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Biotech ETFs in Focus on Tobira Therapeutics' Massive Gain

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Tuesday was quite eventful for the biotech space, with Allergan Plc announcing back-to-back takeover deals within a short span of time. The drug maker announced the $1.695 billion acquisition of Tobira Therapeutics TBRA), which is into developing therapies for a fatty liver disease, before the market opened on September 20, 2016. After the market closed, Allergan unveiled another deal worth $50 million to acquire Akarna Therapeutics Ltd., which is also into the same treatment (read: Inside the Recent Surge in Biotech ETFs).

Investors should note that a premium as high as 498% to Tobira’s closing stock price just the day before points to the Allergan’s urgencyfor this deal.Tobira Therapeutics’ shares were up 720.9% on Tuesday following the announcement of the deal.

Other Recent Allergan Deals

Allergan is in the mood for acquisitions. A week ago, the company announced the $639-million acquisition of Vitae Pharmaceuticals to strengthen its dermatology pipeline. Plus, in early September, Allergan purchased ophthalmology gene-therapy firm RetroSense Therapeutics LLC for $60 million to boost its eye-care suite.

Back to Tobira

Per the deal, Allergan will pay $28.35 a share in cash upfront and up to $49.84 if Tobira meets certain sales and regulatory targets, going by Bloomberg. Also, Bloomberg noted that “the lower price values Tobira at about $533 million based on the number of shares outstanding, almost six times its market capitalization of $89 million as of Monday’s close -- even if the liver drug maker doesn’t hit the goals.”

And if Tobira fulfils the conditions, the premium to the deal would simply skyrocket. Allergan also said Akarna’s investigational treatment for NASH or non-alcoholic steatohepatitis is complementary to Tobira’s therapies, going by an article published in the Wall Street Journal.

Market Impact

All this explains why Tobira shares saw a 22 times higher volumes on Tuesday than regular trading. Not only this, the news acted as a beacon for the entire biotech space. 

The move indicates the growing need for therapeutic push for NASH, which is a severe fatty liver condition. This is why other companies developing NASH treatments including Intercept PharmaceuticalsInc. ICPT, Galmed PharmaceuticalsLtd. GLMD , Conatus PharmaceuticalsInc. CNAT tacked on considerable gains on the day. ICPT, GLMD and CNAT were up about 8.5%, 25.4% and 19.4% respectively.

Plus, the Tobira deal hints at the bright prospect of small-scale biopharmaceutical companies which could be lucrative targets of big acquirers (read: Biotech ETF Industry Outlook).

ETF Impact

Most of the biotech ETFs were in the green on September 20 with BioShares Biotechnology Clinical Trials BBC,BioShares Biotechnology Products BBP and ALPS Medical Breakthroughs ETF SBIO) deserving special mention as these funds include several clinical-stage biotech companies. Notably, BBC, BBP and SBIO were up 2.2%, 2% and over 1.9% on September 20, respectively.

SPDR S&P BiotechETF XBI, which gives exposure to mainly small-cap biotech companies, added about 2.5% on September 20. The leading biotech fund iShares Nasdaq Biotech ETF IBB was up over 1.4% on that day (see all healthcare ETFs here).

Want more information on the world of ETFs? Make sure to check out the podcast below where we discuss the investing landscape with Kevin O’Leary and Connor O’Brien of O’Shares Investments:

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