The Biotech Buyout Parade Continues — Will You Participate?

Back on July 13, 2022, I suggested Forma Therapeutics (FMTX) in in my stock letter in the mid-$8 range as part of a select group of eight cash-rich biotech names which I called the Cash Rich Biotech 8. I selected them out of 120 possible cash-rich biotech names to consider.

They were already doing quite well. As of August 5, they were up 28% compared to 12.1% for the XBI and 7.3% for IBB.

Now they are doing even better because FMTX trades at $19.90, for 129% gains in six weeks. That’s not bad. I hope you participated.

What’s going on?

FMTX is being bought out by Novo Nordisk. This is only one of several of my biotech names that have been bought out. My system seems to be good at identifying biotech names that big pharma likes so much it wants to own them outright. So, I expect more of our biotech names to get bought out.

What to do now? Not all buyouts are a sell. In certain cases, buyouts happen as share swaps with a step up in basis on your original position. This wipes out the tax implications of the huge buyout related gains, but you have to hold through deal settlement to realize the benefits.

However, that is not the case here. This is a cash offer. Of course, there is always the possibility that there’s a bidding war. But I don’t know that that might be the case, so I am taking profits. There is probably little risk in continuing to hold because the deal will most likely go through.

If you want to get more investing and trading ideas like my Cash Rich Biotech 8 portfolio, consider subscribing to the full issue of my stock letter, here.

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