What happened
Biotech stocks have been on a wild ride this year. For instance, the bellwhether SPDR S&P Biotech ETF (XBI -1.12%) has been up by as much as 9%, and down by as much as 12%, during just the first five months of 2023. Today, this extreme volatility among biotech stocks has been on full display.
Shares of the eye disease company Apellis Pharmaceuticals (APLS -7.31%) plunged by 6.6% right out of the gate this morning. Likewise, the non-liver disease drugmaker Madrigal Pharmaceuticals (MDGL -1.99%) saw its stock dip by 6.7% during the first hour of trading, and shares of the rare-disease specialist Sarepta Therapeutics (SRPT 0.51%) were down by as much as 5.6% around mid-day.
Since hitting these intra-day lows, however, these three biotech stocks have all reclaimed lost ground. As of 2:23 p.m. ET Tuesday afternoon, Apellis stock was only down by 1.5%; Madrigal's shares were flat for the day; and Sarepta's equity price was in the red by a more modest 3.4%.
So what
What caused biotech stocks to wobble today? Yesterday, multiple reports surfaced about the Federal Trade Commission (FTC) gearing up to block the proposed merger between biotech heavyweight Amgen (AMGN -0.59%) and rare-disease juggernaut Horizon Therapeutics (HZNP) over antitrust concerns. As mergers and acquisitions have been one of the few bright spots for biotech investors over the past two years, it's not surprising to see a wave of selling in the space after this news.
Shares of Apellis, Madrigal, and Sarepta reacted particularly poorly to this development due to their perceived value as prime takeover candidates. For example, Apellis has repeatedly been featured on the buyout rumor mill in recent times thanks to the stellar commercial potential of its geographic atrophy drug Syfovre.
Madrigal's name has also made multiple buyout-candidate lists this year in response to the forthcoming regulatory filings for its nonalcoholic steatohepatitis (NASH) candidate, resmetirom. If approved, resmetirom may become one of the best-selling drugs of all-time due to the high unmet medical need represented by NASH.
And Sarepta has been a mainstay of the buyout docket over the years because of its virtual monopoly in Duchenne muscular dystrophy (DMD), an inherited muscle-wasting disorder. Sarepta, in fact, recently scored a positive advisory committee vote for its DMD gene therapy SRP-9001. SRP-9001 would further de-risk the company for a potential suitor.
Now what
The bottom line is that the FTC's decision to sue to block this Amgen/Horizon merger is highly likely to have a chilling effect on business development activity in the space for the time being. Most suitors, after all, aren't going to risk potentially billions in break-up fees in the event the FTC decides to challenge a proposed buyout. As a result, biotech investors may want to zero-out any buyout scenarios in their valuation estimates for stocks they might be eyeing right now.
