Biotech Stocks: Takeover Mania Sweeping Biotech Sector

| February 6, 2012 | 0 Comments

Biotech stocks are off to a fast start in 2012.  After gaining just 6.9% last year, the cutting-edge industry is up 17.7% year-to-date.  That’s eye-popping performance no matter how you slice it.

To put this in perspective, you need only look at the year-to-date performance of the major market indices.

The Dow Jones Industrials are up just 5.3% so far this year.  The S&P 500 is slightly better with gains of 6.9%.  And the Nasdaq Composite is 11.5% higher.

No question about it, biotech stocks are on fire!

Why are investors going gaga over biotech?

The answer is fairly simple.  The industry is benefiting from a number of highly publicized and lucrative takeovers.  According to MarketWatch, a whopping $6.2 billion in acquisitions were announced in the first month of 2012.

Here are a few of the larger, recently announced takeovers…

Bristol-Myers Squibb (BMY) is acquiring hepatitis C drug developer Inhibitex (INHX) for $2.5 billion.  Amgen (AMGN) has agreed to purchase Micromet (MITI) and their new class of cancer drug candidates for $1.2 billion.  And Celgene (CELG) is acquiring privately owned Avila Therapeutics in a deal valued up to $925 million.

As you might imagine, these acquisitions have generated huge profits for investors in the target companies.

For example, INHX soared 140% on news of their acquisition by BMY.

And while MITI increased by just 32% on their news, the stock is up 163% from the early September low.

But it’s not just the target companies that are soaring.  Several other biotech stocks are moving higher on the acquisition news as well.

You see, biotech investors follow a familiar pattern when takeovers are announced.  They tend to pile into stocks of other biotechs developing drugs similar to those of the acquisition target.

Take INHX for example…

They’re developing a next generation drug for hepatitis C virus (HCV). News of INHX’s acquisition drew attention to the huge market opportunity in this disease area.  Several analysts project the HCV market will hit a whopping $20 billion by 2020.

As a result, investors have been snapping up shares of other biotechs who are also developing drugs for HCV.  Idenix Pharmaceuticals (IDIX) surged from $7.05 to a recent high of $15.25 a share.  That was a stellar 116% gain in just eight trading days.

Not too shabby!

Another example is Achillion Pharmaceuticals (ACHN).  This biotech is also developing a next generation treatment for HCV.  And until recently, it was a primary holding in my Biotech Supertrader service.

These shares soared 64% in the days following the news of BMY’s acquisition of INHX.

That’s a terrific short-term gain to be sure.

But my subscribers did even better…

You see, I recommended buying ACHN back in early August when the stock was trading at $5.51 per share.  After the stock popped on the INHX acquisition news, I told my subscribers to sell half their shares for a sensational 116% profit.

And then a few days later, I recommended selling the remaining shares to lock in gains of 93%.  That works out to an average return of 105% on the whole position.

Not a bad profit in just five months’ time!

No question about it, you can make big money trading the biotech takeover mania.

All you need to do is keep an eye out for news of biotech acquisitions. When one is announced, buy shares of other biotechs who are developing similar drugs.  Before you know it, you’ll be raking in the profits.

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Category: Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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