Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Add another entrant to the very crowded biotech M&A market. 

Takeda, Japan's largest pharma firm, is willing to spend up to $20 billion on acquisitions overseas, the Financial Times reported last week. Its CEO later confirmed it was on the hunt and willing to raise a bunch of debt to fund deals.

With so much cash, Takeda doesn't lack for options. But there are many other firms with similar designs and plenty of scratch. Takeda doesn't just need deal willingness, but decisiveness. 

No Risk It, No Biscuit
Takeda could use an M&A boost, as patent expirations loom and its shares languish
Source: Bloomberg

It could certainly use a deal: Takeda's share price has stagnated over the past few years, and its revenue has slumped.

Stepping Down
A new drug injection could turn around Takeda's flagging sales
Source: Bloomberg

Velcade, its biggest medicine and the source of 9 percent of its drug revenue, will lose patent protection next year. More patent losses loom in the next few years. On top of that, 40 percent of the company's sales come from Japan, hardly a source of long-term growth.

Takeda is focusing its search on drugs that treat cancer, gastro-intestinal (GI) conditions, and the central nervous system. 

Cancer is arguably the most appealing area of the three, full of interesting research and pricing power. But it's also a competitive area, with five big deals so far this year. And it's prone to bidding wars, as seen in Pfizer's $14 billion bid for Medivation.

There are a still plenty of targets in cancer drugs. Incyte is a Medivation clone of sorts, combining a growing drug called Jakafi with a possible pipeline blockbuster. But it comes with a hefty $15 billion pre-premium price tag. A newly hot class of drugs, called PARP inhibitors, from Tesaro and Clovis offers blockbuster potential -- and, again, the potential for rich premiums.

Takeda might prefer to stick with what's familiar: It has jointly developed the blood-cancer drug Adcetris with Seattle Genetics. It owns the drug's rights outside of the U.S. and Canada, and it may want to grab the drug's remaining rights, along with the rest of Seattle Genetics' pipeline.

The GI market isn't quite as hot, with fewer game-changing drugs -- but also less competition. Takeda might be interested in constipation drugmaker Synergy, Citigroup analyst Liav Abraham suggested in a note last week, pushing Synergy shares up as much as 19 percent. Takeda licensed a GI drug from Theravance in June, and that company's shares have gained 5 percent on the FT's story.

Synergy's market cap is just short of $1 billion, while Theravance's is $1.6 billion. Takeda could snap either or both company up and go back for more. 

Brain drugs are intriguing but risky bets; studies in diseases such as Alzheimer's are particularly prone to failure. Given the risks involved, Takeda may lean toward partnerships over outright purchases in this area.

One potentially appealing target in this space is Acadia, which has a drug approved to treat Parkinson's-related dementia. But a good chunk of the company's $4.1 billion value is a bet its drug will be approved in Alzheimer's patients. 

Regardless of which path the company decides to take, there is risk in thinking about it too long. There are still some bargains to be had in a weak year for biotech; Horizon recently managed to acquire Raptor Pharmaceuticals and its rare-disease drugs at a $500 million discount to its peak value last year.

But the number of attractive takeout targets dwindles with each deal. And the Nasdaq Biotech Index is in recovery mode. After a 28 percent plunge to start the year, the index has recovered more than 20 percent since late June.

Off the Trough
The Nasdaq Biotech Index is starting to climb out of the depths after a rough start to 2016

Johnson & Johnson, Gilead, Amgen, Merck, Sanofi, and Biogen are among the giants on the biotech M&A hunt. Any of them pulling the trigger could limit Takeda's options and make remaining buyouts more expensive.

Exhibit A: Since Takeda's designs became public, Allergan has helped push biotech shares and target expectations higher with a one-week acquisition spree. It announced the acquisition of dermatology drugmaker Vitae at a 159 percent premium to its pre-deal stock price, then followed that up with a deal for Tobira at nearly a 500 percent premium . The latter deal might particularly sting Takeda, which licensed Tobira's lead drug (then intended to treat HIV) back in 2007. 

It's easy to be paralyzed by choice at the biotech buffet. Takeda may not be able to afford that luxury. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Allergan also owes $49.84 a share in extra milestone payments on top of the up-front deal price if Tobira's drugs hit certain milestones. 

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