Biotech Stocks Were Tanking. The Cure? M&A.

That makes sense. Many biotechs rely on borrowed capital to conduct research. So, when the Federal Reserve raises interest rates, money gets more expensive and cash-burning biotechs get crushed. It’s no coincidence the turnaround has come just as the Fed considers rate cuts instead of hikes.

There’s another factor in play: M&A. This past Tuesday,
Bristol Myers Squibb
agreed to buy
RayzeBio
for $4.1 billion, while
AstraZeneca
said it would acquire
Gracell Biotechnologies
for $1.2 billion. Nine of the 20 biotech acquisitions worth $1 billion or more this year have been announced since early October, according to BioPharma Dive.

More gains could be coming, says Fairlead Strategies’ Katie Stockton. The SPDR Biotech ETF relative to the S&P 500 has risen above its 200-day moving average, “supporting a bigger reversal for biotech stocks in the months ahead,” she writes. As long as the Fed continues to cooperate.

Write to Ben Levisohn at [email protected]

Last Week

Markets

A short and quiet week of year-end trading saw a Santa Claus rally. Stocks extended an eight-week win streak, with the
Dow Jones Industrial Average
gaining 0.8% (to a new high); the
S&P 500,
0.3% (just missing a high); and the
Nasdaq Composite,
0.1%. For the year, the Dow rose 13.7%, the S&P 24.2%, and the Nasdaq 43.4%.
Bitcoin
ended 2023 up over 158%, and gold rose 13%. Rates on 30-year fixed mortgages peaked in October at 8.45%, ending 2023 at 6.6%. Quite a year.

Companies

AP Moller-Maersk
began to send ships through the Red Sea, protected by a U.S.-led coalition.
Toyota Motor
saw global production hit a high and is likely to be the world’s largest vehicle maker for the fourth straight year.
Apple
resumed selling its latest smartwatches as an appeals court took up the patent case. The New York Times sued OpenAI and
Microsoft
for copyright infringement.
JPMorgan Chase
earned nearly 20% of all U.S. bank profits through September.

Deals

Days after acquiring
Karuna Therapeutics,

Bristol Myers Squibb
agreed to pay $4.1 billion for radiopharmaceutical developer
RayzeBio,
a more than a 100% premium…
AstraZeneca,
said it would buy China cancer drug maker
Gracell Biotechnologies
for up to $1.2 billion…The founder of chemical conglomerate Ineos, James Ratcliffe, agreed to buy the Glazer family’s 25% of
Manchester United
Class B shares and launch a tender offer for 25% of Class A shares. The deal values the soccer club at $5.4 billion.

Write to Robert Teitelman at [email protected]

Next Week

Monday 1/1

Equity and fixed-income markets are closed in observance of New Year’s Day.

Wednesday 1/3

The Federal Open Market Committee releases the minutes from its mid-December monetary-policy meeting. At that meeting, the FOMC left the federal-funds rate unchanged at 5.25% to 5.50%. Fed Chair Jerome Powell’s postmeeting news conference was perceived as dovish by Wall Street and that led to a furious cross-asset rally to close out 2023. Traders are pricing in six 25-basis-point cuts to the federal-funds rate by the end of 2024, while the FOMC has penciled in only three.

The Bureau of Labor Statistics releases the Job Openings and Labor Turnover Survey. Consensus estimate is for 8.75 million job openings on the last business day of November, slightly more than in October. Job openings are at their lowest level in 2½ years.

Friday 1/5

The BLS releases the jobs report for December. Economists forecast an increase of 155,000 in nonfarm payrolls following a 199,000 gain in November. The unemployment rate is expected to edge up to 3.8% from a historically low 3.7%.

Email: [email protected]