Why Revolution Medicines Stock Surged by 11% Today
Key Points
It's apparently in talks to be sold to a pharmaceutical industry titan.
The price being discussed reaches into the tens of billions of dollars.
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More often than not, takeover speculation can give a lively boost -- at least in the short term -- to a company's stock. That was the dynamic behind the nearly 11% price gain of Revolution Medicines (NASDAQ: RVMD) shares on Friday, as a top business newspaper wrote that it's the target of a buyout attempt by a famous peer.
Apparent buyout talks
Citing unidentified "people familiar with the matter," the Financial Times published an article after market hours Thursday stating that Merck and Revolution are in discussions for the former to purchase the latter. According to the article's sources, the proposed price of the deal being negotiated ranged from $28 billion to $32 billion for the oncology-focused biotech.
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Merck is apparently not the only party interested in owning Revolution. The business newspaper reported that other sizable pharmaceutical companies were considering a play for the company. It did not name any of those would-be suitors.
Neither Merck nor Revolution commented on the story when contacted by the FT.
An attractive asset
For years, oncology has been a vibrant and popular segment of the biotech industry, largely due to the vast potential for developers to create innovative and effective treatments for cancer.
Revolution is particularly promising, as it has numerous oncology drugs in development at various stages. Additionally, patent cliffs are looming for more than a few pharmaceutical companies (including Merck), and they need to refresh their portfolios.
I'd imagine that the company will sell, if not to Merck, then another well-known big pharma peer. I think it'll manage to command quite the share price premium in a buyout, too, so developments in this saga are well worth monitoring for investors.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool has a disclosure policy.
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