Bank of America’s ‘Mega M&A’ Unlikely Call Got Sucker Punched by Bristol Deal

(Bloomberg) -- “Mega M&A unlikely.” So wrote Bank of America Merrill Lynch pharmaceutical analyst Jason Gerberry shortly before the announcement of the largest deal for the sector in history.

In December, Goldman Sachs’s small to mid-cap biotech analyst Paul Choi also said he didn’t expect a flood of M&A deals in 2019 but an uptick “would be the biggest boost to investor sentiment.” The set up was growing “increasingly attractive” as cash piled up with potential buyers and biotech valuations slid.

Bristol-Myers Squibb Co. earlier announced plans to buy Celgene Corp. in a cash and stock deal that values the target at $88.8 billion, including net debt, according to data compiled by Bloomberg. Gerberry did predict an uptick in M&A after two years of slowing deals but he thought these would more likely take the form of “bolt-on and mid-size deals” for 2019.

The deal was a surprise to others on the Street as well, including Cantor’s Alethia Young, who called it “a significant shift from current Biopharma strategy,” but, she wrote in a note to clients, “we can appreciate" that large cap biotechs have been “more single product/asset stories that are starting to mature in growth. They make attractive targets for companies looking for financial engineering deals over time.”

Young also questioned what it may mean for other large pharmaceutical companies like Amgen Inc. and their hunger for larger deals. It may be too soon to call a return of the mega-deal but for now pressured large cap biotechs are likely to rally, she said. Gerberry and representatives from Bank of America didn’t immediately respond to requests seeking comment.

Shares of Gilead Sciences Inc. rose as much as 5 percent in New York, while Alexion Pharmaceuticals Inc. briefly gained as much as 6 percent. Vertex Pharmaceuticals Inc. added as much as 3.2 percent and Biogen Inc. rose as much as 2.4 percent.

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