According to Wells Fargo, signs point to a warming in biotech M&A. Here’s where to look
The pace of biotech deals should pick up, but investors should think about smaller targets, said Wells Fargo analyst Mohit Bansal. The analyst cited both tempting valuations for small- and mid-cap biotech companies, which now trade at around simple present value on average, and a tight regulatory environment for his view. “Big BioPharma needs growth, and the top 5 US companies with greatest needs have over $400 billion in cash and over $65 billion in revenue needs by 2025,” Bansal wrote in a research note Thursday, referencing Amgen, Bristol Myers Squibb, Gilead Sciences, Merck and Pfizer. An upcoming workshop hosted by the Federal Trade Commission and the Justice Department on Tuesday and Wednesday is likely to discourage large M&A deals, he said. The enforcement of antitrust law in the pharmaceutical industry will be a focus of this event. But Bansal reckons smaller transactions of less than $20 billion could still happen. That was already the case when Pfizer acquired migraine drug maker Biohaven in May and Bristol Myers last week signed a deal to buy Turning Point Therapeutics to expand its oncology portfolio. Previous recessions have led to other mergers in the sector, such as Pfizer’s acquisition of Wyeth, Merck’s collaboration with Schering-Plough and Roche’s acquisition of Genentech, all of which occurred in 2009, he said. Adding to the pressure is a lack of IPOs and subsequent stock offerings this year, which could prove to be another catalyst as some smaller biotechs run out of cash later in 2022. Bansal didn’t name any potential targets in his research note, but CNBC Pro reported Saturday that analysts have identified companies including Vertex Pharmaceuticals, Seagen, Horizon Therapeutics, Incyte, and Neurocrine Biosciences as potential targets. Still, it’s worth noting that M&A activity has been subdued so far this year. In a separate research note, Citigroup said the value of businesses worldwide, in terms of dollars spent, fell 4.5% from a year earlier. “The current economic environment is not very favorable for M&A activity, which tends to be cyclical; Earnings revisions, which tend to follow a profile similar to M&A deal volumes, are in negative territory, GDP forecasts are broadly on the downside, and the market has generally faced more headwinds than expected this year,” Citi analysts said in a research note. “However, M&A events are about finding opportunities that will always be available to companies that are well positioned to do so.”
https://www.cnbc.com/2022/06/09/signs-point-to-biotech-ma-heating-up-wells-fargo-says-heres-where-to-look.html According to Wells Fargo, signs point to a warming in biotech M&A. Here’s where to look
