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https://www.barrons.com/articles/antibiotics-could-clean-up-as-m-a-catalyst-1522685528

There's been plenty of speculation about ongoing M&A in biotech, but a much more common drug could spur its own wave of deals this year.

Antibiotics Could Clean Up as M&A Catalyst
ILLUSTRATION: AGENCE FRANCE-PRESSE/GETTY IMAGES
Antibiotics are the most commonly prescribed class of drug, and represent a $40 billion market globally. However, bacteria is also evolving, leading to drug-resistant strains that will call for new antibiotics and innovation. Gabelli's Kevin Kedra believes that this problem, and other sector dynamics, will lead to more companies teaming up to tackle the problem.

There have only been 10 new Food and Drug Administration approvals for antibiotics since 2010, and while they were developed by eight different companies, now just four--Allergan (AGN), Johnson & Johnson (JNJ), Merck (MRK), and Melinta Therapeutics (MLNT)--own them. However, this year the Food and Drug Administration could approve as many as half a dozen new drugs, all from small players.

Those approvals could be the catalysts for deals: Kedra writes that the inefficiencies associated with being a single-product antibiotic company, along with the advantages of being able to leverage a single hospital sales force to sell multiple drugs, means that acquisitions make sense for drug companies, and that the current industry landscape looks much like the last period of consolidation, in 2013-2014. Add in the fact that many antibiotic companies are easily digestible, in terms of market capitalization, and trading at reasonable valuations, and deals look even more likely.

He highlights Motif Bio (MTFB), Nabriva Therapeutics (NBRV), and Tetraphase Pharmaceuticals (TTPH) as the most likely targets given their size, market opportunities, and timelines to approval.

The SPDR S&P Pharmaceuticals ETF (XPH) is down 2.5% to $40.83 this morning.