Beaten-Down Biotech Stocks Get Boost From M&A Boom, Lofty Prices

The resurgence of deal activity in the drug-development industry is driving investors’ interest in biotech stocks and boosting values for potential takeover targets.

This week alone, large pharma companies logged two deals — Merck & Co.’s $10.8 billion takeout of Prometheus Biosciences Inc. and Bellus Health Inc’s $2 billion sale to GSK Plc. The transactions carried premiums of 75% and 103% respectively, yielding lucrative returns for investors in the pair which have no approved products yet.

“Sellers are more willing to sell because they know there is not a supportive capital markets environment for every single biotech going forward,” ...