Which Biotech Stock Should Pfizer, Inc. Buy?

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Source: Pfizer.

Pfizer is struggling to offset slowing sales tied to expiring patents, and that has some observers thinking that Pfizer remains on the hunt to buy another drugmaker that can spark its growth. Earlier this week, Pfizer announced that it would acquire Hospira, the top provider of injectable drugs. The deal will net Pfizer an intriguing biosimilar program, but some suspect that the company is still hungry for more. If Pfizer is indeed still on the lookout for another buyout, three of our top Motley Fool contributors think these three companies should be on Pfizer's wish list.

: Over the past couple of years, Pfizer's R&D efforts have decidedly shifted away from small-molecule drugs and more toward next-generation types of therapies, such as biologics, evidenced most recently by the aforementioned acquisition of Hospira. So it's not entirely surprising that the pharma giant has taken a keen interest in cardiovascular gene therapy companyCelladon Corporation. At last count, Pfizer owned nearly 1.8 million shares of Celladon, making it one of the company's largest shareholders.

My take is that Pfizer's initial interest could turn into a full-blown tender offer if Celladon's lead clinical candidate, Mydicar, reports positive mid-stage results this April as a treatment for systolic heart failure. Such a deal would give Pfizer access to a potential megablockbuster. And, as a biological-based treatment, Mydicar would benefit from the high standards for generic "biosimilars" set by the Affordable Care Act in 2010, meaning the drugcould effectively be immune from generic rivals for several years past its patent expiration. Furthermore, as a gene therapy, it would hold a competitive moat simply by the lack of competitors that can easily manufacture the viral vector on a commercial scale.

Mydicar would also fit in nicely with the big pharma's strong cardiovascular product portfolio and clinical pipeline. All told, this pairing looks like a great match -- that is, if Celladon's gene therapy platform is validated by the upcoming clinical data readout.

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:Pfizershould look atSeattle Genetics, a major developer of antibody-drug conjugates, or ADCs, commonly known as "cancer smart bombs." ADCs seek out and attach themselves to cancerous cells and then inject them with cytotoxic agents. This "targeted chemotherapy" spares healthy cells, which traditional chemotherapy usually wipes out. Although Seattle Genetics wouldn't move the needle in a huge way for Pfizer, a bolt-on acquisition could give a boost to Pfizer's oncology business.

Seattle Genetics has one approved ADC, Adcetris, indicated for two types of lymphoma. The company holds commercialization rights for Adcetris in the U.S. and Canada, whileTakeda Pharmaceuticalholds the marketing rights worldwide. Sales of Adcetris in the U.S. and Canada rose 24% year over year to $131.7 million during the first nine months of fiscal 2014, accounting for 61% of revenue.

There wasrecent concernthat two recently approved immunotherapies --Merck'sKeytruda andBristol-Myers Squibb's Opdivo -- could cause trouble for Seattle Genetics. Both drugs, which target the PD-1 pathway, have been effective at treating Hodgkin's lymphoma, or HL, afterpatients were first treated with Adcetris and showed disease progression. However, Bristol-Myers and Seattle Genetics are now testing Adcetris with Opdivo inclinical trialsfor blood disorders, including relapsed/refractory HL, so PD-1 inhibitors could complement, instead of compete against, Adcetris.

Seattle Genetics already collaborates with Pfizer on Anti-5T4, an ADC that's being tested in phase 1 trials on solid tumors.The company seems like a smooth strategic fit for Pfizer's oncology business, althoughat a price tag of at least $4 billion, the stock may need to pull back before it could really be attractive, especially considering that the company is yet to be profitable. Still, it's one for both Pfizer and investors to keep an eye on.

: While I don'tnecessarily think it's the best idea, Pfizer is most likely to make a large acquisition. That's just what Pfizer does: $90 billion for Warner-Lambert, $60 billion for Pharmacia, $68 billion for Wyeth, $119 billion in a rebuffed deal forAstraZeneca.

Of the four large biotechs --Gilead Sciences,Biogen Idec,Amgen, andCelgene-- I think Amgen is the most likely candidate.

Gilead is out because of the overlap with ViiV Healthcare, Pfizer's joint venture withGlaxoSmithKlineandShionogito sell HIV drugs.

Celgene and Biogen would both fit well with Pfizer. Celgene's cancer drugs would fit right into Pfizer's oncology portfolio. Biogen would be a bit more of a bolt-on type of acquisition, but that's not necessarily a bad thing since it would open up new opportunities for Pfizer. However, both companies trade for premiums, which makes it less likely that Pfizer would buy them. As the failed deal for AstraZeneca showed us, Pfizer isn't interested in overpaying for growth potential.

Amgen, on the other hand, is more reasonably priced. With revenue up 7% in 2014, the company is still growing, albeit far from the hyper-growth of yesteryear. Buying Amgen would garner Pfizer Enbrel, which Pfizer used to sell with Amgen, a pack of approved cancer drugs,as well as a pipeline that includes evolocumab, a cholesterol-lowering drug. There might be some dust on the Lipitor sales manuals, but I'm pretty sure Pfizer knows how to market one of those.

The article Which Biotech Stock Should Pfizer, Inc. Buy? originally appeared on Fool.com.

Brian Orelli has no position in any stocks mentioned. George Budwell owns shares of Gilead Sciences. Leo Sun owns shares of Pfizer. The Motley Fool recommends Celgene, Gilead Sciences, and Seattle Genetics and owns shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.