Sanofi / Genzyme Deal a Boon for Large Cap Biotech

by: Tsachy Mishal

It appears that Sanofi (NYSE:SNY) is acquiring Genzyme (GENZ) in a deal valued at roughly $77 a share or $20 billion. I believe the deal will benefit the entire large cap biotech sector as Genzyme makes up a large part of that sector. Cash coming in from the deal that will be reinvested in the sector has few options of where to go.

There are only five biotech stocks with a market cap greater than $10 billion and Genzyme is one of them. Genzyme makes up over 11% of the market cap of this group. The group consists of Amgen (NASDAQ:AMGN), Gilead (NASDAQ:GILD), Celgene (NASDAQ:CELG), Genzyme and Biogen (NASDAQ:BIIB). Amgen, Gilead and Biogen are all buying back stock aggressively. The float of shares in the large cap biotech industry is shrinking quickly and this deal will speed up the process.

I believe that an attractive sector valuation and a positive supply and demand profile for the shares will lead to higher prices for the entire sector. I have bought Gilead, Amgen and Celgene to take advantage of this dynamic.

Disclosure: I am long GILD, AMGN, CELG.