There’s a merger boom going on right now, but amid all the gloom, no one’s really paying much attention.

It could be because the sector in question has had a miserable few years itself, while almost every other industry was partying. But now, at last, after a long stay in the doldrums, the biotech sector is finally coming back into the spotlight.

There has been a mass of deals in the US, while on this side of the Atlantic, a number of attractive little biotech stocks have been approached or agreed bids in the last couple of months.

And the good news is, it’s still not too late to join in the party…

Biotech sector is undergoing a merger boom

It’s been a great couple of months for biotech stocks. In the US, Swiss group Roche made a $43bn bid for biotech giant Genentech (NYSE:DNA) last month (since rejected), while Bristol-Myers (NYSE:BMY) offered $4.5bn for fellow biotech ImClone.

And over here, vaccine specialist Acambis (LON:ACM) has agreed a 190p-a-share offer from France’s Sanofi-Pasteur. Meanwhile both Protherics (LON:PTI) and Oxford Biomedica (LON:OXB), a couple of other small pharma stocks, have revealed bid approaches.

I hold both Protherics and Acambis in my own portfolio, and they’re stocks I’ve tipped in the past. However, just to demonstrate what a volatile sector biotech can be, when I last tipped Protherics in MoneyWeek in February, the shares were trading at around 50p. By the time the bid news had came around, they had slipped – for no particular reason – to as low as 27p at one point. They’re now at around 56p – but that’s a lot of volatility to endure for a 10% gain or so.

What does this show (apart from that share tipping is a mug’s game)? Well, while anyone who bought Protherics at the low has now doubled their money, the chances of most of us getting that lucky are low. And even if you do it once, chances are the next biotech you stick your money into will turn out to be a complete dud. As Andy Smith, manager of the Axa Framlington Biotech fund, told me last week: “I see 400 companies a year. Every one of their chief executives reckons they’ve got a $1bn product.” That’s what’s known as a blockbuster in the pharma trade. But “the truth is that most drugs fail.”
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Source: The Best Way to Buy Into the Biotech Boom