The biotech sector has had a rough time for the past year.
The NASDAQ Biotech Index (IBB) fell 37% from a high of 401 in July 2015 to a low of 250.
All as presidential candidates have bashed drug price gouging, and fears of an over-inflated bubble knocked many related stocks off their pedestals.
The sector has also been marred by an accounting scandal, the collapse of Pfizer’s $160 billion merger with Allergan, and a plunge in biotech names.
However, don’t count out the sector just yet. The IBB index closed at 254 today, but the next boom could be getting underway.
In fact, our commitment to biotechs helped produce a 1,617% gain in just seven months for subscribers to The Cheap Investor with Celator Pharmaceuticals (CPXX)… and potential gains of 4,851% and 4,093% with ACADIA Pharmaceuticals (ACAD).
As more than 10,000 baby boomers retire by the day for the next 12 years, it’ll drive demand for new drugs to treat a variety of ailments. Newly insured Americans are demanding newer treatments, and better care.
And, after $605 billion worth of mergers and acquisitions in the sector just in 2015, big pharmaceutical names are still on the hunt for new targets in an effort to strengthen aging pipelines, and find innovation to help treat an aging population.
Many are seeking growth, too, as the broader economy slows.
Others are seeking new methods to treat cancer with immunotherapy, as well as neurodegenerative diseases, like Parkinson and Alzheimer’s – both of which could become prevalent as the global population ages.
And many more are taking advantage of low financing rates to buy attractive companies trading at less than fair valuation.
In fact, ACADIA Pharmaceuticals (ACAD), which just had its multi-billion dollar Parkinson’s disease Psychosis drug approved by the FDA, could see an offer.
Pfizer is likely to come back to the M&A table after failing to close a $119 billion deal to buy AstraZeneca, and a $160 billion deal to buy Allergan, as well.
The Biotech Hot Spot
Some of the hottest M&A activity can – and will – be found in immunotherapy.
As we’ve mentioned in previous articles, immunotherapy is a major force in cancer treatments that uses a person’s own immune system to fight cancer.
Although this therapy has been around for decades, it’s just now being viewed as an essential weapon in the fight. Rather than targeting specific cancer cells, it disables cancer’s defenses so a patient’s immune system can find it and destroy it.
Conventional therapies and other drugs may often have a substantial effect in shrinking cancer, but the effects can be short-lived. Immunotherapy treatments last longer because the immune system is being reset with a memory of exactly how to fight back.
With an estimated 1.68 million new cases of cancer likely to be diagnosed and more than 595,000 likely deaths this year, it’s a much-needed therapy. National expenditures in the U.S. totaled $125 billion in 2010, and they could reach $156 billion by 2020. Experts project that immunotherapy could generate $35 billion in sales and help treat up to 60% of cancers over the next 10 years.
Pfizer for example wants to be an immunotherapy powerhouse. It just recently agreed to pay $5.2 billion for Anacor Pharmaceuticals in an effort to help build its immunotherapy pipeline. It’s even interested in buying cancer drug maker, Medivation, which has a late-stage immunotherapy drug expected to reach $5.7 billion in peak sales.
These are exciting times for the biotech sector.
With the IBB near its low, we believe there are some great long-term opportunities in smaller biotech names. In fact, I will recommend a new biotech name in the July 2016 issue of The Cheap Investor, which comes out this weekend.