News of Amgen’s acquisition of Horizon has boosted the latter’s share price at the end of a slow year for biotechnology M&A activity. Grand View Research says the global biotechnology industry will be worth $3.9trn by 2030, boosted by government policies and rising demand.
- Biotechnology industry expected to grow to $3.9trn by 2030
- Amgen’s acquisition of Horizon could spark M&A activity
- Invesco Dynamic BioTech & Genome ETF gives investors exposure to Amgen
The share prices of biotechnology companies such as Amgen [AMGN], Horizon Therapeutics [HZNP] and Johnson & Johnson [JNJ] have risen in recent years amid a biotechnology boom in part sparked by the rush to find vaccines and treatments for Covid-19. For Outlook Therapeutics [OTLK], however, there have been losses.
According to a report by McKinsey, between January 2020 and January 2021, the average share price for European and US biotech stocks rose at more than twice the rate of the S&P 500.
The biotechnology industry could be worth $3.9trn by 2030, Grand View Research said in a report published in June, with favourable government policies and rising demand fuelling the growth of the sector.
The global biotechnology market could grow at a compound annual growth rate (CAGR) of 13.9% between 2022 and 2030, the research found, as governments modernise regulatory frameworks and genetic research receives more funding.
The positive ripples of this have been reflected in the share prices of many biotechnology companies, with Amgen gaining 21.4% year-to-date and Horizon a more modest 4.9%. Johnson & Johnson has gained a steady 5.4% year-to-date, but the share price for Outlook Therapeutics has dropped 35.3% over the same period.
Horizon rallies on Amgen acquisition
Last week it was announced that Amgen had agreed to acquire Horizon in a deal worth $28.3bn, including debt. Horizon had also been in “highly preliminary” discussions with Johnson & Johnson and Sanofi prior to its agreement with Amgen.
The purchase exposes Amgen to a new pipeline of drugs for rare autoimmune and inflammatory diseases, including Horizon’s treatment for thyroid eye disease, Tepezza.
Robert Bradway, chairman and CEO, said the acquisition would allow Amgen to tap into overseas opportunities, including those in China. Following the announcement, shares in Horizon soared 15%, while Amgen shares fell by approximately 1%.
While some analysts believe the deal could rejuvenate M&A activity in the sector after a fall-off in 2022, some deem the acquisition to be counterproductive. “I struggle to see upside for Amgen given the valuation being paid”, Evercore analyst Umer Raffat said.
Recovery in the last half of the year
Elsewhere, Outlook Therapeutics is set to release its next set of earnings on 23 December. The business has struggled this year as soaring inflation has dented investor confidence, with analysts predicting a loss of 7 cents per share for the fourth quarter.
Johnson & Johnson has also maintained steady biotechnology growth through its pharmaceutical arm Janssen. Most recently, it submitted a biologics license application with the FDA for talquetamab, a myeloma treatment.
From its 52-week low of $155.72 on 24 February, the Johnson & Johnson share price made a strong recovery, closing at $175.67 on Monday. Analysts at Citi recently increased their target price for the stock to $205 from $198, anticipating that the headwinds the business is currently facing should ease in the second half of next year.
Funds in focus: Invesco Dynamic BioTech & Genome ETF
The Invesco Dynamic BioTech & Genome ETF [PBE] offers investors exposure to the biotech industry and its growth potential. As of 19 December, the ETF held a 4.68% weighting of Amgen, with 31 holdings in total.
Driven largely by its two top holdings, Biomarin Pharmaceutical [BMRN] and Incyte Corporation [INCY], rising 20.3% and 10.4% year to date, respectively, the Invesco Dynamic BioTech & Genome ETF is up 18.6% in the last six months. Despite this, the fund is down 9.8% year-to-date through 20 December.
Alternatively, investors looking to gain exposure to biotech could opt for the First Trust NYSE Arca Biotechnology Index Fund [FBT]. As of 19 December, the fund had 30 holdings with $1.5bn in total net assets, including a 3.16% weighting to Amgen.
Despite being down 4.5% year-to-date, the ETF has jumped 20.9% in the last six months, fuelled by a strong performance by its top holdings Exact Sciences Corp [EXAS] and Moderna [MRNA], up 38% and 57.1% across the last six months, respectively.
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