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Stock Strategist

Five Firms Big Pharma Should Buy Next

With acquisitions slated to continue, here's a look at the possibilities.

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Pharmaceutical companies still see riches in biotechnology.  AstraZeneca's (AZN) $15.6 billion deal to acquire  MedImmune (MEDI) is only the latest example of their continuing willingness to pay high premiums (in this case, a 53% premium to where MedImmune was trading before it put itself up for sale) for future growth.

At Morningstar, we've seen various themes to these drug stock take-outs over the past year. In some cases, the larger firm in a collaboration takes out the smaller partner, in an effort to claim full rights to future profits;  Amgen's (AMGN) acquisition of antibody expert Abgenix and  Lilly's (LLY) acquisition of Cialis-driven ICOS are both good examples of this behavior. Sometimes a firm looks to expand into new therapeutic areas, such as when HIV expert  Gilead (GILD) bought cardiopulmonary firm Myogen,  Merck (MRK) bought Sirna Therapeutics for its innovative new RNA interference technology, or when  Abbott (ABT) bought Kos Pharmaceuticals for its cholesterol drug pipeline. In other cases, firms attempt to ward off slowing growth by injecting new products into established businesses, like  Genzyme's (GENZ) purchase of AnorMED to supplement a sluggish transplant segment, or  Shire's (SHPGY) purchase of New River to fend off generic competition to its attention deficit franchise.

Karen Andersen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.