Barron's Online Article:
NOVEMBER 15, 2006 6:52 p.m. EST
Genentech's surprise $919 million purchase last week of drug maker Tanox marks not only the first acquisition ever for the biotechnology behemoth, but the eighth time in two months that a big drug maker has snapped up a smaller biotech company.
And all the signs indicate that more deals are coming, a development that could benefit investors who are in the right stocks.
"A takeout should be pure upside, but it's not a good enough reason to buy a stock," says John Chambers, head of life sciences investment at Rodman & Renshaw, a New York-based investment banking firm. "Investors should buy shares of companies that are good bets whether they get taken out or stand alone."
Keen to plump up weak pipelines or enter new markets, large drug companies are once again gobbling up smaller drug makers, taking advantage of the selloff in biotech stocks earlier this year.
And Big Pharma isn't the only shopper.
Under pressure from shareholders to keep up rapid-pace sales growth, biotech behemoths such as Amgen, Genentech and Gilead Sciences are paying sizable takeout premiums, rewarding shareholders of the smaller companies they buy out.
Yet the smartest bets for investors remain companies generating excitement over their pipeline, rather than takeover rumors, such as Keryx Biopharmaceuticals (KERX), Dendreon (DNDN), Nuvelo (NUVO) and CoTherix (CTRX).
"In the end, what moves a stock price is whether a company has drugs moving through its pipeline," says Mark Monane, biotechnology analyst with Needham & Co. |
