Biotech Stocks: Time To Pounce On These Biotech Takeover Targets?

| April 30, 2012 | 0 Comments

Back in February, I wrote about the recent biotech buyout binge in my article, Takeover Mania Sweeping Biotech Sector.

A number of lucrative takeovers in the biotech industry had sparked a stunning rally in biotech stocks.  Investors were snapping up biotech shares faster than NBA player, Metta World Peace picks up game suspensions.  Each one hoping to get their hands on the next big biotech takeover target.

And for good reason… investors in the takeover targets were making money hand over fist.

For example, Inhibitex (INHX) shares soared 140% on news it was being acquired by Bristol Myers Squibb (BMY) for $2.5 billion.  And Micromet (MITI) jumped 32% after Amgen (AMGN) announced it would buy the biotech for $1.2 billion.

But the point of the article wasn’t to tell you that stocks of takeover targets soar in value.  That’s common knowledge for most investors.  The point was to highlight a strategy for cashing in on the biotech takeover mania.

Simply stated, the strategy is to invest in stocks of biotechs developing similar drugs to those being acquired.

To illustrate my point, I told you about the sharp gains in Idenix Pharmaceuticals (IDIX) and Achillion Pharmaceuticals (ACHN).  Like INHX, both of these biotechs are developing drugs to treat the Hepatitis C Virus (HCV).  And like INHX, both stocks spiked following the news of BMY’s offer to acquire INHX.

IDIX more than doubled in value, gaining an impressive 116% in just eight trading days.  And ACHN investors found themselves 64% richer after the news.

No question about it, investors who bought shares of IDIX and ACHN on news of BMY’s takeover of INHX made some hefty short-term profits.  That is… if they were smart enough to take their profits off the table.

You see, shares of both ACHN and IDIX have dropped sharply in the weeks following their monster rallies.
After hitting a 52-week high of $12.95 in January, ACHN has fallen off a cliff.  The shares have plunged by a whopping 47% to a recent price of $6.90.

And IDIX hasn’t fared much better…

n January, the biotech set a new 52-week high of $15.25 per share.  But since then, the stock has dropped by 44% to a recent price of $8.55.

Here’s the thing…

The steep downhill slides in ACHN and IDIX have sparked a flurry of emails from Dynamic Wealth Report readers.  And they’re all asking the same question… is either stock a good buy at these much lower prices?

Let’s take a closer look at each stock individually.

In my opinion, ACHN is not a good buy right now.

The company recently released results from an important phase 2a clinical trial of their HCV drug. And the results raised serious concerns.

The data showed ACHN’s drug may have some safety issues as some patients experienced temporarily elevated levels of liver enzymes.  What’s more, the data indicate the drug may not be a viable treatment for patients with HCV genotypes 2 or 3.

Safety concerns and a shrinking potential market are never good for a biotech’s shares.

On the other hand, IDIX looks very attractive at these cheaper prices.

Recently released data from an ongoing phase 2b trial of the company’s HCV drug were very encouraging.  The virus was eradicated in most patients while they were taking the drug.  And the drug was well tolerated with no serious adverse events reported.

Nothing sends a biotech surging like positive trial results.

And with further results expected in the second half of 2012, IDIX could be poised for another big upward move.

Bottom line…

Stay away from ACHN for the time being.  Their drug could have some serious problems.  However, IDIX looks like a good buy at these levels. Investors looking for a speculative biotech trade may want to take a closer look at IDIX.

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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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