Pfizer seen as buyout target amid M&A chase

Pfizer (NYSE:PFE) stock was active on Monday following the retirement of Chief Financial Officer Frank D’Amelio. Pfizer stock had climbed nearly 1% to a year high of $42.56 by noon, but has since slowed down with the company disclosing that Dan Vasella, its chairman, will serve as interim CFO. After shares fell 14% in 2015, the stock looks like a steal given Pfizer’s 10.9% dividend yield. Pfizer could be a bargain candidate in the takeover market, given its lead market position in cancer and the fact that it has an attractive pipeline.

Pfizer is also one of the companies shortlisted by Aurora for a deal. Aurigen is a now privately-held rival drug developer which is in the process of bidding for Adventrx Pharmaceuticals (NYSEMKT:ADX). Adventrx’s primary phase III drug is an inhaled version of morphine for treating nausea.

The Centene bid

As reported, Centene is eyeing a deal for Health Net (NYSE:HNT). The company has met with Health Net’s advisors and is making offers. Investors are now betting on a potential buyout as Centene stock has risen nearly 25% this year. Over the past five years, Centene has seen a 56% total return with higher earnings per share expected in the near future.

Cephalon (NASDAQ:CEPH) returned more than 66% this year with a 46% total return. Cephalon has seen shares dive of late after two analysts downgraded the company as its newest blockbuster, Canakinumab, missed its planned release date. The company also blamed reports of a cancer outbreak in the Canary Islands, where Cephalon’s Crucell subsidiary is headquartered, for problems with the drug. With a deal in place for Newport Labs, analysts are optimistic that Cephalon’s current financial crisis will pass.

Fitch upgraded Baxter (NYSE:BAX) to BBB+ from BBB+. Fitch believes that Baxter’s cash holdings, operational and financial flexibility, and its strong portfolio of products will support a rating upgrade. Shares have climbed 25% this year but they still have an eye-popping 10.4% dividend yield.

Investors are interested in Baxter because of the recent acquisition of Gambro in Sweden, but future growth prospects are more important. Baxter has a strong product pipeline, most notably in its hemophilia franchise. There is even hope that gene therapies will create a new leg to the company’s growth. In a recent conference call, CEO Bob Parkinson stated that “We see a promising array of drug candidates, gene therapies, technology and intellectual property beyond the clinical stage with the potential for substantial revenue for Baxter.”

Oritavancin bid from Optimer

Hospira shares were up almost 2% on Monday following news that it submitted an application to the FDA for approval of its IV antibiotic oritavancin in pneumonia. Health care analyst Charles Rhyee at Cowen & Co. reiterated his “Outperform” rating on the stock, saying that management has offered no reason to believe that the submitted application is in any way deficient.

In his research note, Rhyee said that “Pneumonia is one of the oldest infectious diseases, dating back to ancient Greece. Despite the growing prevalence and number of cases, physicians have found no satisfactory treatment.” That means, according to Rhyee, that approval for a single antibiotic may set off a market for over 20 different bacterial strains. But with over 6,000 hospital-acquired infections, or HAIs, in 2012, the potential for Roche Holdings’ Engerix-B and a handful of other competitors could make for a lucrative market.

Investors should also note that the expansion of the U.S. antibiotic market should benefit companies that offer a broad array of antibiotics. Hospira has developed a broad spectrum of drugs, while others are concentrating on selective products. Both sets of competitors will benefit from the current approval news.

Foolish takeaway

Pfizer is seen as a potential play on a M&A front after its recent stock slide. The move to increase shareholder value by acquiring Cephalon, an over-the-counter drug maker, could be a sign that the company could be more open to a buyout in the future. The buyout of Ventana, a small company with several promising drugs in its pipeline, should indicate Pfizer’s willingness to spend a lot of money on acquiring quality companies to grow.

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