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Fancy Biotech Stocks on Buyout Buzz? 5 Top Picks

Tirthankar Chakraborty
More deals are expected to be signed in the biotech space, now that the tax reform bill allows companies to repatriate cash pilling up overseas.

Biotech stocks have been moving north of late, largely driven by a spate of deal news. Such deals lend financial stability to businesses and maximize shareholders’ wealth. Further, more deals are expected to be signed in the biotech space, now that the tax reform bill allows companies to repatriate cash pilling up overseas.

Corporate taxes, in the meantime, will be trimmed and price gouging fears have ebbed, which bode well for biotech companies. Banking on such positives, investing in sound biotech stocks seems judicious.

Biotech ETFs Hit Record High on Deal News

The biotech sector scaled record highs on Jan 22 following a couple of multi-dollar deals. After all, a flurry of mergers in any sector is always encouraging. Such mergers give control over the markets, increase value and reduce costs. Needless to say, these also lead to economy of scale through sharing of resources, reduced risks owing to usage of innovative techniques as well as tax advantage.

The SPDR S&P Biotech ETF (XBI) rose 3.8%, the biggest one-day percentage gain since June 2017. The fund registered a gain of 9% so far this year, well above the 5.4% rise of the S&P 500. For quite some time, the fund has remained popular among investors and has seen inflows of $216.2 million on a year-to-date basis. On the other hand, the fund has witnessed a meager outflow of $35.9 million during the same period, per FactSet. Similarly, the iShares Nasdaq Biotechnology ETF (IBB) went up 2.6% to $114.9, the highest since September 2015. The fund also posted its biggest one-day percentage gain since last August.

The rise followed Sanofi’s SNY acquisition of Bioverativ Inc. BIVV for $11.6 billion in order to establish its authority in the specialty care space. The French company insisted on paying $105 in cash for each share purchased. This represents a whopping 64% premium to Bioverativ’s closing price on Jan 19, according to Sanofi.  Even though Sanofi’s shares took a beating, the company expects the deal to boost earnings in 2018 and help it achieve return on invested capital in just about three years. Shares of Bioverativ, in the meantime, jumped 61.9% to close at $103.79. In fact, the company saw its share price hit an intraday high of $104.30 (read more: Sanofi to Acquire Haemophilia Focused Bioverativ, Stock Dips).

Another biotech buyout hogging the limelight is that of Juno Therapeutics, Inc. JUNO and Celgene Corporation CELG. The latter agreed to buy Juno Therapeutics for $9 billion, or $87 a cash. This deal will help Celgene access the Seattle-based firm’s CAR-T cancer drug pipeline. Celgene added that Juno's research capabilities will strengthen the company’s leadership in hematology and add new drivers for growth in the long run. The deal is expected to add 50 cents per share to Celgene’s adjusted earnings this year. Shares of both Celgene and Juno Therapeutics were up 0.3% and 26.8%, respectively (read more: Juno Hits 52-Week High on Celgene's Rumored Buyout Interest).

Mergers to Gain Momentum, Tax Plan to Boost Profits

Courtesy of the new tax overhaul policy, biotech firms are able to repatriate hundreds of billions of dollars stranded overseas and pay only 8% to 15.5% tax, instead of the current 35%. This extra cash can be used for merger and acquisition activities. Biotech firms have around $500 billion in cash to invest in merger and acquisitions, while Jay Rao, a medical doctor and money manager at Balyasny Asset Management had said that “M&A and consolidation are inevitable” in the biotech sector.

President Trump’s business tax plan should also benefit biotech companies. The headline-grabbing corporate tax rate will be lowered from 35% to 21% and will be implemented this year, instead of being delayed until 2019. The lower tax burden is expected to boost profits for large biotech companies (read more: GOP Passes Landmark Tax Bill: Best & Worst for Stocks).

5 Best Biotech Stocks to Buy Now

The biotech sector has come alive, courtesy of a slew of deals. Notably, such deals can further get a boost from the new U.S. tax reform. Inventors have also, lately, started to feel that drug pricing issues won’t be as damaging as feared. Earlier, fears that price control could be put in place had deterred investors from investing in biotech.

Given the positives, it seems prudent to invest in five solid biotech firms. Such stocks essentially have strong fundamentals, thus being great investment options. Also, these companies flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Anthera Pharmaceuticals, Inc. ANTH focuses on the development and commercialization of medicines for patients with unmet medical needs. The biopharmaceutical company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings surged more than 100% over the last 90 days. The company’s expected growth rate for the current year is 76%, higher than the Zacks Medical - Biomedical and Genetics industry’s rally of 6.2%.

Bio-Techne Corporation TECH together with its subsidiaries, develops, manufactures, and sells biotechnology reagents, instruments, and clinical diagnostic controls. The company carries a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings advanced 1.3% over the last 90 days. The company’s expected growth rate for the current year is 8.9%, higher than the industry’s rally of 6.2%.

Exelixis, Inc. EXEL — a Zacks Rank #1 biopharmaceutical company — engages in the discovery, development, and commercialization of new medicines with the potential to enhance care and outcomes for cancer patients. The Zacks Consensus Estimate for its current-year earnings soared 88.5% over the last 90 days. The company’s expected growth rate for the current year is 313%, way higher than the industry’s rally of 6.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Paratek Pharmaceuticals, Inc. PRTK, a clinical stage biopharmaceutical company, focuses on the development and commercialization of therapeutics based on tetracycline chemistry in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings climbed more than 100% over the last 90 days. The company’s expected growth rate for the current year is 39.8%, higher than the industry’s gain of 6.2%.

Bioverativ focuses on the research, discovery, development, and commercialization of therapies for the treatment of hemophilia and other blood disorders. This company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 8.5% over the last 90 days. The company’s expected growth rate for the next quarter is a solid 39.7%.

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Sanofi (SNY) : Free Stock Analysis Report
 
Bio-Techne Corp (TECH) : Free Stock Analysis Report
 
Celgene Corporation (CELG) : Free Stock Analysis Report
 
Exelixis, Inc. (EXEL) : Free Stock Analysis Report
 
Anthera Pharmaceuticals, Inc. (ANTH) : Free Stock Analysis Report
 
Juno Therapeutics, Inc. (JUNO) : Free Stock Analysis Report
 
Paratek Pharmaceuticals, Inc. (PRTK) : Free Stock Analysis Report
 
BIOVERATIV INC (BIVV) : Free Stock Analysis Report
 
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