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  • Jonathan Poyer

Is PetIQ A Harbinger for Biotech Investors?

Selling pressure continued across equities to start the holiday-shortened week with the S&P Biotechnology Select Index now approaching support levels around the 100 day moving average.

Markets continue to grapple with the Feds' now harmonious chorus of 'higher for longer' juxtaposed against a seemingly bottomless fiscal put with nearly $2 trillion minted in recent weeks via the so called inflation reduction act and student loan forgiveness program.

Bolt on biotech acquisitions continued with Novo Nordisk's (NOVO) $1.1 billion acquisition of Forma Therapeutics (FMTX) for a ~50% premium to the prior day's closing price. The deal appears to be strategic to complement NOVO's rare disease portfolio with FMTX's lead small-molecule PKR activator (etavopivat) in a Phase II/III for sickle cell disease (data expected in 2025).

Illumina (ILMN) showed investors regulatory scrutiny can thwart M&A as despite winning a court challenge from the FTC to block the GRAIL deal, the EU Commission prohibited the acquisition anyway. ILMN is appealing the EU decision and will begin reviewing strategic alternatives in the case where the divestiture order is not stayed.

Small cap animal health company PetIQ (PETQ) highlighted the strategic value of free cash flow upon announcing a buyback of >10% of the companies' outstanding shares. PETQ is down >50% YTD and is trading at a low single digit earnings multiple, but management "has confidence in PetIQ's business model, financial strength, and future growth opportunities which we believe are undervalued in the Company's current share price."

Opportunities often present themselves when fund flows, momentum and trend followers clash with good old fashioned fundamentals.

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