denisk, Biotech Deals Are Heating Up. Why 2024 Could Be Even Hotter for M&A. By Josh Nathan-Kazis Follow Dec 08, 2023, 11:14 am EST
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According to an RBC count, the cumulative value of biopharma deals this year has been $128 billion. DREAMSTIME Biotech deals are heating up as the year comes to an end, and analysts say the hot streak will likely continue in coming months.
That could portend a rebound for the biotech sector, which has performed abominably in recent years.
Large biopharma companies have announced a string of big deals as the year comes to a close. AbbVie said late Wednesday it would buy the neuroscience-focused biotech Cerevel Therapeutics for $8.7 billion—after announcing a week earlier it would acquire the cancer-focused biotech ImmunoGen IMGN
-0.43% for $10.1 billion. Roche Holding said Monday it would buy the privately held Carmot Therapeutics for $2.7 billion.
Of the 18 biotech acquisitions worth over $1 billion announced so far this year, a third have come since the start of October, according to the website BioPharma Dive.
Analysts say this year-end spurt of biopharma mergers and acquisitions bodes well for the sector in 2024. The SPDR S&P Biotech ETF XBI
-1.29% , which tracks the sector, has had a strong November and December, but is still down 3% so far this year. The S&P 500 SPX
0.40% is up 19.5%.
The XBI now trades around $80, down dramatically from the $140 range it hit in late 2020 and early 2021. It’s down nearly 50% from its peak in February of 2021.
The AbbVie ABBV
1.30% -ImmunoGen deal “may be the start of more consistent activity we will see in 2024,” RBC Capital Markets analyst Brian Abrahams wrote in a note published late last week. “We do believe we are likely past the XBI bottom and can look to somewhat improved enthusiasm for the group—in part driven by M&A—into 2024.”
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Biopharma M&A had stalled in recent years as the valuations of biotechs plunged. Biotech boards were unwilling to accept offers at prices that valued the companies far below where they had traded during the pandemic-era biotech boom, just a year or two earlier.
That has changed this year. According to an RBC count, the cumulative value of biopharma deals this year has been $128 billion, up from $61 billion in 2022. Major acquisitions announced this year include Pfizer’s $43 billion deal for the cancer-focused biotech Seagen, and Merck MRK
-0.49% ’s $10.8 billion deal for the immunology-focused biotech Prometheus Biosciences.
Fading worries around interference from antitrust regulators—who cleared Amgen’s $27.8 billion acquisition of Horizon Therapeutics this year after initially moving to block it—seem to be freeing companies to make deals.
The large-cap biopharma companies, meanwhile, have plenty of dry powder: According to RBC, they will have roughly $199 billion in cash by the end of the year. Dividends and stock buybacks, the RBC analysts wrote, are trending down, which could imply a focus on M&A.
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“We believe Pharma will continue to be very aggressive on the M&A front,” Mizuho healthcare equity strategist Jared Holz wrote in an email to investors Wednesday.
More M&A could boost the XBI, as buyouts free up cash from specialist investors to reinvest in the sector and the news flow piques generalist interest.
Where to expect that M&A, however, is tough to guess. Biotechs with obesity, immunology, and cancer assets have been in particular demand this year.
One possibility that drew investor attention earlier this week was that Pfizer could look to make a deal with a biotech developing an anti-obesity pill, given the Pfizer’s Weight-Loss Pill Disappointment Is an Opening for Biotech Rivals Pfizer expects the market for new obesity pills to be $90 billion per year. Lilly, Novo, and many biotechs hope to claim chunks of it.
Continue Reading roadblocks its own internally-developed anti-obesity pill has hit. Shares of Viking Therapeutics, which has an obesity pill under development, are up 47% so far in December, while shares of Terns Pharmaceuticals, which is also testing an obesity pill, are up 62.5% over the same period.
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com
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