UPDATE 1-Biotech shares rally as Pfizer-Allergan deal collapses

Wed Apr 6, 2016 5:26pm EDT
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(Updates performance of stock indexes; adds Valeant context at end)

By Lewis Krauskopf

NEW YORK, April 6 (Reuters) - The collapse of one pharmaceutical mega-merger could beget many smaller deals - at least that is the hope of biotech investors.

Shares of the beaten-up biotech sector rallied on Wednesday as U.S. drugmaker Pfizer Inc and Ireland-based Allergan Plc called off their $160 billion merger after new U.S. Treasury rules aimed at curbing tax-cutting inversion deals.

The Nasdaq Biotechnology index closed up 6 percent, its biggest one-day rise since August 2011. The NYSE Arca Pharmaceutical index gained 3 percent.

With their deal scuttled, Pfizer and Allergan could turn to smaller targets, analysts said.

Pfizer and Allergan "have been serial acquirers in healthcare and both have significant financial firepower," BTIG analyst Hartaj Singh said. "With biotech valuations down since mid-2015, the sector looks more appealing to acquirers."

Even with Wednesday's rally, the Nasdaq biotech index is down about 16 percent this year and some 29 percent from last July.

Biotech and pharmaceutical shares have been under pressure from concerns about the focus on drug pricing, and that medicine costs will continue to be a target during the presidential election season.   Continued...