expect this game to start moving. Any thoughts?

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