Big Pharma, Not Small Investors, Is Driving Biotech Values Now
Big biotech’s need for growth is great news for small biotech companies, with firms such as Gilead shopping
The needs of big drugmakers are driving the stock-price outlook of smaller biotech companies. That suggests the brightening investment environment could stick around.
The biotech market has heated back up after an ugly start to the year. Placid markets have lowered the cost of issuing equity, and deals are back on the table now after a lull.
The recent sale of Medivation to Pfizer fetched $14 billion including debt, far more than investors expected, with no shortage of suitors. Despite Friday’s selloff, the Nasdaq Biotechnology Index has returned 8.5% over the past six months. Smaller companies generally have done better.
Gilead Sciences executives said at an investor conference that the company feels an urgency to look at outside deals and that they would be willing to take a risk on a company developing a class of new cancer drugs known as PARP inhibitors.
That nod came with some big caveats—the price has to be right, for instance—but it was enough to send shares of Tesaro and Clovis Oncology up 7% and 15%, respectively.
Buying stocks on deal speculation appears foolhardy, but big drugmakers must replace maturing products continuously.
Gilead, facing a sharp reversal in revenue growth this year and with nearly $25 billion in cash and securities plus easy access to the investment-grade bond market, is motivated and able to act.
With such companies on the hunt, finding long-term biotech bargains is a challenge.