Prepare for a comeback in biotech mergers and acquisitions
Biotech buyouts come and go, and space has been in ebb mode for some time now. But RBC Capital Markets is seeing a revival. Mergers and Acquisitions (M&A) will be strong as large pharmaceutical companies seek to rebuild their innovation portfolios with cutting edge small business science, predicts Brian Abrahams, RBC CEO and co-head of equity research in biotechnology.
A recent wave of announced multi-billion dollar deals is encouraging him, and he expects the same to be true, according to a research note. Much of the M&A activity this year has been smaller and focused on oncology. “We continue to see significant capital ready for deployment and a record number of public biotechs ready for a recovery, he writes.
One of the most notable offers announced in September Merck & Co.’s $ 11.5 billion decision to acquire Acceleron Pharma Inc. Acceleron’s drug to treat Pulmonary arterial hypertension, a rare and sometimes fatal cardiovascular disease, is the subject of phase 3 trials. Also last month, France’s Sanofi reached an agreement to buy Kadmon Holdings, which seeks to develop treatments for the immune and lung diseases, for $ 1.9 billion. And private equity actor Advent International has announced the $ 8.1 billion buyout of Swedish blood disease specialist Orphan Biovitrum.
Moody’s has named Merck, Johnson & Johnson and Bristol Myers Squibb as the top likely acquirers, due to their need to expand their pipelines. Vertex Pharmaceuticals, Biogen and Gilead Sciences are also looking for buyout targets, RBC says.
Biotech mergers and acquisitions has been erratic for some time now. It collapsed badly in the first half of 2020 in the middle of the onset of the pandemic, and then increased dramatically over the remaining six months. In the first two quarters of this year, transactions slowed further, although they exceeded those of the similar period of the previous year, totaling $ 21.1 billion from $ 17.6 billion.
Biotechnology has long been a quirky field, full of promise, an occasional medical miracle, but also disappointments. The The iShares Biotechnology exchange-traded fund (ETF) had climbed this year, but collapsed in August and has fallen almost 10% since then, which has stabilized its performance since the start of the year. As more biotech companies go public this year, there are also concerns that the Food and Drug Administration (FDA) is taking too long to rule on drug permits.
The alliance between Pfizer Inc. and German biotechnology company BioNTech, to develop a COVID-19 vaccine, is another model that could be used and, if so, could temper M&A activity, Abrahams says. Pfizer did not buy out the smaller company or take a stake in it.
However, the desire to acquire is too strong to retain buyers for long, he argues. And that could lead to a “sustained rally in the space” of biotech stocks, he argues.
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Keywords: acquisitions, BioNTech, biotechnology, iShares Biotechnology ETF, M&A, Merck, Pfizer, RBC Capital Markets, Sanofi, vaccine