Biotech’s Resurgence May Cost Big Pharma
Friday, August 12, 2016
There are signs that a new wave of deals is brewing in the biotech sector. That is juicing shares and pushing up valuations.
Some likely buyers are Amgen, Gilead Sciences, and Merck, which are among the large drugmakers who have said this year that they are on the hunt for deals.
Among possible sellers are Medivation, which signed confidentiality agreements with several potential acquirers earlier this summer, a precursor to a possible sale. The Wall Street Journal reported earlier this month that the biotech giant Biogen has attracted preliminary interest from at least two potential suitors.
So far, this year has been relatively quiet on the deal front. About $93 billion in biotech and pharma deal activity has been announced world-wide in 2016, according to Dealogic. Deal volumes have exceeded $200 billion in each of the past three years.
Once again, buyers appear to be stepping up after shares have rallied after sitting on their hands when the sector sold off earlier this year. Despite a decline this week, the Nasdaq Biotechnology Index is up more than 15% over the past six months, though well below the records set last summer.
The biggest gains went to development-stage companies, which are the likeliest acquisition candidates, while larger biotech companies with substantial sales and profits have generally trailed the index.
Nevertheless, there are reasons to think the recent upward trend may persist. Most importantly, the freeze in equity financing seems to be thawing. BioMarin Pharmaceutical, a rare-disease treatment specialist with significant sales but no current profit, announced Tuesday it raised $720 million in a secondary offering at a modest discount to Monday’s closing price. Several smaller companies also announced secondary offerings on Wednesday morning. Secondary offerings had been in short supply ever since a spate of January deals came at significant haircuts to market prices.
So far, this year has been relatively quiet on the deal front. About $93 billion in biotech and pharma deal activity has been announced world-wide in 2016, according to Dealogic. Deal volumes have exceeded $200 billion in each of the past three years.
Once again, buyers appear to be stepping up after shares have rallied after sitting on their hands when the sector sold off earlier this year. Despite a decline this week, the Nasdaq Biotechnology Index is up more than 15% over the past six months, though well below the records set last summer.
The biggest gains went to development-stage companies, which are the likeliest acquisition candidates, while larger biotech companies with substantial sales and profits have generally trailed the index.
Nevertheless, there are reasons to think the recent upward trend may persist. Most importantly, the freeze in equity financing seems to be thawing. BioMarin Pharmaceutical, a rare-disease treatment specialist with significant sales but no current profit, announced Tuesday it raised $720 million in a secondary offering at a modest discount to Monday’s closing price. Several smaller companies also announced secondary offerings on Wednesday morning. Secondary offerings had been in short supply ever since a spate of January deals came at significant haircuts to market prices.
That could put the clamps on future deal activity. Or, just as likely, stick big pharma shareholders with a bill they would rather do without.
Source : wsj.com
