A net $1.1 billion poured into healthcare and biotech stocks in the week ended July 6, the second-highest amount this year.
Biotech’s rally hasn’t let up, but without any clear changes in the setup for the sector, it is hard to have confidence that the longer-term bear market in those stocks is really over.
A surge in biotech share prices that began in mid-June is lasting longer than might have been expected. The
SPDR S&P Biotech ETF
(ticker:
XBI
) rose 17.1% in the last two weeks of June, and as of Friday’s close, it was up 15.4% in July.
Since the start of the current upturn on June 13, the XBI is up 33.3%, but that isn’t close to enough to erase the year’s losses. The XBI is still down 24.6% in 2022, and 36.9% over the past 12 months, for a loss of just over 50% off its high in early February of 2021. A bear market is generally defined as a 20% drop from a recent high
Still, the gain has sent investors hurrying to put money back into the sector. In a note on Thursday, Piper Sandler analyst Christopher Rayment said a net $1.1 billion, the second-highest total this year, flowed into funds focused on healthcare and biotech in the week ended July 6.
Aside from the climbing stock prices, however, little has changed for biotech in the past few weeks. The major catalyst for the increase appears to be reports from The Wall Street Journal that
Merck
(MRK) is lining up a $40 billion purchase of the biotech
Seagen
(SGEN), a cancer-focused drugmaker.
“Very little change to [the] underlying sector backdrop,”
Oppenheimer
healthcare equity strategist Jared Holz wrote on Thursday. “This is to say, clinical results and market opportunities are consistent with that of a month ago. Some encouraging, some not.”
Still, the
Seagen
deal could have a big impact on the sector. Holz wrote that investors have been “circling around stocks” with similar revenues to Seagen, including
Alnylam Pharmaceuticals
(ALNY),
BioMarin Pharmaceutical
(BMRN), and others. Alnylam shares are up 21.2% since the start of June, while BioMarin has gained 18.5%.
A $40 billion buyout would give major shareholders in Seagen lots of cash to invest, Holtz said. That money could go into other biotech stocks, creating the possibility of a run-up across the XBI.
Other biotechs with market values over $1 billion that have seen major price increases since the end of May include
Iovance Biotherapeutics
(IOVA), up 85.5%;
Sorrento Therapeutics
(SRNE), up 67.7%; and
Axsome Therapeutics
(AXSM), up 82.4%.
The Journal first reported on a potential acquisition of Seagen by
Merck
on June 17. The newspaper’s latest report on the deal, on Thursday, said that the talks were “advanced,” and that the price under discussion was “above $200 a share.” Seagen shares, which are up 14.8% this year, closed Friday at $177.45.
Last week’s Journal report said the companies hope to announced the deal “on or before” the 28th of July, when Merck is scheduled to announce its quarterly earnings.
Write to Josh Nathan-Kazis at [email protected]
This content was originally published here.
