Important economic data was again as scarce as it could be on a Monday, but that didn't seem to matter much to the broad-based S&P 500 (^GSPC -0.22%), which surged to a record close.
The culprit behind today's decisive move higher was another weekend filled with merger and acquisition rumors and deals -- one of which we'll get into below -- as well as investors finally willing to step up and purchase downtrodden tech and biotech names, which have been bludgeoned over the past couple of weeks. Investor concern over riskier investments -- e.g., small caps, money-losing or marginally profitable high-growth tech stocks, and clinical-stage biotechs -- has been building, and today's action appears to indicate that at least for one day, the risk-on trade was back in full force.
By day's end, the S&P 500 closed at a fresh all-time high, up 18 points (0.97%) to 1,896.65.
Pushing the envelope and leading all companies higher for the day was clinical-stage biotech company TESARO (NASDAQ: TSRO), which advanced 21% after lead drug rolapitant achieved its primary and secondary endpoints in the final of three phase 3 trials for chemotherapy-induced nausea and vomiting, or CINV. According to the press release, rolapitant "achieved statistical significance over the control arm for the primary endpoint of complete response in the delayed phase of CINV," and also "achieved statistical significance over the control arm for the key secondary endpoints of [complete response] in the acute (0 to 24 hour) and overall (0 to 120 hour) phases of CINV, for the secondary endpoint of no significant nausea, and for all other secondary endpoints."
All told, the data appears encouraging and would suggest a better than 50-50 shot at approval at this point. Tesaro is planning to file its new drug application with the Food and Drug Administration by mid-2014, which would likely put it on course for a PDUFA date somewhere around March-April 2015. It's a stock biotech-savvy investors should continue to monitor closely.
Source: Paul Krueger, Flickr.
Not too far behind TESARO was Kandi Technologies (KNDI 9.58%), a developer of all-terrain vehicles, go-karts, electric vehicles and components, which spiked 15.9% higher after the company produced better-than-expected first-quarter results earlier this morning. For the quarter, Kandi's revenue exploded higher by 174% to $40.2 million, with the bulk of the gains being from its EV battery pack business, which produced $25 million in revenue in its first quarter of operations. EV products also jumped 385% to $8.4 million from $1.7 million in the year-ago period. Adjusted income for the quarter rose 30% to $1.6 million, or about $0.04 per share, from $1.3 million in the prior year period.
While I'm encouraged by Kandi Technologies' rapid EV products growth, I'd also caution that the company is still only marginally profitable, and enough headwinds and competition exists in this space that investors should realize this stock isn't without its own unique risks. As for me, I'm still perching myself safely on the sidelines.
Source: Pinnacle Foods.
Finally, we have the aforementioned "merger Monday" whereby Hillshire Brands (HSH.DL) agreed to acquire Pinnacle Foods (NYSE: PF) for what equates to $6.6 billion inclusive of Pinnacle's net debt. The implied purchase price at the time of the transaction was $36.02, and was to be comprised of $18 in cash and 0.50 shares of Hillshire common stock. The purchase price represents an 18.3% premium over Friday's close for Pinnacle, and helped send the stock higher by 13.2% on the day.
The merger will combine Hillshire's dominance in the meat section with Pinnacle Foods' broad array of vegetables, giving both companies more exposure to the frozen and refrigerated section of most major grocery chains. The transaction is expected to be immediately accretive to earnings, and by year three the combined company could save up to $140 million in synergies and achieve EPS accretion in excess of 15%. It's certainly hard to argue against those figures, but I personally can't help but feel Hillshire overpaid for Pinnacle, whose growth is likely going to slow into the low single-digits and is being valued at close to 19 times forward earnings.
