KRTX - Bristol-Myers buying Karuna signals a biotech boom ahead: Jefferies

2023-12-23 16:10:30 ET

Karuna Therapeutics Inc (NASDAQ: KRTX) ended nearly 50% up on Friday after Bristol-Myers Squibb Co (NYSE: BMY) said it will buy the biopharmaceutical firm for $14 billion.

Analyst shares his view on biotech stocks

The all-cash transaction values each share of Karuna Therapeutics at $330 and helps Bristol-Myers expand its footprint in neurological and psychiatric conditions.

KarXT – the lead asset of Karuna Therapeutics is being studied as a possible treatment for schizophrenia, Alzheimer’s, and bipolar disorder, as per the press release on Friday.

Bristol-Myers expects to take about six months to close this acquisition – that suggests a biotech boom ahead, as per Michael Yee – a senior Jefferies analyst.

You’ve got over a $100 billion of cash sitting at big pharma. With these stocks beaten down, you see valuations attractive. I think that’s a positive tailwind going into 2024.

Inflation Reduction Act to boost M&A

In particular, oncology, weight-loss, and neurology are the key areas that are expected to drive merger and acquisitions in the coming year, Yee added on CNBC’s “ Fast Money ” on Friday.

Names he expects to participate the most in M&A in 2024 include Pfizer, Merck, Gilead, and Bristol-Myers. Yee is convinced the inflation reduction act will make the pharma giants “do more deals” as well.

The Jefferies analyst also picked Amgen Inc in his interview as a stock worth owning especially since it’s scheduled to report the “big data for its once-a-month injectable [for weight-loss]” in the back half of 2024.

Note that Bristol-Myers and Karuna Therapeutics deal is subject to customary closing conditions, including regulatory and shareholders’ approval.

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