NEW YORK, March 21 – With genomics stocks continuing to drop, the possibility for potential takeover bids is increasing, analysts said Wednesday.
“I definitely think there is an opportunity to acquire good biotech companies with good technology and balance sheets,” said Andrew Scott, an analyst at M. H. Meyerson in New York.
A year ago, investors couldn’t get enough of genomics stocks. But just 12 months later, investors are shunning the stocks, with many stocks trading at or close to their 52-week lows.
As a result, some companies are currently trading under cash – meaning that their market capitalizations are below their cash reserves – while for most the difference between their market valuations and their cash reserves is continuing to narrow. Companies such as Aclara, Genomica, and Compugen are all trading under cash.
“This shows that investors are feeling insecure about these companies’ ability to become profitable,” said Craig Irwin, a junior analyst at Oscar Gruss. “They are looking for companies that have products and are easily understood.”
With prices at historic lows, pharmaceutical, biotech, and larger genomics-related companies hungry for innovative technologies might decide to step in and buy the companies that have developed such products. The strong cash positions many of these companies have only makes them more attractive.
“Motorola, Corning, and IBM are looking to make investments. This might be a good time to buy,” said Scott Greenstone, an analyst at Thomas Weisel Partners.
In a sign that the companies themselves are growing increasingly concerned, Aclara, which currently has a valuation that is 11 percent under cash, recently approved a plan that could give existing shareholders an opportunity to shore up their stakes in the microfluidics maker should any person or group signal their intention to buy 15 percent or more of the company’s outstanding common stock.
However, some analysts said that takeovers in the genomics sector might be less likely than in other sectors since the companies’ main resource – the employees – can’t be bought cheaply.
“It would be difficult to do a hostile takeover because you’re also buying a core group of scientists,” said Winton Gibbons, an analyst at William Blair in Chicago.
The company’s real assets are in the employees, Gibbons added, who aren’t so easily converted into cash value.