- Jonathan Poyer
Powell The Hawk Tips Biotech Below 50-Day Moving Average
Hawkish remarks from Jerome Powell kicked off a broad selloff in risk assets and sent the S&P Biotechnology Select Index back down to the 50 day moving average.
The Fed chair appeared to correct his off the cuff verbal policy gaffe regarding approaching the neutral rate made in his last presser by sticking to a 'higher for longer' script.
Pharmaceutical and biotech companies remain relatively well positioned as inelastic demand, high margins and robust supply chains are expected to deliver solid commercial performance in the current economic environment. Blockbuster M&A remained elusive as Bloomberg reported Merck's (MRK) potential acquisition of Seagen (SGEN) is stalled on price concerns.
As discussed previously, unprofitable SGEN at $30B market capitalization is one of the more expensive large cap biotechs at 16x current EV / revenue. Even a moderate acquisition premium in the neighborhood of $40 billion would make the deal highly dilutive to MRK for 3-4 years, even assuming SGEN's current $1.8 billion revenue stream multiplies as expected to consensus 2025 revenue of $4.5 billion.
Conditions remain favorable for M&A and more bolt on and synergistic single digit billion dollar deals are expected through the end of the year.