One stat that might explain biotech’s surge
This year — not to mention this week — has been big for biotech buyouts, with a roughly 30% jump in acquisitions compared with the last five years on average. But beyond the raw number of deals, the most encouraging stat for investors might be related to price.
According to an analysis from EvercoreISI, in 2019, the average acquirer paid a 114% premium over the target company’s stock price. Over the previous five years, that average was just 67%. That means, essentially, that the check-writers of major pharma think the market is undervaluing biotech, which is encouraging if you’re a person who invests in biotech.
Whether that trend will continue is a matter of debate. It’s possible that the recent spate of acquisitions — and the spike in average premiums — was a result of biotech’s mid-year slump in valuations. Acquirers saw a chance to buy and didn’t mind paying for the privilege. But going into 2020, biotech is at an 18-month high, meaning it might not look like such a bargain to would-be buyers.
According to an analysis from EvercoreISI, in 2019, the average acquirer paid a 114% premium over the target company’s stock price. Over the previous five years, that average was just 67%. That means, essentially, that the check-writers of major pharma think the market is undervaluing biotech, which is encouraging if you’re a person who invests in biotech.
Whether that trend will continue is a matter of debate. It’s possible that the recent spate of acquisitions — and the spike in average premiums — was a result of biotech’s mid-year slump in valuations. Acquirers saw a chance to buy and didn’t mind paying for the privilege. But going into 2020, biotech is at an 18-month high, meaning it might not look like such a bargain to would-be buyers.
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