The health-care sector may have been a major crutch for the broad-based S&P 500 during the past two months, but today it was its greatest savior, with merger and acquisition activity galore driving the index to the upside.
Also helping out was the fact that housing data wasn't a death knell for the markets today. Existing home sales for March dipped fractionally to an annual rate of 4.59 million units. This is down from an annual rate of 4.6 million homes in February, but right in line with economists' expectations. With 30-year mortgage rates still at attractive levels despite $30 billion having been reduced from QE3, there is clear optimism from investors that the complete removal of QE3 won't shoot lending rates higher and cripple homebuilders.
The big news, though, was the big M&A activity within the big pharma sector. Novartis (NVS -0.13%) was a big component to that with it announcing the purchase of GlaxoSmithKline's oncology drug division for up to $16 billion, as well as the disposition of its animal health division to Eli Lilly for $5.4 billion, and the sale of its vaccine division to Glaxo for just more than $7 billion. M&A activity demonstrates big pharma's willingness to take on risk and stay innovative, which is generally viewed as positive news by investors.
By day's end, the S&P 500 had risen for its sixth-consecutive session, gaining 7.66 points (0.41%), to close at 1,879.55.
Source: GW Pharmaceuticals.
Topping the charts and "flying high" per se is GW Pharmaceuticals (GWPH), a biopharmaceutical company that discovers cannabinoid compounds from cannabis plants and utilizes them to alter biologic pathways in patients. Shares gained 32.1% on the day after Morgan Stanley initiated coverage on the company with an "overweight" rating and $103 price target, implying upside of more than 100% based on yesterday's closing price. In addition, CNBC talk-show host Jim Cramer also vouched his support for the company as the top choice to play the marijuana craze. While I do agree that GW Pharmaceuticals is more than just a play on science as it does have Sativex approved in a number of EU countries, the drug itself hasn't sold well since coming to market, and it remains to be seen whether or not the company can have any success in the U.S. Until I see a dramatic reduction in losses, I would suggest keeping your distance.
Pulling up a close second was clinical-stage biopharmaceutical company Revance Therapeutics (RVNC -1.31%), which advanced 25.8% after reporting positive results from its phase 1/2 study involving RT002 as a treatment for the reduction of frown lines. According to the results from its study, 94% of the 48 patients with moderate to severe frown lines prior to treatment had either "none" or "mild" frown lines at maximum frown four weeks after treatment. Furthermore, the therapy showed an impressive duration of treatment at 29.4 weeks, or a little more than seven months, in the fourth patient cohort. While I do believe that Revance is parked in a hotbed of growth in terms of aesthetic pharmacologic products, I'm a bit worried by its current $600 million-plus valuation considering it has no FDA-approved therapies. Like GW Pharmaceuticals, I would consider taking a step back here and waiting for more concrete results.
Finally, shares of global pharmaceutical and medical device giant Allergan (NYSE: AGN) soared 15.3% after it received an unsolicited buyout offer from rival Valeant Pharmaceuticals (BHC -0.92%). Valeant's offer is for 0.83 shares of Valeant stock and $48.30 in cash for each share of Allergan, valuing Allergan at close to $161 per share. Although Allergan suggested that shareholders do nothing at the moment while it carefully reviews the offer, I would suggest shareholders consider this an early Christmas present and head for the exits. While Allergan has demonstrated top-line growth on the heels of dry-eye therapy Restasis, there have been a number of miscues, including its purchase of MAP Pharmaceuticals, which hasn't yielded an approval for Levadex as of yet, and disappointing results for DARPin, its experimental vision-loss therapy. Simply put, Allergan is expensive here given its growth potential, and the possibility that this deal could fall through would give me (if I were a shareholder) all the more reason to cash in my chips.
