What happened
Biopharmaceutical stocks were trending higher across the board Monday morning, thanks to Merck's (NYSE: MRK) nearly $11 billion buyout offer for Prometheus Biosciences(NASDAQ: RXDX). So far, some of the day's biggest winners have been the cancer immunotherapy specialist Agenus(NASDAQ: AGEN), the next-generation vaccine player Inovio Pharmaceuticals(NASDAQ: INO), and the drug developer Roivant Sciences(NASDAQ: ROIV).
As of 11:42 a.m. ET Monday morning, Agenus' shares were up by 12.4%, Inovio's stock was higher by 10.6%, and Roivant was soaring by 16.4%. These double-digit gains appear to be mostly the result of investors searching for the next biopharma buyout candidate.
So what
Merck's decision to buy Prometheus at a 75% premium relative to where the drugmaker's shares closed last Friday is having a ripple effect across the industry today for a few reasons. First and foremost, Merck is paying a staggering premium for a late-stage asset, the experimental monoclonal antibody PRA023. The treatment has lucrative potential in a variety of conditions such as ulcerative colitis and Crohn's disease.
While PRA023 definitely has mega-blockbuster potential, it still has to pass muster in late-stage testing in order to realize its enormous potential. Merck doesn't seem bothered by this latent risk factor based on the deal's hefty price tag.
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Why are investors piling into Agenus, Inovio, and Roivant in the wake of this news? Agenus' cancer immunotherapy pipeline might be wildly undervalued right now. Its next-generation botensilimab has the potential to be a best-in-class therapy for a diverse range of hard-to-treat malignancies. So it's not exactly a stretch to think Agenus might attract a buyer at some point.
Inovio's novel approach to treating human papillomavirus infections could also turn out to be a major advancement in the field. The company has had its struggles in the past, but a major win in the clinic might change the narrative around this player in DNA medicines.
Lastly, Roivant has the potential to morph into a top-shelf dermatology and autoimmune-disease company. The drugmaker currently has multiple late-stage trials in areas of high unmet medical need such as myasthenia gravis and dermatomyositis. So the company would provide instant diversification and a fair amount of deep value to a buyer.
Now what
Are any of these stocks worth buying on this rally? Agenus is arguably the most intriguing speculative buy within the group. Investors lost patience with the company last year, but its core value proposition remains intact. If botensilimab hits the mark in any of its indications, Agenus' shares ought to soar.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool has a disclosure policy.
