Biotech Values

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Big Pharma Has Enough Cash to Buy All of Biotech. Why M&A Isn’t Happening.
By Josh Nathan-KazisFollow
May 6, 2022 9:40 am ET

With biotech stocks off nearly 60% from their February 2021 peak, and big pharma firms flush with cash, why haven’t there been more acquisitions this year? It’s a healthcare market paradox.

A note Friday from Jefferies analyst Michael Yee highlights just how far biotech valuations have fallen, and how much cash the big pharma giants have on hand. The largest biopharma firms right now have almost enough cash to more or less buy every single small-to-mid-cap biotech company.

Yee calculates that the combined market capitalization of all the biotech stocks valued at under $5 billion is around $350 billion. The cash balance of the top 20 biopharma companies combined, meanwhile, is over $300 billion.

“We have reached a point where Big Pharma has so much cash they could basically buy the whole smid-cap universe,” Yee wrote. “We note M&A is tough when markets are falling fast …but eventually a few deals could catalyze things back up.”


so if biotechs are cheap, and pharma firms have a lot of cash, why isn’t anyone making deals? Merck (MRK) CFO Caroline Litchfield offered a compelling explanation in an interview with Barron’s in late April: Biotech executives don’t yet believe what Mr. Market is telling them about how much their companies are worth.

“We’ve yet to see the seller change their mind-set on what the value of their company is,” Litchfield said. “I think the world lives in hope right? …And if you’re sitting in the biotech, you’re waiting to understand, is this permanent, or is it temporary? And that’s where I think they are.”

In his Friday note, Yee wrote that if and when large biopharma firms start buying small and mid-cap biotechs, it will signal that “sellers have adjusted their expectations and have accepted the new valuation.”

What’s more, Yee wrote, it would show that the pharma buyers don’t think that the price will be falling any farther. Taken together, that sense of stabilization could give investors the reassurance they need to come back into biotech, and keep buying.


https://www.barrons.com/articles/big-pharma-mergers-biotech-cash-51651844327?mod=hp_DAY_5