Every year, large pharmaceutical companies spend billions of dollars taking the easy way out of doing the hard work.
Take, for example, deals like GlaxoSmithKline’s (NYSE: GSK) acquisition of Human Genome Sciences for $3 billion…
Or Celgene’s (NASDAQ: CELG) purchase of Abraxis BioScience, Inc. for $2.9 billion…
Or Reckitt Benckiser’s (OTC: RBGLY) acquisition of SSL International for $3.9 billion…
These are all examples of moves taken by big companies to maximize their operating efficiency and make better use of their time.
I know it might seem counterintuitive to say spending a couple billion dollars is a method of streamlining operations, but the fact is, unlike money, time (a.k.a. opportunity) is one thing that can only be lost and never regained.
Given that it takes between 10 and 15 years on average to bring a new pharmaceutical drug through the various stages of testing and into commercialization, time is something Big Pharma firms like Merck, Pfizer, and Johnson & Johnson have far less of than cash.
So they go around picking up small, sometimes tiny, pharmaceutical research firms — primarily for research already carried out and FDA progress already made — effectively cutting years off the time it takes to develop a product in house from scratch.
Yes, it’s a lot like paying a geek to do your homework for you, and it’s not isolated to the biotech industry.
Buyouts Are Healthy
A rather young but well-known tech company, Google Inc. (NASDAQ: GOOG), has made a business model of acquiring innovative new companies rather than taking the time and effort to develop competing products.
So when you hear the term “merger and acquisition,” don’t think of it as a shady and conniving aspect of modern capitalism… Think of it as two companies combining to create a mutually beneficial union of technology and capital.
For investors, this can be a huge bonus. Big Pharma’s addiction to smaller, research-focused, early-stage biotech firms is one of those things that can really make a difference to an investor’s bottom line.
Big Pharma companies routinely pay heavy premiums to acquire companies whose technologies they desire. In the case of Reckitt Benckiser and SSL International, Reckitt paid 33% above share value just to ensure that the merger happened when and how it wanted.
You better believe that the owners of SSL were thrilled to get the offer. But even still, SLL was a multi-billion dollar operation when it was taken over — with its early growth potential long since exhausted.
The real opportunities don’t come from mergers like these… The real potential comes when you find the buyout target earlier.
Much earlier.
One company I recently came across has all of the telltale signs of a prospective biotech play.
Has Cancer Met its Match?
It’s called GlobeImmune Inc. (NASDAQ: GBIM), and what it’s doing today will certainly have the ears of Big Pharma perked up in the years to come — if it hasn’t caught their attention already.
The company develops and manufactures Tarmogens — a molecular immunotherapy vaccine for the treatment of cancer and infectious diseases.
Tarmogens, according to the company’s overview, activate a subset of white blood cells called T cells, which destroy infected or malignant cells. This is quite different from traditional vaccines, which predominately stimulate antibody production.
The result is a potentially far more effective anti-cancer agent, with proven efficacy in tackling other ailments as well.
The company’s products include a compound called GI-4000, used for the treatment of pancreatic, non-small cell lung, colorectal, endometrial, and ovarian cancers, as well as melanoma and multiple myeloma.
It also owns the rights to a compound called GI-6207 for the treatment of human epithelial cancers, including non-small cell lung cancer, colorectal, pancreas, breast, gastric, and medullary thyroid cancers.
Among products in its inventory are drugs used for the treatment of lung, breast, colon, bladder, kidney, ovary, uterus, and prostate cancers, as well as a therapeutic vaccine for chronic hepatitis B infection.
Now, a bit of clarification: These “products” are actually classified as “product candidates” because clinical evaluations are still happening.
But all that means is that today is the day this company deserves attention — not tomorrow, when its research becomes a commercially viable revenue stream.
What You Need to Know
As of today, this is a $46 million company — a tiny sliver of what it could be once any one of its products makes it to market.
It operates in Louisville, Colorado in a 40,000-square-foot laboratory and manufacturing space.
The CEO is a board-certified internal medicine and pulmonary specialist who’s spent the last 30 years as an executive cultivating young biotech companies.
Now, here’s the real kicker — the sort of thing that gets me really excited…
This company has been public for less than two months.
Aside from being on the forefront of some of the most important medical research going on anywhere, it also boasts one of the freshest stocks on the NASDAQ.
As a trader, there’s nothing I like less than a stale stock — one that’s been through the ringer without much positive stimulus (strong earnings, technology breakthroughs, new product launches) to keep interest alive.
Stocks like that are quick to fall, slow to recover, and even slower to make gains.
Well, I’d say this is about as un-stale as they come.
The company is young, it’s positioned to compete with (and beat) some of the sector’s biggest players with its novel Tarmogen approach, it’s thinly traded, and it sports a super tight share structure — less than 6 million outstanding.
It’s also down almost 50% from its post-IPO peak — meaning it’s way oversold.
Now, of course, I cannot claim that GBIM is a buyout target. I cannot even speculate if or when that might happen.
I can only say that in a world where companies like this get bought up, it’s an excellent candidate, and it’s a candidate that will stand on its own with or without a $50 billion multinational knocking at its door.
Typically, serious Big Pharma interest for these little guys starts to awaken when they cross over into the $100 million range.
There’s a ways to go before we get there, but that also means your interest should be piquing much earlier.
Check out GlobeImmune for yourself, and find out if you’re seeing what I’m seeing.
Fortune favors the bold,
Alex Koyfman
