INO Health & Biotech Stock Guide
Preview Issue #11 - February 28, 2017
BIOTECH, HEALTH & PHARMA NEWS
Johnson & Johnson and McKesson make a big splash in merger and acquisition activity, courts block Humana/Aetna merger and Allergan and Endo sued by FTC. The healthcare cohort has witnessed several key events in the face of a political backdrop that’s put the entire industry on edge. The overall healthcare umbrella has become sensitive to any tweet from President Trump as he vows to bring down drug prices. As he pursues his crusade against drug pricing, much of these threats may have already been priced-in as seen in many healthcare-related stocks (i.e. McKesson, CVS, ABBV and AGN) that have seen sharp and sustained sell-offs that coincide with the 2017 presidential campaign cycle.
The M&A activity has heated up as of late with Johnson & Johnson and McKesson making a big splash with acquisitions of Actelion and CoverMyMeds, respectively. Johnson & Johnson made an all-cash offer of $30 billion to acquire Swiss drug maker Actelion. This acquisition was approved unanimously by the boards of both companies and valuing the transaction at $280 per share, payable in U.S. dollars. This acquisition will be financed by cash held outside the U.S. while Actelion shares spiked 20% on the news. The drug discovery operations of Actelion will be spun off as a standalone company, termed R&D NewCo. Johnson & Johnson will own a 16% stake in the newly formed company with rights to an additional 16% ownership equity via a convertible note. McKesson reached an agreement to acquire privately-held healthcare IT company CoverMyMeds for $1.1 billion in an effort to strengthen its technology offerings to pharmaceutical manufactures, clinicians and payers. As campaign promises of repatriation of overseas assets and decreases in corporate taxes come to fruition, this could serve as a catalyst for M&A. These events taken in conjunction with chronically depressed valuations of many companies may accelerate M&A within the sector.
Recently, a court ruled against the proposed Humana/Aetna merger on antitrust grounds. This merger blockage results in a $1 billion breakup fee that Aetna will owe Humana. Judge Bates concluded that the federal government demonstrated that the merger would threaten competition within the space and result in higher prices while reducing services for seniors. Meanwhile, Allergan and Endo International have been sued by the FTC in federal court. The lawsuit alleges that an agreement between the two companies obstructed generic drug competition. It’s noteworthy to point out that Allergan sold its generic business to Teva in 2016 for $40 billion. The governmental stance on M&A activity may loosen up with the new administration while its pro-business agenda may not seek similar lawsuits in either situation moving forward. Potential repatriation of overseas assets, decreases in corporate taxes and the loosening of M&A pushback may bode well for the industry in the intermediate term.
FEATURED STOCK / ETF - Johnson & Johnson (NYSE_JNJ)
ABOUT THE EDITOR - Noah Kiedrowski
I am biotechnology professional with a diverse scientific background and detailed knowledge in many therapeutic areas such as monoclonal antibodies, immunotherapies and antivirals. I have a personal interest in finance, investing, trading and global markets. My analysis is focused on stocks and exchange traded funds (ETFs) while exploring niche opportunities such as derivative trading via options. This newsletter is intended to provide investors with the latest developments and trends regarding the overall healthcare sector with a biotechnology emphasis. I'll be highlighting sector trends, merger and acquisition activity, noteworthy current events, political developments and drug approvals. My focus will be centered on well-established mid-cap and large-cap companies as well as utilizing appropriate ETFs as proxies for sector trends. This is a bi-monthly newsletter service that reflects my own opinions and analyses. This newsletter is not intended to be a recommendation to buy or sell any stock or ETF mentioned. I am not a professional financial advisor or tax professional, rather an individual investor who analyzes investment strategies and disseminates my analyses. I encourage all investors to conduct their own research and due diligence prior to investing.
This bi-monthly newsletter service reflects the opinions and analyses of INO Contributor, Noah Kiedrowski. This newsletter is not intended to be a recommendation to buy or sell any stock or ETF mentioned. Kiedrowski is not a professional financial advisor or tax professional, rather an individual investor who analyzes investment strategies and disseminates his own analyses. All traders and investors should conduct their own research and due diligence prior to investing.