Drugmaker Bristol-Myers Squibb Co (BMY.N) could be an acquisition target as the industry gets closer to losing exclusivity on several leading drugs, said a Sanford C. Bernstein analyst, who upgraded the stock to "outperform" from "market-perform."
"BMY could ultimately be a take-out candidate, based on our belief that there may be at least some merger and acquisition activity in the pharmaceutical sector as the patent "cliff" of 2011/2012 draws closer," analyst Tim Anderson said.
Makers of branded drugs face a looming patent "cliff" between now and 2012 as many of the world's most lucrative prescription medicines lose protection.
Revenue from these drugs are set to evaporate during this period as cheaper generic forms of the product become available.
Among the biggest facing the cliff are Pfizer Inc's (PFE.N) $13 billion-a-year cash cow Lipitor, and the multibillion-dollar blood clot preventer Plavix, sold by Bristol-Myers and Sanofi-Aventis (SASY.PA).
"Although management has not said it explicitly, we believe BMY may be entertaining a future sale of the company as one possibility," Anderson wrote in a note to clients.
He said Bristol-Myers faces significant product losses starting in 2012, but added that the company has an "indisputably good" research and development track record as well as other products in its pipeline.
The drugmaker was likely to see "best-in-class" earnings growth of 15 percent to 20 percent over the next four years, he said.
The analyst raised his price target on the stock to $26 from $24.
Shares of the company closed at $19.67 Thursday on the New York Stock Exchange.
(Reporting by Tenzin Pema in Bangalore)
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