Biotech Stocks Booming
Worries regarding what President Obama’s health care reform plan might do to the earnings of drug makers has led many Big Pharma stocks to come down with the sickness this year. Pfizer’s stock has crashed 10%, making it one of the more notable slow starter in the Dow. Eli Lilly and Abbott Laboratories have both fallen above 15%.
But biotech supplies have been a varied story. The NYSE Arca Biotechnology Index is risen nearly 30% for 2009. And health care reform seems to be one reason why the sector has been on fire.
Drug giants are eager for progress and stressed regarding the future, so they have been falling over themselves to buy biotechs with decent profit potential — and bidding up the share costs of the whole group in the method.
The current major deal was stated this week when Bristol-Myers Squibb said that it would buy Medarex, a biotech that utilizes antibodies to develop drugs for treating cancer and other diseases.
Bristol-Myers Squibb agreed to pay $2.1 billion, or $16 a share for Medarex (MEDX ), a whopping 90% premium to where Medarex’s stock closed Wednesday this week.
This takeover follows an abundance of other notable Big Pharma-biotech marriages as of late. In May, Johnson & Johnson attained Cougar Biotechnology. J&J also currently bought an 18% stake in Elan, an Irish biotech that has a mixed venture with Biogen Idec to market the multiple sclerosis treatment Tysabri and also has a pipeline of Alzheimer drugs.
Earlier this year, Swiss drug giant Roche purchased the remainder of Genentech that it didn’t already possess. And late previous year, Eli Lilly attained ImClone Systems, the biotech most commonly-known for assisting to land Martha Stewart in the slammer.
The flurry of deals is logical and probably won’t come to a halt anytime early — particularly because Big Pharma is competing with a absence of capable new groundbreaking drugs in their pipelines. With that kept in mind, some analysts are occupied attempting to solve who the coming takeover candidates could be.
But investors require to be a bit cautious. Biotech stocks are particularly changeable, especially those of companies still in the primary stages of developing drugs. The shares often trade more on news about clinical trials and less on sales and profits. (Many smaller biotechs are not even making money.)
Of course, volatility can be good. Witness what happened with Human Genome Sciences earlier this week. On Monday, the biotech reported surprisingly promising test results for its injectable lupus drug Benlysta and the stock nearly quadrupled, soaring 277%. However, when trials go awry, stocks at times plunge.
Another reason investors require to be a tad wary is that not each biotech is going to get bought for a major, fat juicy premium. So some stocks may be well ahead of themselves.
Venture capitalists have also wised up to the fact that Big Pharma has a desire for all things biotech.
According to figures released by PricewaterhouseCoopers LLP and the National Venture Capital Association earlier this week, VC investments in biotechs surged 54% in the second quarter from the first quarter. Three of the biggest VC investments during the quarter were in biotech firms.
So for investors that still might be attracted by biotech’s growth potential, it may be more logical to play it a little cautious and look at exchange-traded funds (ETF) that track a group of biotechs.
The SPDR S&P Biotech (XBI), Biotech HOLDRs (BBH) and First Trust NYSE Arca Biotechnology Index (FBT) ETFs are among a few of the more actively traded funds focusing on the group.
[...] view is Valerie Gutman writing in the Seton Hall’s HealthCareReformWatch. But according to Pharma Exec News, the congressional action and direction of health care reform has been good for biotech stocks. [...]