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Nasdaq Falls Off Record Levels; Momenta, BioMarin Head in Opposite Directions

By Dan Caplinger – Aug 19, 2020 at 4:36PM

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The Fed spoiled the party for the stock market.

The Nasdaq Composite (^IXIC -0.26%) has been at record levels, but a late afternoon decline prevented the index from hitting a third straight all-time high. The Federal Reserve's release of minutes from a late-July meeting of its monetary policy committee raised concerns about the central bank's willingness to pull out all the stops in supporting the economy unless absolutely necessary. That caused the entire market to reverse course, and the Composite and the Nasdaq-100 Index closed with declines of roughly half to three-quarters of a percent.

The healthcare sector has been full of news lately, with potential treatments and vaccines for COVID-19 taking the limelight. Yet today, two drug companies got attention for reasons largely unrelated to the coronavirus pandemic. Momenta Pharmaceuticals (MNTA) saw a big move upward as an industry giant made a major strategic move, but BioMarin Pharmaceutical (BMRN 1.80%) found itself on the short end of the bull market stick due to unexpected bad news.

Needle inside cell under microscope.

Image source: Getty Images.

J&J snaps up Momenta

Momenta saw its shares soar almost 70% on Wednesday. Investors were pleased to hear that the company was an acquisition target for Johnson & Johnson (JNJ -1.34%), and they liked even more the price that J&J was willing to pay.

Johnson & Johnson entered into an agreement with Momenta to pay $6.5 billion for the biotech company. Under the deal, J&J will pay Momenta shareholders $52.50 per share in cash. The stock's gain took Momenta's share price to within $0.40 of that amount.

J&J stands to gain a lot from the acquisition. Momenta's experimental antibody treatment for autoimmune diseases, nipocalimab, could become a blockbuster for the healthcare giant, generating billion-dollar annual sales if successful. Moreover, Momenta is headquartered in the Boston-area city of Cambridge, which has become a hub of activity for the biotech industry. Having more personnel and physical assets there will further cement J&J's status as a healthcare leader.

Johnson & Johnson stock also gained ground, suggesting that investors believe it paid a fair price for Momenta. Some Momenta shareholders will be sad to give up the company's growth potential, but the quick 70% gain is a nice consolation prize.

A surprising rejection

BioMarin, however, went the other direction, losing 35% of its value on Wednesday. The biotech player essentially got a slap in the face from the U.S. Food and Drug Administration, shocking both company executives and shareholders.

BioMarin had applied to the FDA to have its valrox gene therapy approved for patients suffering from severe hemophilia A. The company was under the impression it could rely on completed early stage clinical trials and interim data from a phase 3 study to support its submission, but the FDA rejected valrox through the issuance of a complete response letter.

Now, BioMarin will have to complete the phase 3 study in full as well as submit further follow-up data on the treatment's effectiveness and safety before the FDA will consider approving valrox. Few industry followers expect that the treatment won't eventually become available, but investors had counted on a much quicker turnaround.

The dangers of biotech investing are evident from the reliance that companies have on regulators for approval. BioMarin investors found that out the hard way, and it's one reason why companies like Momenta agree to acquisitions rather than moving forward on their own with their candidate treatments.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends BioMarin Pharmaceutical, Johnson & Johnson, and Momenta Pharmaceuticals. The Motley Fool has a disclosure policy.

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Stocks Mentioned

BioMarin Pharmaceutical Stock Quote
BioMarin Pharmaceutical
BMRN
$91.14 (1.80%) $1.61
Momenta Pharmaceuticals Stock Quote
Momenta Pharmaceuticals
MNTA
Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$162.90 (-1.34%) $-2.21
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,119.54 (-0.26%) $-29.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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