Please ensure Javascript is enabled for purposes of website accessibility

Why Sagent Pharmaceuticals' Stock Is Soaring Today

By George Budwell – Jul 11, 2016 at 10:58AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Nichi-Iko Pharmaceutical Co., Ltd and Sagent Pharmaceuticals are tying the knot.

Image source: Getty Images.

What: Shares of Sagent Pharmaceuticals (NASDAQ: SGNT), a maker of injectable drugs, jumped by nearly 40% at the start of trading today on extremely high volume. The catalyst behind this sizable move is the news that Nichi-Iko Pharmaceutical Co., Ltd has agreed to buy Sagent in an all-cash deal for $21.75 per share, or $736 million. 

So what: This deal will greatly enhance Nichi-Iko's footprint in the U.S. in terms of its biosimilar and injectable drug portfolios. Perhaps the bigger story, though, is that Nichi-Iko's willingness to pay a hefty premium in excess of 40% for Sagent may signal that biotech and biopharma valuations have now fallen too far, perhaps triggering another M&A bonanza sometime in the near future.   

Now what: News of this merger immediately sparked questions about management's due diligence regarding their efforts to secure the best deal for shareholders. After all, this deal is roughly equivalent to Sagent's valuation a mere year ago, reflecting the broad-based downturn among all biotech and biopharma stocks in the interim:

SGNT Chart

SGNT data by YCharts.

As this deal is scheduled to close in the second quarter of Nichi-Iko's fiscal year that ends in March 2017, these complaints will definitely have time to be heard, perhaps in a court of law. That said, it's highly unlikely that an all-cash deal like this one will ultimately be scuttled, meaning that investors probably shouldn't jump into Sagent today hoping for an even larger buyout offer.

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.