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It’s open season on these biotech companies

On Monday, Pfizer (PFE) announced that it would acquire Medivation (MDVN), a cancer drug company, for $14 billion. The deal was a surprise, but a very small one. Pfizer was, not long ago, attempting to merge with Allergan (AGN), the maker of Botox, and Medivation was being courted by Sanofi (SNY) until the very moment that Pfizer swooped in.

So, did Pfizer get its $14 billion worth? In buying Medivation, Pfizer has acquired Xtandi, a successful prostate-cancer drug that may yet be approved for other cancers. Pfizer also gained a very strong cancer pipeline, and that, in particular, is going to make the big pharma companies nervous. But will that change their plans?

The most obvious way Pfizer’s competitors can protect themselves from a future loss of revenue to Pfizer is by also acquiring a small biotech firm with a strong cancer pipeline, and 99 times out of 100, people do things the most obvious way. No one believes the current wave of biotech M&A will be crashing any time soon, so you can bet that at this moment, big pharma executives are looking closely at micro, small, and mid-cap biotech stocks that fill the bill.

There are lots of those. I selected the five on today’s list a bit differently than usual. I’m looking for successfully approved cancer drugs, followed by other successfully approved drugs, then, cancer drugs or other drugs in Phase 3, then Phase 2, then Phase 1, then pre-clinical. Then I’ll penalize my potential bio-targets for excessive debt, which potentially complicates these deals. Simple is good, in this case, because I think the buyers out there know they have to act fast, or they’ll simply end up as Sanofi did, wondering what went wrong.

As always, remember to consider these ideas to be just that, ideas, and do your own research before investing.

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Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.