Biotech stocks witnessed a volatile start to the year, driven by initial excitement heading into the “investor event of the year” – the annual JP Morgan Healthcare Conference and it being somewhat of a disappointment with the updates we’ve seen at the conference. But overall, we enter 2018 with positive developments, including several small-cap acquisitions, buyout rumors, and hostile takeover bids:
- Roche purchased Ignyta (RXDX) for $27 per share, a deal valued at $1.7 billion.
- Takeda bought Tigenix (TIG) for €520M (around $600 million).
- Mallinckrodt (MNK) announced the acquisition of Sucampo (SCMP) for $18 per share (deal value $1.2 billion). I added Sucampo to our model portfolio six months ago – the stock is up 69% since then.
- Celgene acquired Impact Biomedicines for up to $7 billion ($1.1 billion upfront).
- Novo Nordisk (NVO) came out with a $3.1 billion hostile takeover bid for Ablynx (ABLX) which was swiftly rejected. I profiled Ablynx (and two other biotech companies) as a potential 2018 investment in late 2017, but the hostile takeover bid came before I could initiate a position.
- Two buyout rumors surfaced recently – Celgene (CELG) is reportedly in talks to acquire Juno Therapeutics (JUNO) and Biogen (BIIB) and UCB are interested in acquiring Acorda Therapeutics (ACOR).
So, we are seeing an increased level of activity in the industry and I think this trend could very well continue throughout the year as many big biotech/pharma companies have holes in their product/pipeline portfolios to fill and money to execute.
Going back to the JP Morgan Healthcare Conference, more than a dozen companies I own and follow provided updates there, and most updates were positive. A few examples:
- Neurocrine Biosciences (NBIX) pre-announced Q4 Ingrezza sales, which were once again significantly above the analyst consensus - $64 million versus $45 million expected. As a reminder, Neurocrine is my top pick for 2018 despite being up more than 80% since I initiated coverage in April 2017.
- Heron Therapeutics (HRTX) guided for CINV franchise sales in the $60-70 million range, the mid-point being below the $69 million analyst consensus. The company also said that enrollment in the two phase 3 studies of HTX-011 is complete and that we should see data from this study in 1H 2018. This is by far the most important catalyst for the stock this year. I made Heron one of my highest conviction names after Cinvanti’s approval in late 2017 and it is now one of the top 10 positions in our model portfolio (the stock was added to the portfolio in early 2017 at around $13 per share).
- Horizon Pharma (HZNP) increased peak sales guidance for Krystexxa from $400+ million to more than $750 million after the second sales team expansion and the entry into the nephrology market and increased peak sales guidance for its pipeline drug teprotumumab from $250+ million to more than $750 million. Horizon is down 12% since it was added to the portfolio, but I still consider it a core long-term holding and like the way the company is heading.
I think biotech stocks remain well-positioned to grow in the following years and they remain an area I am most interested in.
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Disclaimer: This article reflects the author's personal opinion and should not be regarded as a buy or sell recommendation or investment advice in any way.
Disclosure: I am/we are long NBIX, HRTX, HZNP, SCMP.