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Cash-Rich Pharma Giants See Compelling Acquisition Opportunities in Biotech Sector

Newswire TeamStansberry NewsWire

A surge in deal-making by biotechnology companies could provide increased value to investors...

Pharmaceutical giant Bristol-Myers Squibb (BMY) announced its acquisition of precision-oncology company Turning Point Therapeutics (TPTX) for $76.00 per share. The $4.1 billion cash deal is a 122% premium to Turning Point's final closing price of $34.16 on Thursday.

Turning Point shares more than doubled in premarket trading to $73.57 per share.

Bristol-Myers said it expects repotrectinib, Turning Point's leading lung-cancer product, to be approved by the U.S. Food and Drug Administration in the second half of 2023. Bristol's management team sees catalyst potential and revenue gains ahead. And the recent drop in Turning Point's share price likely increased the acquisition appeal.

This deal follows Pfizer's (PFE) agreement last month to buy migraine-drug developer Biohaven Pharmaceutical (BHVN) for $11.6 billion. And it points to a potential rally for biotech stocks moving forward...

The Nasdaq biotech sector has nearly lost all of its gains made during the COVID-19 pandemic. Piper Sandler analyst Christopher Raymond asserted that the lack of mergers & acquisitions (M&A) is one of the factors dragging the industry lower.

Biotech stocks are coming off their worst April since 2002, and the lower valuations are making smaller biotech firms prime targets for acquisition. Take a look at the following chart of the round trip in the Nasdaq Biotech Index from the time the World Health Organization ("WHO") declared the outbreak of a global pandemic to today…

Coming out of the pandemic, major players like Johnson & Johnson (JNJ), Pfizer, Bristol-Myers Squibb, and AbbVie (ABBV) are now flush with cash and looking to spend. This has fueled an uptick in acquisitions this year as they look to expand revenue and profits by acquiring smaller biotech firms.

Often these smaller companies have drugs in early development, so there's plenty of pipeline potential. However, they often struggle to secure funding to cross the finish line.

As more deals are made, companies whose share prices have fallen back to pre-pandemic levels offer increasing value opportunities for investors.

If you'd like to read more about Stansberry Research's thoughts on the future of medicine and how to invest, check out Stansberry's Investment Advisory here.