Biotechnology Stocks: Biotechs Poised For Big Gains In 2012!
The markets are kicking off the new year with a bang.
Each of the major market indices finished the first week of trading in the black. The Dow Industrials gained 1.2%, the S&P 500 closed 1.6% higher, and the Nasdaq increased by an impressive 2.7%.
Despite ongoing global macro-economic challenges, investors are demonstrating a surprisingly bullish outlook.
What’s even more surprising is investors’ willingness to venture into riskier sectors of the market. Sectors that dropped the most last year – Basic Materials, Financials, and Industrials – saw some of the heaviest buying to start the year.
And one industry in particular is looking exceptionally strong… Biotechs!
After finishing 2011 with a gain of 6.9%, biotechs carried the positive momentum into the new year. The industry closed out the first week of trading with a solid increase of 2.9%.
What’s driving the bullish trend in biotechs?
Simple… the opportunity for a slew of lucrative mergers and acquisitions.
You see, a good number of big pharmaceutical companies are at a critical juncture in their long-term growth trends. Drug makers like Bristol- Myers Squibb (BMY), AstraZenec (AZN), Merck (MRK), and GlaxoSmithKline (GSK) are about to lose patent protection for drugs that contribute heavily to their annual revenues.
No question about it, these companies have big holes in their product lines to fill. And time is definitely of the essence.
What can they do?
In the past, big pharmaceutical makers have had strong pipelines of new drugs in development. As older drugs approached the end of their patent protection cycles, they were replaced by one or more new potential blockbuster drugs.
But this time around, the cupboard is surprisingly bare.
These companies will have to find another way to make up for the billions of dollars a year in lost revenue.
The most obvious solution is also the most expedient. They can simply buy smaller biotech companies with strong pipelines of potential blockbuster drugs in development.
It makes sense…
The cost of buying a small biotech company with an arsenal of drugs in development is often less than the cost of developing a single new drug. And the company also gets the biotech’s research and development team to boot.
If you think this sounds far-fetched, guess again. It’s already happening!
Case in point… Bristol Myers Squibb’s announcement on Saturday they’re buying Inhibitex (INHX) for about $2.5 billion in cash.
BMY has agreed to pony up $25 a share to get their hands on INHX’s cutting edge Hepatitis C treatment. That’s a stunning 165% premium over Friday’s closing price.
Now that’s a huge a one day gain by any measure. But just think if you had purchased these shares back in October 2011. You could have bought all you wanted for as little as $2.29 per share.
If you had, you’d be sitting on a whopping 940% gain right now!
This acquisition could very well be the first of many such acquisitions by big drug makers this year.
Do your research to find out which biotechs have potential blockbuster drugs closest to gaining FDA approval. Invest a small amount into each one and wait for the potential lottery ticket to pay off. You just might hit the jackpot like INHX investors.
Category: Stocks
