Biotech stocks pin bounce back hopes on M&A boost

Churchill Capital XI

12/08/2022 14:55

By Amruta Khandekar and Leroy  Leo
    Aug 12 (Reuters) - Plunging valuations have made biotech
companies tempting acquisition targets for cash-rich Big Pharma
and a flurry of deals is just what the battered sector needs to
turn a corner.
    Pfizer's  PFE.N  $5.4 billion acquisition of Global Blood
Therapeutics  GBT.O , which was announced on Monday, is the
fourth deal in the sector since the pharma giant bought Biohaven
 BHVN.N  for $11.6 billion in May, adding to optimism that large
drugmakers are back in the market to pick up cheaper firms.
    Industry experts predict biotech firms that are closer to
getting their product to market or already have a drug approved
are likely to become M&A targets for large drugmakers, some of
whom are staring at patent expirations of their cash cow drugs. 
   
    
    "(There have been) acquisitions of companies that have
late-stage assets and also the theme of large-cap companies
keeping an eye on mid-caps approaching blockbusters," RBC
Capital Markets analyst Gregory Renza said. "So needing to
replenish portfolios and finding companies like those are key."
    Biotech company stocks have been battered in the past few
months as investors booked profits after a sharp rise in
valuations in 2021, with the rout exacerbated by a dearth of
large deals and lack of positive data from clinical trials.
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    The Nasdaq Biotechnology index  .NBI  fell nearly 28% in the
year till the Pfizer-Biohaven deal was announced in May. Since
then, the index is up over 18%.
    The SPDR S&P Biotech ETF  XBI.P  is also up 34% in that
period, while iShares Biotechnology ETF  IBB.O  is up about 19%.
 
    
    "Pfizer's move put boards across big pharma on notice that
if you're not in the market buying these companies while they're
cheap, your competitors will," Thomas Hayes, chairman and
managing member of Great Hill Capital in New York, said.
    Still, not all analysts are convinced the bottom has been
reached for these stocks and believe there is still a long way
to go for biotechs, especially considering the risky nature of
the business.
    "I don't think we'll get back to 2021 (funding) levels ...
but we're seeing a nice virtuous cycle of good data, more
capital entering the space and more M&A," Sean Sun, portfolio
manager at Thornburg Investment Management, said.
    Sentiment around the beaten-down sector has improved in the
past month.
    About $86 million was poured into iShares Biotechnology ETF
in July, compared with $7 million in June, following outflows in
the two preceding months, according to Refinitiv Lipper data.
    The number of stocks in the biotech index that trade below
their cash level has also reduced. One of four biotech stocks
that are part of the index now trade below their cash level,
from one of three in the last week of June, Refinitiv data
showed.
    "The fundamentals are strong as ever, the valuations have
corrected and the acquirers have a boatload of money," said Lee
Brown, global healthcare leader for investment research firm
Third Bridge. "So it's sort of like - let's party."

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Biotech M&A since Pfizer's Biohaven deal    https://tmsnrt.rs/3zMkjbi
Changes in the Nasdaq Biotech index and biotech ETFs    https://tmsnrt.rs/3JLlFHV
Bruised biotech investors focus on firms with more advanced
products     urn:newsml:reuters.com:*:nL3N2XF2YK
BREAKINGVIEWS-Pfizer and Moderna react well to cash boosters   
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 (Additional reporting by Medha Singh; Editing by Ankur Banerjee
and Shounak Dasgupta)
 ((Amruta.Khandekar@thomsonreuters.com))