3 Big Drugmakers Most Likely to Buy Incyte

By Keith Speights Markets Fool.com

Which biotechs have high prospects of being acquired in the near future? Many would place Incyte (NASDAQ: INCY) near the top of the list. The company's oncology portfolio makes it an attractive target.But a target for whom?

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Gilead Sciences (NASDAQ: GILD), Bristol-Myers Squibb (NYSE: BMY), and Amgen (NASDAQ: AMGN) stand out as three of the most likely suitors for Incyte. Here's why these big drugmakers could be interested in making a significant acquisition.

Image source: Getty Images.

A perfect match

When industry observers were asked in 2016 which company they thought was most likely to buy Incyte, Gilead Sciences was the top answer. In some ways, Gilead and Incyte make an ideal match.

Investors are anxious for Gilead to make an acquisition to help plug the leak from its declining hepatitis C franchise sales. Gilead's executives have also stated that a strategic deal ranks as one of their top priorities. The company's CEO even identified strengthening Gilead's oncology product lineup as a primary objective, but also mentioned augmenting its inflammation and non-alcoholic steatohepatitis (NASH) pipelines.

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Incyte would help Gilead in two of those areas. The biotech's Jakafi is already a big winner in treating two forms of blood cancer, myelofibrosis and polycythemia vera. Incyte's pipeline also includes several other experimental cancer drugs, most notably epacadostat. In addition, the company has partnered with Lilly on anti-inflammatory JAK inhibitor baricitinib.

Gilead needs to make a big deal, and Incyte is one of a very few that could be large enough to make a significant impact. Money shouldn't be an obstacle for Gilead. The big biotech reported over $32 billion in cash, cash equivalents, and marketable securities at the end of 2016 and has a solid cash flow to help fund a major deal.

Another big biotech with even more cash to spend

Amgen isn't touted too often as a potential buyer for Incyte. However, the company could soon be on the market for an acquisition. CEO Robert Bradway spoke about his company'sflexibility in its balance sheet to fund big or small transactions during Amgen'sfourth-quarter earnings conference call.

Declining sales for three of its biggest-selling products could drive Amgen to make a deal. Bone marrow stimulants Neulasta and Neupogen and anemia drug Epogenare all facing stiff competition.

Incyte's drugs would be a good fit with Amgen's current product lineup. The big biotech already markets several cancer treatments, most notably multiple myeloma drug Kyprolis. Amgen's top seller, Enbrel, targets some of the same indications as Incyte's baricitinib. However, Enbrel is injected whereas baricitinib is a pill taken once per day. The oral medication should be a good addition for Amgen if it chose to acquire Incyte.

Amgen has more cash to spend than any other drugmaker except for Johnson & Johnson, which will spend a lot of its cash soon on its own acquisition of Actelion. At the end of 2016, Amgen reported cash, cash equivalents, and marketable securities totaling more than $38 billion.

A partner in need of a boost

Bristol-Myers Squibb (BMS) claims something that neither Gilead Sciences nor Amgen has: a partnership in place with Incyte. The two companies entered a collaboration agreement to explore combination treatments with BMS' Opdivo and Incyte's epacadostat in 2014. Earlier this month, BMS and Incyte announced that they were advancing the Opdivo/epacadostat combo into a late-stage study targeting treatment of first-line non-small cell lung cancer.

The situation for BMS has changed since it first partnered with Incyte. Opdivo disappointed last year in a late-stage study as a monotherapy for first-line lung cancer. In January, BMS announced that it wouldn't seek accelerated approval for a combination of Opdivo with another of the company's drugs, Yervoy, as a first-line treatment of lung cancer.As a result, the drugmaker's stock has taken a beating.

An acquisition of Incyte would likely generate investor excitement about BMS again. Certainly, epacadostat would be a great addition to the big pharmaceutical company's lineup. So would Jakafi, for that matter.

BMS doesn't have nearly as much cash as Gilead or Amgen, though. As of the end of 2016, the drugmaker reported cash, cash equivalents, and marketable securities of a little over $9 billion.If multiple parties started a bidding war over Incyte (which could very well happen), BMS might find itself at a disadvantage. Still, I wouldn't rule out the possibility that the big drugmaker makes a play for Incyte.

Most likely pairing

At this point, Gilead Sciences appears to be the most likely suitor for Incyte. The big biotech has the most motivation to make a deal. And Gilead has the financial resources to make it happen.

However, there are other companies beyond Gilead, Amgen, and Bristol-Myers Squibb that could also be interested in Incyte. The possibility of a bidding war later in 2017 doesn't seem far-fetched at all.

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Keith Speights owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences and Johnson & Johnson. The Motley Fool has the following options: short June 2017 $70 calls on Gilead Sciences. The Motley Fool has a disclosure policy.