Biotech Pacts Leave Wall Street Salivating for M&A
Biotech Pacts Leave Wall Street Salivating for M&A
(Bloomberg) -- Collaboration between biotechnology companies could set up a boom in deal activity after the weight of the coronavirus is lifted from the sector’s usual flurry of M&A, according to stock pickers and industry specialists.
Before the outbreak, heavyweights like Amgen Inc. and Biogen Inc. were expected to produce another blockbuster year for deals. But now, companies such as Gilead Sciences Inc. are racking up partnerships instead to advance and fund new medicines.
“While the M&A activity is modest, the collaboration activity has never been more extreme,” said Stuart Cable, a partner and the global chair of M&A at Goodwin Procter LLP. “Once things calm down a bit, you’re going to see a number of bigger bets in the most innovative areas of biotech this summer and into the fall.”
Gilead became the latest to announce a partnership on Wednesday when it confirmed a Bloomberg report that it was inking a deal with Arcus Biosciences Inc. to develop new cancer drugs worth as much as $1.6 billion. The biotechnology industry typically relies on partnerships and acquisitions to push forward new technologies for patients. Yet the economic uncertainty produced by the coronavirus outbreak has put the sector on pace for the lowest deal volume since 2013, data compiled by Bloomberg show.
Eager to see mergers resume, investors are hopeful the partnerships are an indication larger deals may still be in the pipeline. A move by Sanofi to raise roughly $11.7 billion by exiting most of its stake in Regeneron Pharmaceuticals Inc. has set off speculation that the Paris-based pharmaceutical company could make a splashy purchase of BioMarin Pharmaceutical Inc. or opt for a string of smaller deals.
“Companies in the current environment are still engaging in business development activities, and that includes both licensing and partnering deals, as well as in some cases outright M&A transactions,” said Geoffrey Hsu, a biotech fund manager for OrbiMed Advisors. “M&A is still possible in this environment.” That includes recent deals from Menarini Group and Alexion Pharmaceuticals Inc.
Alexion’s recent battle with activist investor Elliott Management Corp. has placed it at the top of analysts’ lists for a mega deal, while drugmakers like Sarepta Therapeutics Inc., Bluebird Bio Inc., and UniQure NV are among biotechs advancing innovative therapies that could catch the eye of a larger suitor.
“The large-cap pharmaceutical companies are sort of starving for innovation, starving for growth,” John Porter, a fund manager at Mellon Investments Corp., said in a telephone interview. “Most of the exciting, breakthrough work that’s being done in biotech is being done by companies under $5 or $10 billion in market cap.”
Optimism for more deals comes as the Nasdaq Biotech Index, a closely-watched barometer of investor sentiment, trades near all-time highs amid hopes drugmakers will successfully develop therapies and a vaccine to combat the novel coronavirus. The group’s outperformance over recent months, led by gains for Covid-19 vaccine hunters, places potential targets in a position to strike a deal when it best suits their agenda.
There is strong investor appetite to help up-and-coming drugmakers raise money, as evidenced by recent stock offerings and interest from private equity.
So far this year, biotechs and their holders have raised $32 billion in 262 stock offerings. In May alone the industry has seen the most deals priced and the largest amount of capital raised since at least 2008.
Earlier this month, Moderna Inc. raised $1.3 billion in a share sale to fund an experimental Covid-19 vaccine after early positive results were released. Blackstone Group Inc. has also announced plans to invest as much as $2 billion in Alnylam Pharmaceuticals Inc., buying a portion of the royalties from its cholesterol therapy drug.
“Look for private equity to do more, look for some stock-for-stock deals and look for a continuing slug of big collaboration deals,” Goodwin’s Cable said. “The Bain Capitals and the KKRs are making increasingly big bets in the biotech space. They aren’t competing for the $5 to $10 billion deals, but they are absolutely competing for the up to $1 billion deals.”
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