Biotech poised for H2 recovery as stocks rise amid quarterly results, M&A activity (GILD)

Life Science Investments

Bill Oxford

The biotech industry has seen better half-year periods for the first half in the past, but the situation seems to have changed from July.

From January 1st to June 20th, 2022, the SPDR S&P Biotech ETF (XBI) and iShares Nasdaq Biotechnology ETF (IBB) had returns of, -35% and -23%, respectively. However, from July 1st to August 5th, the returns were respectively 10% and 6%.

Part of the reason for the rebound was strong quarterly results released in July and early August for many of the top biotechs. For example Amgen (NASDAQ: AMGN) beat both at the top and bottom, Gilead Sciences (NASDAQ: GILD) also posted Beats, raising its full-year guidance, and Moderna (NASDAQ:MRNA) not only had Beats, but also announced a $3 billion share buyback.

The biotechs with the largest returns in the first half were Lantheus Holdings (LNTH) 129%Veru (VERU) 92%and Vertex Pharmaceuticals (VRTX) 28%.

Although many biotech companies are still in the red so far in 2022, that could change as management at many companies issued an upbeat outlook for the remainder of the year, including some upgrades to forecasts.

While jitters related to the COVID-19 pandemic remain, they appear to be of lesser concern. And for some companies — notably Moderna (MRNA), BioNTech (BNTX), and Novavax (NVAX) — COVID will be a boon to business. Incidentally, these three companies were among the worst biotech performers in the first half of 2022 with returns of -44%, -42% and -64%.

Another recent public health issue – monkeypox – is likely to boost other players’ fortunes. These include Bavarian Nordic (OTCPK:BVNKF) (OTCPK:BVNRY), maker of the monkeypox vaccine Jynneos, and SIGA Technologies (SIGA), which makes the smallpox antiviral Tpoxx (Tecovirimat).

Although M&A activity in the industry was modest in the first half of the year, it looks set to pick up again, a prospect that could boost some companies’ fortunes. The biggest deal back then was the announcement of Pfizers (NYSE:PFE) Acquisition of Biohaven Pharmaceutical (BHVN) for ~$12bn.

A recent PwC report found that as of June 10, its $61.7 billion in year-to-date life sciences and pharma deals were down 57% from the same period in 2021.

However, PwC sees more dealmaking in the back half of the year. “Increased control by the [FTC] around bigger deals could mean 2022 will be a year of bolt-on deals in the $5 billion to $15 billion range, as drug companies score multiple goals to offset revenue driven by generic drugs for the rest of the decade competition have been lost.

The services company added that big pharma companies are likely to consider early-stage companies to fill pipeline gaps that could start in 2024. Strategies to unlock value quickly.”

Already in the second half of the year, there were a handful of big deals, including some from big biotechs. On Thursday, Amgen (AMGN) announced a $3.7 billion deal to buy autoimmune disease biotech drug ChemoCentryx (CCXI). On the same day, Gilead (GILD) announced it would buy privately held biotech company MiroBio for $405 million.

To bolster its presence in diabetes, Vertex announced in July that it would acquire privately held biotech ViaCyte for $320 million.

The biggest second-half deal yet could be imminent. On August 5th The Wall Street Journal reported that Pfizer (PFE) is in late-night talks to purchase Global Blood Therapeutics (GBT) for ~$5B. Biotech poised for H2 recovery as stocks rise amid quarterly results, M&A activity (GILD)

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