Are Biotechs Too Cheap?
This morning people woke up to shares of Genzyme Corp. (NASDAQ:GENZ) trading sharply higher in pre-market trading. On Sunday, Genzyme received an $18.5 billion offer from Sanofi-Aventis (NYSE:SNY) which comes to $69 per share.
The bid was rejected by the Genzyme Board despite their recent manufacturing issues. This decision could send a sign that many bio pharma stocks, including Genzyme are undervalued. We will probably see some increased volume and news flow early in the week from this sector. Especially with the mid and large cap names.
This M&A activity also bodes well for some of the unknown and under followed names on the OTCBB. Unlike most other sectors, excluding mining penny stocks, tiny microcap biotech and bio pharma stocks do get funding from larger companies from time to time.
For instance, giving a potential hot biotech penny stock $5 or $10 million dollars in R&D money is a small risk to take for a multi-billion dollar corporation looking for a new that could potentially become part of their pipeline.
While I can’t say for sure, it is probably safe to say that you will see some of the top penny stock newsletters writing about this trend in the next few weeks. Please keep in mind that the vast majority of biotech and biopharma stocks are very risky, and shouldn’t be owned by the feint of heart. However, this group has offered some investors some of the most massive gains.
So if you decide to buy one these biotech names of of a penny stock list, make sure you invest small. Also, when investing in a biotech always check their cash position and burn rate. These two numbers will tell you how much money the company has and how quickly they go through it.
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