The S&P and the Nasdaq have now risen for four straight weeks. Even with the Federal Reserve raising interest rates at an aggressive clip, the yield on the 10-Year Treasury stands at under 2.8%. Of course, much of this is due to a rapidly slowing economy which saw negative GDP growth in both the first and second quarter of the year.
My regular readers know that I don't view this rally as sustainable for a myriad of reasons. However, today we are going to start off the new trading week on a more optimistic note. The biotech sector has had an impressive rally off its mid-June low. One factor in the rebound off oversold levels, is the pickup in M&A activity which is boosting sentiment on the sector. This month is off to a good start in that regard.
ChemoCentryx (CCXI) was bought out by Amgen (AMGN) for $3.7 billion in cash on August 4th. This acquisition was followed by the $5.4 billion purchase of Global Blood Therapeutics (GBT) by Pfizer (PFE) last Monday. Both purchases had over 100% buyout premiums it should be noted.
What names might be on the 'buyout list now? Here are few names that would make logical acquisition targets for larger players in my opinion.
I will only briefly mention Exelixis (EXEL) and Acadia Pharmaceuticals (ACAD) as I have touched on both companies several times this year. Exelixis has a billion-dollar franchise in CABOMETYX that continues to power growth. Acadia has Nuplazid that has billion-dollar potential for its approved indication and is being studied to treat other CNS afflictions. Either would fold in nicely with a large player interested in expanding their footprint into their respective spaces.
AVEO Pharmaceuticals (AVEO) would make for a much smaller 'bolt on' strategic acquisition given its market cap of just under $300 million. Its primary asset is FOTIVDA which was approved approximately a year and a half ago for treating relapsed or refractory advanced renal cell carcinoma in a third line setting. The company is not yet profitable, but FOTIVDA should see between $100 million to $110 million in sales this fiscal year and the drug also known as Tivozanib is in myriad other studies to treat other indications.
Going out on the risk scale brings us to Gamida Cell (GMDA) with a market cap of under $200 million. The company has no approved products yet. However, earlier this month FDA granted priority review to the company's application seeking approval of its stem cell therapy omidubicel to treat patients with blood cancers in need of an allogenic hematopoietic stem cell transplant. It will also act upon this Biologic License Application or BLA without an Advisory Committee, which I see as encouraging.
And those are some thoughts on the current M&A going on across the industry and some names that could be next in line to get lucrative buyout offers.
