(FILES) This photograph taken on February 23, 2023, in Paris, shows the anti-diabetic medication "Ozempic" (semaglutide) made by Danish pharmaceutical company "Novo Nordisk". (Photo by JOEL SAGET / AFP)
Biotech investors are heading into the year’s biggest dealmaking event with a renewed sense of optimism after more than two years of layoffs and shrinking stock prices.
The tide has shifted in just a few months as large drugmakers open their wallets again for acquisitions, in some cases paying more than double a company’s stock price for promising treatments.
Firms developing weight-loss drugs, targeted cancer therapies and other buzzy medicines are all hopeful that they’ll be next in line.
"Things are looking up for the first time in a long time,” said Brad Loncar, a former investor who founded BiotechTV, which produces news and educational videos about the industry.
Biotech executives will test their worth when all the industry’s major players gather next week at JPMorgan Chase & Co.’s annual health-care conference in San Francisco.
The event has long been famous for its schmoozing and laying the groundwork for potential acquisitions, though recent years have been more subdued.
But the tide has been shifting.
Drugmakers announced more than $50 billion worth of biotech deals in the fourth quarter, including $27 billion just in December, according to data compiled by Bloomberg.
"There’s a good amount of optimism,” Mike Gaito, JPMorgan’s global head of health-care investment banking, said in an interview. "The cost of debt and overall sentiment is improving. We’ve had lots of big M&A in biotech and I expect that will continue in 2024.”
Big drugmakers have been focused on buying late-stage assets with larger revenue potential to replace older blockbuster drugs and products that have fallen out of favor, such as Covid shots.
While that’s set to continue this year, only a handful of biotechs fit that bill, so earlier-stage biotechs stand to gain as Big Pharma grows increasingly desperate for deals.
Merck & Co., for instance, is on the hunt for deals before its blockbuster cancer medicine Keytruda loses patent protection later this decade.
"Not everybody has the same growth trajectories or the same patent cliff cycles, which is actually great for the M&A environment,” Gaito said.
Some large drugmakers are under pressure to acquire new products because they have drugs facing price control under the Inflation Reduction Act. Those drugs include Eliquis, a blood thinner made by Bristol-Myers Squibb Co. and Pfizer Inc.
"That’s going to mean a little more desire to land some of those deals,” said Nick Shipley, chief advocacy officer of the industry trade group BIO.
There’s no shortage of biotech companies seeking suitors. The number of companies publicly exploring strategic options - typically a sign of desperation - recently hit a record high, according to Stifel.
And there were 57% more layoffs across the industry last year, according to Fierce Biotech. Higher interest rates, threats to prices of new drugs and a postpandemic letdown have caused investors to flee in search of less risky industries, making it harder for companies to raise enough money to survive.
Many biotech firms paused clinical trials or shut down.
Potential Targets
"Pharma’s needs are large. The revenue gaps are big,” said Eric Tokat, co-president of investment banking at Centerview Partners. The boutique investment bank advised on about 70% of the biopharma deals larger than $1 billion last year, according to data compiled by Bloomberg.
"To move the needle, you need large products,” Tokat said.
Weight loss was one of the hottest health-care trends in 2023, and companies developing next-generation treatments will have plenty of suitors in San Francisco.
One of those drugmakers, Carmot Therapeutics Inc., last month agreed to be bought by Roche Holding AG for as much as $3.1 billion.
"If you’re in that space you’re going to have a full dance card,” Shipley said. "There’s no doubt about it.”
The same goes for targeted cancer therapies. Pfizer’s $43 billion takeover of Seagen Inc. and AbbVie Inc.’s $10.1 billion deal for ImmunoGen Inc. underscore the sizable bets that companies are making in this space. Other companies developing such treatments are Japan’s Daiichi Sankyo Co., which recently sold the rights to three of its drugs to Merck for as much as $22 billion, and Gilead Sciences Inc.
Bankers also expect more deals involving companies with medicines for central nervous system disorders. Bristol agreed to buy schizophrenia drug developer Karuna Therapeutics Inc. for $14 billion last month in a fast-moving deal that came together in just two weeks.
AbbVie earlier in December said it plans to buy Cerevel Therapeutics, which is developing new drugs for Parkinson’s disease and schizophrenia, in an $8.7 billion deal.
Immunology is also a popular area for prospective buyers. In April, Merck agreed to purchase Prometheus Biosciences Inc. for about $10.8 billion to bolster its portfolio of drugs to treat autoimmune conditions. Argenx SE and Immunovant Inc. are also developing treatments for autoimmune diseases.
Many recent deals involved companies with products already on the market. But most biotech firms are years away from selling a drug - if they even get that far. Merck Chief Executive Officer Rob Davis said Jan. 4 that companies with mid- to late-stage studies are good acquisition targets.
"There’s a sense of needing to act before some of these attractive assets go away,” Tokat said.
