by Marc Lichtenfeld, Senior Analyst, Smart Profits Report
Editor’s Note: With so many biotech stocks making big moves and pharmaceutical merger activity moving faster than anything else right now, we turned to one of the smartest analysts in the lucrative biotech field to give us his take on what we should be doing…
When I was in my early 20s, I had one friend who was always on the prowl for Mrs. Right (or at least Mrs. Right Now) whenever we went out.
The evening would kick off with him boasting about how he would end up with the most beautiful girl in the bar. As the night wore on, though, he gradually lowered his standards. By the end of the evening, fueled by desperation (and perhaps a little alcohol), he was willing to leave with any woman who had a pulse.
The health care M&A picture right now reminds me of that situation - with one exception. Some Big Pharma companies have become even more desperate than my buddy. And that means big profits for biotech stock investors.
With patents expiring and pipelines empty, the biggest biotechs need to add some in-house research and development, stat. That’s why you’re seeing firms like Glaxo pay premiums of 80% to acquire their object of affection.
Even that sky-high amount wasn’t the highest. Last week, Intercell paid a whopping 126% premium to acquire Iomai. With small firms able to garner such high prices, it puts virtually every small-cap biotech in play.
Biotech Stocks Shrug Off the Market Woes
As top-quality biotech stocks plunged to bargain-basement levels for much of the first quarter of 2009, the biotech sector did little more than shrug.
It’s not that biotech stocks weren’t immune to the pain. But the biggest players had large piles of cash and consistent income coming in from drugs produced over the last decade.
Then the news broke that Pfizer would shell out $68 billion to buy Wyeth. It triggered a trio of big buyouts in the sector, and more importantly, it gave investors a clue to just how much money these pharmaceutical behemoths had. They had financing, and they were ready to spend.
