Biotech Bounces Back; M&A Eyed

After a brutal start to the new year, biotech stocks are higher across the board today. In addition to a snap-back rally and short covering, helping is a note from Piper Jaffray's Edward Tenthoff discussing expected M&A in the sector.

"We expect strong balance sheets and low cost of capital at Big Pharma and Biotech coupled with lowered valuations of potential targets to accelerate the pace of M&A," Tenthoff said.

He blamed the recent weakness on macro head-winds, soft Big Cap guidance and election concerns.

While Tenthoff didn't get too specific on targets he did highlight his top pick Novavax (NASDAQ: NVAX), which has Phase III elderly RSV data this fall. "Recent pull back in share price and/or positive Phase III RSV data could draw multiple take out bids from larger vaccine players," he said.

Other stocks he likes, although not just on M&A include: Vertex Pharma (NASDAQ: VRTX) for the ORKAMBI launch and return to sustainable profitability; Alnylam Pharma (NASDAQ: ALNY) ahead of data from 11 clinical trials this year including additional ALNAT3 hemophilia data, ALN-CC5 data in PNH patient in mid'16 and ALN-AS1 data towards year-end; Sarepta Therapeutics (NASDAQ: SRPT) ahead next week's FDA review of eteplirsen with potential for Accelerated Approval by the February 26th PDUFA data; Celyad SA (NASDAQ: CYAD) ahead of Phase III CHART-1 heart failure data and Phase I CAR-NKG2D cancer data in June; Vitae Pharmaceuticals (NASDAQ: VTAE) which is due to report 4-week VTP-43742 psoriasis data soon; and Medgenics (NYSE: MDGN) which will report NFC-1 ADHD data this year.

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