Healthcare Business

The Strongest Performing Biotech in 2015 Is a Surprise

Biotech is still in a rut for 2015, with stocks year to date being essentially unchanged. Since January 1, the Biotechnology Index is up only 0.3%, pretty much breakeven. While the first half of 2015 was quite positive, it’s been the second half of the year that has really taken its toll on shares, with the iShares Biotechnology ETF (NASDAQ: IBB) down 17.5% since July 1. One would be hard pressed to find a company in the sector that has performed well since then. In fact, the best-performing large cap biotech since July 1 is quite unexpected, and even somewhat hidden from direct view. Surprisingly, it’s Baxter International Inc. (NYSE: BAX).

The extenuating circumstances surrounding Baxter make its envious title of best-performing biotech since July a bit elusive because it is harder to calculate. Back on July 1, Baxter split into two companies. One continued as Baxter International, and the other as Baxalta Inc. (NASDAQ: BXLT). Pre-split, the combined company had a market cap of $38 billion. Now, the combined market cap of Baxter and Baxalta is $40.9 billion. Meaning, if you had shares in Baxter before July 1, you’d be sitting on gains of 7.6%.

Baxter has outperformed what many analysts estimated post-split. 24/7 Wall St. called Baxter undervalued back in May, citing Merrill Lynch’s Bob Hopkins, who believed optimistically that the new Baxter would trade in the $30 to $33 range after the spin-off. As it turns out, Baxter has traded as high as $43.44 post-split, with the lowest price recorded at $32.18 a share. Baxalta, the spin-off, has traded in a range of $30 to $41, an outperformance however you look at it.

ALSO READ: Cowen’s 4 Large Cap Biotechs to Buy Now

Baxter’s impressive feat in the face of a falling biotech sector since July teaches an important lesson about capitalism and the division of labor. How so? Normally, it’s the mega-mergers that make the big news with huge numbers splashed across headlines. We just saw this with SanDisk and Western Digital, who together inked a $19 billion merger deal amid loud cheering. Mergers are generally responded to with enthusiasm and presented as a reason to invest. They represent a convergence of power and a sort of conquering connotation. Split-ups and spin-offs are often treated with skepticism, the danger of the conservative path fraught with risk due timidity.

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