FirstWord Lists: Biotech's recovery kings

The biotech sector's steep sell-off in March and April – which was initially triggered by investor concerns pertaining to the sustainability of US drug pricing – is now something of a distant memory. Last week, the Nasdaq biotech index (NBI) swelled to a new all-time high, marking a full recovery over the past three months, with August's performance particularly impressive.

The icing on the cake was the decision by Roche – recognised as one of pharma's most conservative M&A players – to sanction the $8.3-billion acquisition of InterMune, a deal which analysts suggest could spur another wave of biotech-themed M&A, with virtually every player in the sector seemingly a potential target despite premium valuations.

So which companies have gained the most and helped to drive the biotech recovery since mid-April?

With the four large 'mature' biotech players – Amgen, Biogen Idec, Celgene and Gilead Sciences – accounting for around one third of the NBI's weighting, these stocks have played a notable role in the August recovery.

Each of these stocks have either "surged past or are approaching record closing highs set earlier this year," noted Bloomberg Industries analyst Asthika Goonewardene, who adds that strong underlying growth fundamentals and a pull-back in short interest has fuelled momentum. Supporting the bullish view that the sector is not in a bubble, both current and forward P/E ratios remain below historic highs, suggesting that current valuations may have sufficient support.

Extending focus to mature and profitable players – which account for approximately half of the NBI – these companies are expected to see their revenues double to around $100 billion by 2018, adds Goonewardene.

Smaller companies have also played their part in the sector's recovery, and have seen share price growth driven in particular by their candidature as potential acquisition targets, given the continued requirement for many large companies to bolster pipelines via in-licensing or takeout opportunities.

Roche's very public vocalisation that biotech assets remain overpriced – a sentiment echoed by a number of its Big Pharma peers – has made its subsequent acquisition of InterMune all the more encouraging for those with a vested interest in biotech M&A.

Merck & Co.'s move to acquire Idenix Pharmaceuticals for $3.9 billion in June has also invigorated the biotech M&A narrative and has positioned Achillion Pharmaceuticals – the strongest performing biotech stock over the past three months (see table, below) – in the spotlight as another potential takeout candidate, as analysts further debate the evolution of the hepatitis C market over the next decade – see Spotlight On: Two's a party, three's a war? Expectations begin to crystalise on if and when a price war could emerge in HCV space.

Puma Biotechnology – which has seen its share price rocket by around 234 percent over the past three months due to better-than-expected data for its breast cancer treatment neratinib – was recently identified by Citi analysts as likely being acquired by mid-2015 at the latest, while a recent poll conducted by International Strategy and Investment analyst Mark Schoenebaum highlighted BioMarin Pharmaceutical, Intercept Pharmaceuticals, Medivation and Vertex Pharmaceuticals as other likely acquisition candidates.

See also Physician Views Poll Results – Oncologists bullish on opportunity for Puma Biotechnology's neratinib in HER2-positive breast cancer extended-adjuvant setting.

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