This Biotech Could Become a ‘Sleeper’ Hit
Let’s look at this rising biopharma name working on several neurological condition treatments.
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The markets continued to advance last week around hopes that the Strait of Hormuz will fully reopen soon. There were some considerable hiccups on that front over the weekend as fighting continues in Lebanon. I am hopeful that progress can be sustained over the coming weeks on permanently resolving the blockage of this global choke point, but investors probably will have to get used to a two steps forward, one step back cadence. Also, Space Exploration Technologies (SPCX) fell 15% off its post IPO peak last week, but the stock is still fifty bucks a share above its offering price on June 12. I have my doubts that this will hold through the summer.
The biotech sector posted a good performance last week with the State Street SPDR S&P Biotech ETF (XBI) delivering roughly 4% gains. The sector should get a nice boost early this week as Merger Monday looks like it will live up to its name today. This is because AbbVie (ABBV) has agreed to purchase Apogee Therapeutics (APGE). This will be an all-cash deal with a solid buyout premium for nearly $11 billion.
There is nothing that gets the animal spirits moving more in this industry than a pickup in M&A volume. I have a small stake in both the acquirer and target in this transaction, and I expect quite a few small and mid-cap biotech/biopharma names will move on speculation in today’s trading session. I rarely chase these types of rallies as they tend to fade quickly if new deals do not emerge.
Nor do I buy a new biotech name primarily on hopes that it will end being purchased. Albeit it is always nice when it happens. In today’s column, I will highlight a name I like as standalone entity that I could see becoming a Merger Monday item of its own one day — either as a target or an acquirer.
Alkermes plc (ALKS) would be a similarly sized acquisition to Apogee. The company is making recent progress on several fronts. The company completed the recent purchase of Avadel Pharmaceuticals, which is a name I owned and highlighted in these pages over the years. First-quarter results reported in early May impressively beat both top and bottom-line expectations as revenues rose just over 28% on a year-over-year basis to nearly $400 million.
Dublin-based Alkermes has a product portfolio that covered drugs that treat, opioid dependence, narcolepsy schizophrenia, bipolar I disorder and alcohol dependence. It also has late-stage pipeline assets in evaluation for fatigue associated with multiple sclerosis and Parkinson’s disease, ADHD, and idiopathic hypersomnia. The company has a manufacturing facility in Ohio and R&D offices in Massachusetts. Alkermes should hit consistent profitability in fiscal 2027 and see earnings surge annually from there. The company had unadjusted earnings per share of 13 cents in Q1.
Based on late-stage trial results in May, the company should submit a supplemental new drug application for its Lumryz to treat idiopathic hypersomnia before the year’s end. Lumryz came with the Avadel acquisition. Last week, the company disclosed positive second-phase clinical study results for a candidate that is targeting narcolepsy type 2. Finally, several analyst firms boosted their price targets on the stock following Q1 numbers including RBC Capital and UBS.
At the time of publication, Jensen was long ABBV, ALKS, APGE and XBI
