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Biotech Acquisition Investing

Written By Brian Hicks

Posted July 15, 2013

The biotech sector is just one of many fields that suffered from the 2008 market crash, but renewed interest is growing from investors and Wall Street.

Because smaller medical companies are at the cutting edge of medical breakthroughs, Big Pharma is looking to join the fray through acquisitions and licensing deals. Larger medical companies have been struggling to compete against generic drugs, which is why Wall Street has been seeing more aggressive acquisitions on the part of big medical companies.

In fact, Samuel Isaly of OrbiMed Advisors believes venture funding for the biotech field is returning to pre-2008 levels.

biotech researchShares of 16 biotech companies that went public this year already surged 48% on average, according to the New York Times. In June of this year, six biotech IPOs were completed.

There is still a great amount of risk inherent in the biotech field – especially when it comes to Food and Drug Administration approval. The types of drugs being developed from lesser known companies are subject to greater scrutiny from the FDA and stand a higher chance of being rejected.

But this hasn’t stopped risk-taking and investment growth, and the FDA is part of the reason why there is such a watchful eye on smaller biotech companies.

Under the Food and Drug Administration Safety and Innovation Act, the FDA will prioritize drugs that will treat life threatening diseases – all in effort to get the latest drugs on the market to suffering people.

From an investment angle, this will alleviate some concerns about FDA rejection, and it will encourage more research into therapies that have the potential to cure some of the most devastating ailments.

Biotech Consolidation

Bio Blue Bird is a gene therapy company that was bought out by international biotech company Nuvilex Inc. (OTCMKTS: NVLX). The purchase will expand Nuvilex’s cell-encapsulation and cell therapy endeavors, along with devoting a significant amount of resources to the treatment of pancreatic cancer, a disease that had been researched by both companies before the acquisition.

Johnson & Johnson (NYSE: JNJ) also recently completed a purchase of Aragon Pharmaceuticals, a San Diego company in the mid-stage testing of prostate cancer.

It may seem as if smaller companies are being gobbled up by the big fish, but these up and coming firms do have choices.

Onyx Pharmaceuticals (NASDAQ: ONXX) recently rejected a $10 billion acquisition from Amgen (NASDAQ: AMGN) because the bid was too low!

And shares for smaller companies are souring without the help of Big Pharma.

Consolidation in the biotech field is not necessarily a dreaded affront to the research field. Small companies will benefit from funding and knowledge of larger firms through joint ventures.

With consolidation, the medical field will get the perfect combination of funding from Big Pharma and the innovative spirit of smaller companies looking to churn out the next best therapy or drug for deadly diseases.

With the backing of the FDA’s accelerated program, getting approval is more likely – if there is enough research and funding power.

Acquisitions and licensing deals could create stronger products, reducing the chances of FDA rejection and having to go back to the drawing board.


Investment Highlights

Investors who placed a stake in a smaller company could ultimately benefit financially from a big payout through an acquisition. Biotech companies that show a small measure of success in early to mid-stage testing are likely to be acquired by large firms.

Companies that have had the most IPO successes are the ones focused on molecular medicine for rare and genetic disorders.

Obviously, cancer and heart-related ailments will be first priority for the FDA, but a great amount of research is being devoted to blood disorders. Aside from direct cures, large companies are also on the prowl for medicines or therapies that will enhance quality of life. Any small company addressing diseases such as sickle cell anemia or blood cancers in the form of leukemia is certainly worth following.

Other hot-button research topics are muscle disorders and lymphoma. Due to the varying levels of leukemia and sickle cell anemia, there are plenty of research and therapeutic angles companies can take in developing a unique form of treatment.

Keep a lookout for any company that is getting media buzz about an upcoming cure or treatment method. More than likely, there are several large companies watching closely, eager to make a deal.


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