Celgene Gets Bought Out: Who is Next?

When Bristol-Myers (NYSE:BMY) announced it would buy Celgene (NASDAQ:CELG) for $74 billion in cash and stock, it signaled the biotechnology market is ripe for M&A activity once again.

It helped that major drug firms instituted price increases in the 10% range on Jan. 1 without any reactions from the government. A combination of favorable pricing and strong cash flow growth this year will attract investors back to the beaten up sector. Plus, the prospects of a buyout could help lift stock valuations.

Gilead Sciences (NASDAQ:GILD) is a takeover candidate. The stock trades at a P/FCF of 17.5 times. Its P/E is 12 times. The hepatitis vaccine and supplier faces generic competition and slowing sales. It will take a few years before new products in the pipeline reignite growth. Another bigger drug firm may want to buy Gilead to bolster growth while eliminating costs.

Regeneron Pharmaceuticals (NASDAQ:REGN) trades at a higher P/E multiple of 20 times but is debt-free. The stock recently rebounded after earnings analyst upgrades. Eyelea and Dupixent are blockbuster drugs that make enormous cash flow growth for the biotech firm.

XBiotech Inc. (NASDAQ:XBIT) recently announced strong, positive results for its atopic dermatitis drug. The higher efficacy compared to Dupixent may attract Regeneron. And since this microcap has no debt but strong prospects, it could may welcome a deal from a bigger firm.