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Biotech shares climb amid dealmaking, drug approval

Regeneron Pharmaceuticals
Mike Segar | Reuters

Biotech stocks were among the top performers in the U.S. stock market Tuesday amid a flurry of merger and product news.

The iShares Nasdaq Biotechnology ETF (IBB) closed 1.4 percent higher, while health care was the top performer in the S&P 500.

"It seems like the M&A wave's alive and well here," said Michael Bailey, director of research and chair at FBB Capital Partners.

"We're starting to see maybe a string of small to mid-cap deals starting to go through," he said.

Early Tuesday, Ireland-based Allergan announced its second acquisition in a week with a deal for San Francisco–based Tobira Therapeutics worth up to $1.7 billion. The transaction will give Allergan access to experimental therapies for a fatty liver disease called NASH (nonalcoholic steatohepatitis).

The news follows last Wednesday's announcement of an all-cash deal of about $639 million to buy Pennsylvania-based Vitae Pharmaceuticals as the Botox-maker seeks to strengthen its skin-care product line.

The value of biotech deals so far this year — nearly $45.7 billion — has increased more than 60 percent from the same period last year, according to Dealogic. The gain has come while overall health-care deal values have declined, down 54 percent this year to $181.5 billion, the data showed.

Allergan shares closed 2.7 percent lower Tuesday. Shares of Tobira Therapeutics gained 720 percent, according to FactSet, giving the company a market capitalization of $89 million. Allergan's offering price for Tobira of $28.35 a share was nearly 500 percent more than Tobira's Monday closing price of $4.74 a share.

Shares of other biotech firms developing treatments for the NASH liver disease also gained Tuesday. Gilead Sciences closed 3.5 percent higher and Intercept gained nearly 8.5 percent.

Other stocks also rose Tuesday with speculation of more takeovers. Clovis Oncology shares jumped more than 12.5 percent Tuesday following a rumor Eli Lilly might buy the cancer treatment company.

"It's acquisition rumors," said Kennen MacKay, mid-cap biotechnology research analyst at Credit Suisse.

"I think the market has been anticipating this is a take-out target. Obviously the market is lending some weight to it," he said. MacKay has a "neutral" rating on the stock and said he didn't think the stock would get takeover interest.

Spokespeople from both Clovis and Eli Lilly told CNBC they do not comment on rumors. Shares of Eli Lilly closed 0.9 percent higher.

In drug approval news, Sarepta Therapeutics shares gained nearly 14 percent, extending Monday's more than 70 percent gain on news its muscular dystrophy drug eteplirsen received U.S. Food and Drug Administration approval.

Separately, Puma Biotechnology announced the FDA has accepted for review Puma's breast cancer treatment drug neratinib. Shares closed 10.5 percent higher.

Despite the broad gains in biotech stocks Tuesday, the IBB is still more than 12 percent lower for the year so far. The sector has recently come under political pressure over high drug prices.

"There are still going to be questions about the sector going forward. Not every single name is participating [in the rally]," said Robert Pavlik, chief market strategist at Boston Private Wealth.

"There's just interest in some of the names that are momentum-type names," he said.

Mylan shares closed about half a percent lower. In continued lawmaker scrutiny over exponential price increases for the company's lifesaving EpiPen device, the state of West Virginia said on Tuesday it is investigating whether Mylan violated antitrust law or overcharged the state's Medicaid program for the EpiPen.

CEO Heather Bresch is set to appear in front of the U.S. House of Representatives Oversight Committee at 2 p.m. ET Wednesday.

— Reuters contributed to this report.