Profit From These Special Situations


In his book You Can Be a Stock Market Genius, author and investor Joel Greenblatt highlighted the opportunity hidden in mergers and acquisitions, spinoffs, and restructurings. Some deals are so complex that the true value of a stock won't be unlocked until well after the fact, giving savvy investors a chance to get in early and grab hold of shares at a discount. Huge profits are possible, and he achieved 50% annualized returns for a decade investing in them.

We'll look at some announcements presenting an opportunity for profit and pair that with the views of the 180,000 members of Motley Fool CAPS to see what they think of the businesses involved. If the best and brightest in the investment community like these stocks, it may be worth your time to dive in further.

But not every deal is worth your money. It takes diving into the filings to understand the nuances, so don't use the stocks below as a buy list -- more due diligence is needed on your part.


CAPS Rating (out of 5)

Type of Situation


Bristol-Myers Squibb (NYS: BMY)



Amylin Pharmaceuticals (NAS: AMLN) for $31 per share

GlaxoSmithKline (NYS: GSK)



Human Genome Sciences (NAS: HGSI) for $14.25 per share

Again, this is just a starting point for further research. Do your homework before committing real money to these special situations.

Like lemmings over the cliff?
It was anticipated the pharmaceutical industry's vaunted patent cliff would be a catalyst for action. With tens of billions of dollars' worth of drugs going off patent, pharmas were going to need to refill their pipelines most likely through acquisitions. Pfizer lost patent protection on Lipitor last year, and Merck will be losing it on Singulair next month. Not surprisingly, we've seen in the M&A game is starting to heat up the last few weeks.

Bristol-Myers Squibb saw second-quarter revenues tumble 28% after generic versions of Plavix, a heart attack and stroke prevention medication, ate into the $7.1 billion revenue stream it had generated in 2011. Plavix sales plummeted 60% in the quarter to just $741 million. It also lost protection on two blood-pressure meds, Avapro and Avalide in March.

Amylin Pharmaceuticals' specialty has been in the field of diabetes, and it teamed up with Eli Lilly (NYS: LLY) to successfully bring Byetta to market. But the wandering eye of Lilly for German drugmaker Boehringer Ingelheim's competing compound caused Amylin to seek a divorce. Now it's regained the rights to Byetta and is trying to transform the twice-a-day diabetes treatment into once-weekly Bydureon. Bristol previously offered to buy Amylin for $3.5 billion, but was ultimately rejected as too low. The new $5.3 billion offer was obviously much more to its liking.

As the Fool's pharma guru, Brian Orelli, noted, Amylin's diabetes portfolio will nicely complement Bristol's own products, which saw combined sales jump 54% from last year. At $172 million, they're not yet a threat to Merck's Januvia, but the passel of drugs it has to offer doctors now could boost sales further.

For its part GlaxoSmithKline was long seen as being at greater risk, having lost protection to asthma treatment Advair in 2011 then losing it for diabetes drug Avandia this year. Those two drugs alone had represented almost a quarter of Glaxo's 2010 revenues.

It was doing its best to try to acquire Human Genome Sciences this year, and the battle looked like it might go hostile till Glaxo upped its bid. Yet the brand it's getting today isn't quite the barn burner it may have initially been trying to get as its lupus treatment Benlysta hasn't had the quick uptake that was originally hoped for in a disease that hadn't had a new therapy offered in 50 years.

But it apparently still got a bargain as HGS revealed it had actually rejected an offer for more than twice the $3 billion Glaxo ultimately agreed to pay. Apparently Amgen had been willing to acquired HGS for $7 billion in 2010 but was rebuffed, according to a Reuters report.

So who's getting the best deal here? Is Amylin's active portfolio the better bet for Bristol-Myers, or is Glaxo's discounted purchase of Human Genome Sciences the steal some appear to think it is. Tell me in the comments section below if either of these acquisitions makes you want to buy their stock, then head over to the CAPS pages of BMS and Glaxo and rate their chances for having these bids pay off.

Checking the mercury
With the U.S. elections around the corner, our team of analysts at Motley Fool Stock Advisor realizes there's more at stake for stocks than what we're witnessing in the health-care sector. Find out in The Motley Fool's latest special report which stocks could benefit from the result of the 2012 presidential election. Get your free copy!

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Fool contributor Rich Duprey owns shares of Pfizer, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Pfizer. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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