Is AZ aiming for a Forest buy?

​M&A speculation has been hot this week. In addition to Watson Pharmaceuticals' ($WPI) potential Actavis buy (see related story), a blog post in The Guardian is saying Forest Laboratories ($FRX) is a prime target for pickup by AstraZeneca ($AZN).

So why the rumors of an AZ buy? Liberum Capital pointed to its poor drug pipeline and patent expirations from 2014. Plus, ex-Volvo and Ericsson exec Leif Johansson is coming on as AZ chairman later this year, and he has a background in M&A.

"Given the lack of pipeline delivery and a 5% fall in earnings between 2012-17, on our numbers, we believe that a deal is more likely than at anytime in the last few years," said analysts Naresh Chouhan and Roger Franklin, as quoted by the blog.

Although they don't anticipate a mega-merger, Forest would fit AZ's bill--well-known but small enough to permit the pharma company "to meet consensus cash return expectations." Plus, Forest has 5 growth products as well as decent prospects for launches.

Earlier this month, analysts buzzed about a potential AZ acquisition spree after the FDA denied its petition to hold off generic versions of its antipsychotic drug Seroquel. At the time, research chief Martin Mackay said AZ is "actively talking to a number of companies," both biotech prospects and "peer-to-peer" opportunities. "I will be disappointed if we do not do some deals this year that the market will be pleased by," Mackay said, as quoted by Reuters. Names like Amylin Pharmaceuticals ($AMLN), Shire Pharmaceuticals ($SHPGY) and Abbott's soon-to-be-independent drug business (which we just found out is to be dubbed AbbVie) were tossed out by Bernstein Research analyst Tim Anderson. (He didn't say an AZ pickup of one of these companies was necessarily going to happen, but he just put the names out there, adding that an acquisition under $10 billion was most likely.)

This isn't the first time analysts have named Forest a takeover target. Last year, when Valeant Pharmaceuticals ($VRX) made its ultimately failed bid for Cephalon, the stock of both Forest and Endo Pharmaceuticals ($ENDP) both jumped, as investors thought they could also be acquisition targets.

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