The Strongest Biotech "Buy" Signal Yet

Lou Basenese

Monday, November 8, 2021

It all started in late August

That’s when Pfizer Inc. (PFE) paid an unheard of premium of 204% to acquire Trillium Therapeutics (TRIL).

About a week later, Sanofi (SNY) swooped in with a $1.9 billion deal for Kadmon Holdings, Inc. (KDMN).

Then Merck & Co., Inc. (MRK) jumped into the mix with an $11.5 billion deal for Acceleron Pharma Inc. (XLRN).

Frankly, the list of publicly traded biotech acquisitions in recent months is too long to cover here. But the takeaway is clear: since dealmaking always begets more dealmaking, we couldn’t ask for a stronger “buy” signal for biotech.

In short, we’re in the midst of a burgeoning biotech-buyout boom.

But as it turns out, a recent deal in the private markets — a deal which went virtually unnoticed — is the strongest signal of all.

And for investors like us, it could potentially be the most profitable signal.

Here’s why...

Back Up the Truck

As I shared in September, history and data show that months’ long sell-offs in biotech stocks prove irresistible to executives. Like all good opportunists, they eventually respond by going on buying sprees to capitalize on the bargains.

After all, acquisitions represent the easiest, cheapest, and fastest way to build out a promising drug pipeline. Always have, always will.

And this time around was no exception, as evidenced by the deals mentioned above, among others.

Here’s the thing: when a deal is made for a publicly traded company, the terms are disclosed. Not to mention, the rationale for a deal is often well known.

By that I mean, by the time a biotech company makes it public, the scientific approach has largely been validated and embraced by Big Pharma. That’s what enables them to raise money from institutional investors via an IPO to get public.

For instance, everyone knows why Pfizer paid so handsomely for Trillium. There’s no hotter, more promising, and therefore, more valuable approach to treating cancer right now than immunotherapies.

That’s why I have over $300,000 of my own money invested in the most promising immunotherapy company I’ve ever found. (You can find out all the details here).

It’s also why it’s been so easy for dozens of other immunotherapy companies to raise money in recent years. Capital always follows the trend and flows to what’s hot.

In contrast, if a scientific approach is out of favor, it’s nearly impossible to raise money to support it, or to make money from companies that made it public already and suddenly fall out of favor.

Add it all up — and the trick to being among the earliest and most profitable investors is to pinpoint the moment a new modality or scientific approach gains acceptance. Then, and only then, can we expect to earn maximum profits.

Case in point: If you picked up shares of Trillium back in 2019 when immunotherapies first started gaining significant traction, you’d have been cashing out a 3,000%+ profit, not a “measly” 204% gain, when the Pfizer acquisition was announced.

Why bring this up today? Because I’m convinced we just witnessed one of these validating and “early” moments…

Prepare for a Gamma-Delta World

On October 27, the $43 billion Japanese pharmaceutical giant Takeda Pharmaceutical Company Limited (TAK) announced an acquisition of GammaDelta Therapeutics for an undisclosed amount.

Big whoop, you say? It is!

Here’s why…

Despite decades of research and development, our approaches to cancer drug development are still severely lacking.

  • First of all, the most common form of treatment, chemotherapy, depletes and damages the body’s immune cells. But those cells naturally seek out and kill tumors. So if residual tumor cells remain, which is common, they often become chemotherapy-resistant and lead to cancer recurrence.
  • Second, most new drugs in development only address liquid tumors (i.e., blood tumors), not solid ones. Yet new solid tumor cases annually in the United States are nine times higher than the rate of blood cancers. That makes solid tumors one of the highest unmet medical needs today.
  • Last, but certainly not least, developing new drugs to fight cancer takes entirely too long, and it costs too much money. On average, it takes 10 to 12 years to get a new drug to market, at a total cost of $2.6 billion, which is up from $802 million in 2003.

This situation simply isn’t acceptable. Especially since many cancers, including the most aggressive types like Glioblastoma, can claim a patient’s life within just months of diagnosis.

Against this urgent backdrop, a new scientific approach is gaining popularity. And the Takeda deal proves it.

I’m talking about using gamma-delta T-cells to fight cancer. I won’t bore you with all the science here, but trust me when I say gamma-delta T-cells represent a potential super-weapon for fighting cancer.

Why? Because they possess a unique ability to differentiate between healthy and diseased tissue. And because not only can these cells kill tumor cells directly, but they can also recruit the body’s other natural cancer killing cells.

It stands to reason, the more cells attacking a cancer, the more effective the treatment will likely be. So now you know why Takeda is so interested in owning a compelling startup in the space.

The Next Takeover Target

Previous funding rounds and some basic industry understanding make me comfortable assuming Takeda likely paid hundreds of millions of dollars, if not close to a billion dollars to acquire GammaDelta.

That’s the strongest validation and buy signal we could expect.

In the simplest terms, the deal proves that big pharmaceutical companies now believe in the gamma-delta T-cell approach. And when they believe, they spend massively to acquire expertise and build out a pipeline.

Translation: Takeda’s acquisition promises to be the first of many in the space, as other Big Pharma companies respond by making deals of their own.

I expect the deal premiums to keep rising, too, as the approach becomes even more popular…

And that makes today’s Trend Trader Pro “Trade of the Week” all the more timely. So don’t miss out!

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Ahead of the tape,
Lou Basenese
Lou Basenese

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