Post by stcks on Apr 6, 2016 17:22:38 GMT
Here's Why Biotech Shares are Climbing
Allergan's headquarters in Irvine, Calif. Photo by Don Bartletti — LA Times via Getty Images
Sector is still down in 2016.
The collapse of one pharmaceutical mega-merger could beget many smaller deals—at least that is the hope of biotech investors.
Shares of the beaten-up biotech sector rallied on Wednesday as U.S. drugmaker Pfizer PFE 4.30% and Ireland-based Allergan AGN 3.14% called off their $160 billion merger after new U.S. Treasury rules aimed at curbing tax-cutting inversion deals.
The Nasdaq Biotechnology index jumped 4.5% by mid-day, while the NYSE Arca Pharmaceutical index gained 2.5%. Healthcare was the top sectoral gainer in European trading, up 2.4%.
With their deal scuttled, Pfizer and Allergan could turn to smaller targets, analysts said.
Pfizer and Allergan “have been serial acquirers in healthcare and both have significant financial firepower,” BTIG analyst Hartaj Singh said. “With biotech valuations down since mid-2015, the sector looks more appealing to acquirers.”
Even with Wednesday’s rally, the Nasdaq biotech index is down about 17% this year and some 30% from last July.
Biotech and pharmaceutical shares have been under pressure from concerns about the focus on drug pricing, and that medicine costs will continue to be a target during the presidential election season.
But investors have been looking for a pickup in deal-making as a sign the sector is ready to rebound.
Investors “want to see larger companies looking at smaller companies and buying them as an indicator that valuations have reached a point that they are very attractive for acquisitions,” said Wedbush Securities analyst Liana Moussatos.
Allergan's headquarters in Irvine, Calif. Photo by Don Bartletti — LA Times via Getty Images
Sector is still down in 2016.
The collapse of one pharmaceutical mega-merger could beget many smaller deals—at least that is the hope of biotech investors.
Shares of the beaten-up biotech sector rallied on Wednesday as U.S. drugmaker Pfizer PFE 4.30% and Ireland-based Allergan AGN 3.14% called off their $160 billion merger after new U.S. Treasury rules aimed at curbing tax-cutting inversion deals.
The Nasdaq Biotechnology index jumped 4.5% by mid-day, while the NYSE Arca Pharmaceutical index gained 2.5%. Healthcare was the top sectoral gainer in European trading, up 2.4%.
With their deal scuttled, Pfizer and Allergan could turn to smaller targets, analysts said.
Pfizer and Allergan “have been serial acquirers in healthcare and both have significant financial firepower,” BTIG analyst Hartaj Singh said. “With biotech valuations down since mid-2015, the sector looks more appealing to acquirers.”
Even with Wednesday’s rally, the Nasdaq biotech index is down about 17% this year and some 30% from last July.
Biotech and pharmaceutical shares have been under pressure from concerns about the focus on drug pricing, and that medicine costs will continue to be a target during the presidential election season.
But investors have been looking for a pickup in deal-making as a sign the sector is ready to rebound.
Investors “want to see larger companies looking at smaller companies and buying them as an indicator that valuations have reached a point that they are very attractive for acquisitions,” said Wedbush Securities analyst Liana Moussatos.
