Epoch 44: Biotech 2023-24 M&A Projections

M&A Activity, Pharma Perspective, Ranked Biotech Substrate

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Hello Avatar!  Welcome to another week of biotech analysis. Since you are reading our Sunday newsletter we want to give out a BIG thank you as the Sunday writings are focused on strategy and part of our paid subscription.  Today we are going to discuss M&A plays into the end of 2023 (and early 2024).   We know many of you are here for the biotech picks - feel free to scroll to end.  For those of you reading along we will open with a few comments on M&A trends in place today, a brief survey of pharma sentiment by company toward M&A and then conclude with our picks for potential buy-out.

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Lots to cover this week, let's get started!

BIOTECH M&A CANDIDATES

If you are a subscriber then you know our Monday public market research is dedicated toward quick flip, high volatility catalysts (data readouts and regulatory decisions).  We do not focus on long term plays in our Monday analysis, although if you read all our weekly content you will pick up on where the longer term opportunities lie.  Often investors focused on the longer term are looking at the underlying science and viewing a potential exit as a time when the biotech is acquired by pharma.  If you fall in that bucket today is for you!  While many of the highlighted companies will not be acquired in 2023 - the likelihood for M&A clearly extends into 2024. Today’s content will draw from a recent Piper note on the topic.

As we have been preaching all year, pharma is prioritizing revenues at the moment.  With so many companies facing loss of exclusivity revenue gaps between now and 2030 the pressure to replace those revenues has been intense.  That situation combined with pharma balance sheet strength and decreasing biotech valuations has created the perfect storm for a buyers market.

As we have shown frequently in our market updates, M & A activity continues to tick up.  It should not be a contrarian stance to anticipate a flurry of activity into year end followed by an additional wave in January around the JPM Healthcare conference.

The chart below from Piper shows that while deal size has historically remained in the $4-8B range the number of deals done has been ticking up for some time now.  2023 looks as if it will surpass 2022 in both number of deals done and value. 

PHARMA BUYER MINDSET

We will now shift our discussion to big pharma and how each individually has commented on their appetite for M&A.  As noted by the Piper team, it appears there is a consensus toward more deals.

AbbVie

"That said, we don't need to do anything to deliver on the high-single digit growth expectation for the second half of this decade. So really focus more on, think of it as small to midsize opportunities that will help drive growth in the next decade. And really focusing on the five key therapeutic areas that will drive that growth"

Rob Michael, President & COO (September 13, 2023)

Regeneron

"I do think as we've accumulated a rather large cash balance, we'll continue to be active in business development, still looking at the same types of opportunities and collaborations that bring us new modalities, new platforms that we can leverage our science with."

Ryan Crowe, Vice President, Investor Relations (September 11, 2023)

Pfizer

"I think still likely we won't see mega mergers because the environment clearly will not tolerate something like that. But the biotechs acquired by big pharmas I think we'll continue seeing, almost in the same tune. It's a little bit expensive because interest rates are high and with Seagen, we announced that we raised $33 billion of capital. This costs, right? There's a cost associated with that, which is bigger now than it was two years ago. But I think there is a lot of innovation that is happening in biotechs, and there is a need for pharmas for growth. So, I think we will see the same. Post the election, who knows what will be the political environment and it will go back to mega mergers so that they are basically aiming to cut costs because all the acquisitions targeting biotechs, they are not targeting any cost really. Mostly, they are targeting the growth that will be able to achieve if they put their muscle behind the pipeline of the biotech."

Albert Bourla, Chairman & Chief Executive Officer (September 27, 2023)

GSK

"I think we've been extremely clear and consistent in our priorities for BD, because it might be M&A, sometimes it's different kinds of business development and partnering as well. But what was weird was GSK not doing it. We now do about- I think about 50% of our portfolio is either partnered or bought in which is much closer to normal, and it is a priority."

Emma Walmsley, Chief Executive Officer & Director (September 14, 2023)

Bristol Myers Squibb

"If I could just add one thing to that. I think that, that collaboration is going to be increasingly important in a post-IRA world because making sure we get those insights into very early decisions about investments that we make is going to be critically important."

Christopher S. Boerner, Executive Vice President, Chief Operating Officer, Chief Executive Officer Designate & Director (September 14, 2023)

Gilead

"We have a very strong portfolio, as Dan highlighted, much broader. We're going to continue to build it out, but what you see over the next couple of years is more likely to be what you saw in 2022, what you've seen this year so far. A lot of important early-stage licensing deals, smaller acquisitions. I think our belief is that any healthy company will continue to look broadly at external assets and to bring in external assets, but our focus is really on late-stage preclinical, early-stage clinical assets."

Andrew D. Dickinson, Chief Financial Officer (September 12, 2023)

BIOTECH M&A TARGETS

Having run through the buyers, we now shift to the potential buy-out candidates. And score each along a 3 point scale with a score of 1 being the lowest and 3 being the highest. While this is HIGHLY qualitative, it is still informative and in our view directionally correct.

TA (Therapeutic Area): 3 means this is a hot area where assets are in high demand

Target/MOA (Mechanism of Action): 3 means this target or MOA or modality is a hot area in high demand

Selling point: 3 means the data package from the company is most derisked.  Obviously Legend has a commercial product and is most derisked out of this set.  Other companies have varying degrees of strength with their clinical data packages

Risk: 3 means lowest risk and is essentially correlated to PTRS ratings for stage of development with a qualitative overlay based on our opinion of the data package.

Aggregate Score: add the 3 categories above together

Lastly, we will stress again this is HIGHLY qualitative and not based on a rigorous modeling.