M&A Injects Life Into Biotech Trade
Here's my take on the sector as the State Street SPDR S&P Biotech ETF climbs 5% over the past week.
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A notable uptick in mergers and acquisitions over the past two months has boosted small- and mid-cap biotech stocks. The State Street SPDR S&P Biotech ETF (XBI) , in fact, has climbed nearly 5% last week.
Let's go through some of the action:
Metsera (MTSR) shareholders approved of the company’s sale to Pfizer (PFE) for some $10 billion. This is after Novo Nordisk (NVO) emerged as an unsolicited bidder on the company. Pfizer won the battle, but only having to roughly double its original offer for Metsera in September.
In addition, last week Merck (MRK) gobbled up Cidara Therapeutics, Inc. (CDTX) for just over $9 billion. The offer included just over a 100% buyout premium it should be noted. In addition, Lundbeck (HLBBF) emerged with an unsolicited proposal to acquire Avadel Pharmaceuticals (AVDL) for up to $23 a share. In late October, Avadel agreed to be acquired by Alkermes (ALKS) for $20.00 a share.
Cogent Biosciences, Inc. (COGT) may have recently put itself on the short list of potential mid-cap biotech stocks for the next buyout. Cogent is focused on developing precision therapies for genetically defined diseases. The company’s primary asset is a selective tyrosine kinase inhibitor (TKI) designed to target various diseases including cancers that cause solid tumors. It's called Bezuclastinib.
Bezuclastinib received Breakthrough Therapy designation from the FDA for NonAdvanced Systemic Mastocytosis and Smoldering Systemic Mastocytosis in late October. This was based on positive data from a late-stage trial early in the summer. The company plans to file a marketing application for this indication by the end of 2025. Bezuciastinib could end up being a more effective treatment for this disease than Ayvakit, that was approved in 2023 and should achieve blockbuster status in 2026.
More importantly, or at least for a potentially larger market, Bezuclastinib, as part of a combination therapy, achieved impressive results in a Phase 3 study to treat a form of gastrointestinal cancer. The combination therapy easily bested the current standard of care. Cogent should file an NDA for this indication in the first half of 2026. Cogent Biosciences executed a capital raise following trial results last week, which positions Cogent to remain a standalone entity. That said, don’t be surprised if a large suitor makes the company an offer it can’t refuse.
As long as M&A activity remains elevated, I expect biotech to continue to outperform the overall market. State Street SPDR S&P Biotech ETF (XBI) is up nearly 50% over the past six months, largely on this notable pick up in deal volume. That said, it still trades below its last peak in the summer of 2021. I continue to like Viking Therapeutics (VKTX) as a potential buyout target. The company continues to advance both a subcutaneous and oral version of its primary GLP-1 candidate. Viking also has a MASH asset in mid-stage development and a market capitalization of approximately $4.5 billion.
At the time of publication, Guilfoyle was long ALKS, AVDL, COGT, NVO, PFE, VKTX, XBI.
