General Investing
With Health Care Reform Settled, Flurry of M&A Activity in Biotech
April 15, 2010The passing of health care reform helped clear the air in the biotech space, creating a rally of M&A activity of small- to mid-cap companies, according to Dr. Jason Kantor, Ph.D., of RBC Capital Markets.
“[W]e’ve seen a number of companies taken out our proposed mergers, which have essentially caused people to look around and see who might be next,” he said. “We are seeing valuations for the small- to mid-cap stocks, which had been particularly punished, now coming back very strongly in 2010.”
And the strength of these stocks rides heavily on the potential effect future mergers could have on valuations. In the past few months, a number of companies have competed for these deals.
“[We] saw Medarex and Genentech (DNA) taken out; we’ve already seen OSI Pharmaceuticals (OSIP) in play in the past weeks, and we’ve seen Facet (FACT), which was originally a target for Biogen (BIIB), ultimately getting taken out by Abbott (ABT) at a significant premium to where the Biogen deal was proposed,” Kantor said.
Although the analyst was underweight the health care sector at the end of 2009, he expects to see a return of funds into both health care and biotech names, bringing both spaces back to at least equal weight. Kantor advises investors to take a basket approach to the biotech sector and keep their eyes on soon-to-come M&A activity.
