Biotech General Discussion

Summary:

• BPIQ monitors M&A of smid-cap biopharmas

• There has been an uptick in biopharma M&A since May

• Two big deals announced at the beginning of this month and 1 rumored deal (Aug ‘22) helped drive XBI higher this month

• These deals and prior biopharma M&A, reveal key characteristics of biopharma acquisition targets

• One of these characteristics of a good M&A target, is a promising phase 3 or approved asset

• Investors can use this info to profit by owning shares of companies that have these characteristics and thus are more likely to be acquired

• We identify some of these companies in this post

• See our BPIQ forum post for more info on companies with recent approved products that are likely to be acquired after subscribing. Learn more here.

At BPIQ we monitor mergers and acquisitions (M&A) involving smid-cap biopharma*. While there were not many M&As in 2021 or the first quarter of 2022, M&A activity in the biotech sector has heated up since May 2022. Biotech stocks have been struggling since early 2021, but since mid-June the biotech sector is making a comeback. This has been driven by an increase in smid-cap biopharma M&A since May 2022. See our post on what drives XBI HERE.

Table 1 summarizes the number of smid-cap biopharma acquisitions per quarter since Q1 2021, along with a breakdown of companies by the price of acquisition and the size of the acquirer. There is a clear uptick in the number of smid-cap biopharma M&A announcements starting in Q2 2022, especially compared to Q2 2021 and Q1 2022. As of August 24, 2022, four acquisitions have been announced in the third quarter 2022. Also see Figure 1 for a graph of total acquisitions per quarter since Q4 2021 and acquisitions over $1B.

Table 1. Smid-cap biopharmas acquired by quarter (updated August 24, 2022)

Figure 1. Total acquisitions per quarter and acquisitions over $1B

If we focus on acquisitions with values greater than $1B, there were 3 smid-cap biopharma acquisitions in Q2 2022 by our count. This is the same as, or less than, the 3 or 4 >$1B acquisitions announced in 3 of the 4 quarters in 2021. Thus, there was an uptick in smid-cap biopharma M&A activity in Q2 2022 compared to Q1 2022, especially May 2022, but this increase appears to be driven by smaller deals. Maybe this isn't surprising since the valuations of most smid-cap biopharma companies have been severely reduced over the past 1.5 years.

Key Target Attribute 1: A Late Stage (or Registrational Trial) or Approved Asset

It is especially noteworthy that in 2021, the number of acquired companies with a Phase 3 or registrational trial was >80% and so far in 2022 85% of acquired (or announced) companies have a Phase 3 or later stage asset. This shows the importance of later stage and/or approved clinical assets for acquisition candidate companies. Clearly smid-caps that have a Phase 3 (or registrational) or commercial asset are the key targets for M&A. Thus, investors looking to profit by holding stock in a company when it announces it is being acquired should focus on companies with stage 3 or later assets.

Table 2 details several companies with recently approved products, making them possible companies for future M&As as per Key Target Attribute 1. For more info on these companies see our paid versions, which includes over 100 companies with recently approved assets (info includes market cap, revenue, and if the ticker is in our portfolios).

Table 2. Selected smid-cap companies with recently approved therapeutics

So far in Q3, we have seen some huge deals announced that have driven biotech stock prices. Thus far, about half of the deals this quarter were above $1B and half were less than $200M. These large deals involved GBT and CCXI, which were announced earlier this month. Fortunately, we held shares of GBT in 2 of our Amp portfolios* at the time of the announcements.

Both of these companies have lead assets that are newly approved products: GBT's asset Oxbryta was approved on 11/25/2019 and CCXI's asset TAVNEOS was approved on 10/8/2021. While the revenue for these assets in Q1 was quite different (Oxbryta Q1 2022 sales of $55.2M and TAVNEOS Q1 2022 sales of just $5.4M), this is not surprising since TAVNEOS was just approved at the end of 2021. GBT has seen a product growth of almost 50% since the first quarter of sales ($55.2M in Q1 ‘22 vs $36.9M in Q3 ‘20). CCXI product sales were only ~$5M in Q1 (which was the first full quarter of sales), but Tavneos could be a blockbuster drug. https://www.biopharmadive.com/news/amgen-chemocentryx-acquisition-deal-autoimmune-tavneos/628888/. The company is not reporting Q2 sales because of the acquisition announcement.

Thus, the acquisition announcements earlier this month for GBT and CCXI, and the recent acquisition announcement of AERI by Alcon (ALC), once again show the importance of companies with approved products as their lead assets. In the subscriber-only versions of this article, we provide a table that includes all smid-cap biopharma companies with a recently approved commercial asset. CLICK HERE and subscribe today to get instant access.

There was also a lot of rumor and speculation of SGEN being acquired by MRK, which also appeared to drive biotech stock valuations higher in early August (Merck Is in Advanced Talks to Acquire Biotech Firm Seagen). Like GBT and CCXI, SGEN had a commercial product, Adcetris. Thus, like GBT and CCXI, SGEN meets the criteria of having an approved asset. It makes perfect sense that M&A targets have late stage or approved assets, as large biotech companies need to continue to find ways to drive more revenue and profits, and it is very expensive and risky to develop a major therapeutic. Furthermore, it is very efficient to load the "bag" of products for sales reps with more products that target medical practices that they are already calling on.

Concluding Remarks

In summary, the recent increase in biopharma M&A activity has helped to rejuvenate this sector. Biopharma companies with at least one approved clinical asset that was approved in the last 3 years, is a good starting point for identifying companies that are worthy of deeper analysis for possible addition to your portfolio. In our deeper versions of this article for paid subscribers, we not only provide a list of all the companies in our database with a commercial product approved in the last 3 years, we reveal several other characteristics of good M&A targets, and discuss whether current biopharma valuations are in a good range for M&A. Sign up Now and get instant access to this insightful article.

Footnotes:

*Depending on the acquiring company, we may remove acquired company assets from our database as we do not track large cap companies currently. However, if a smid-cap company is the buyer company, we will continue to track the assets under the new company ticker.

See our previous Acquired companies forum post for early 2022 acquired companies

This article is NOT legal, investment or tax advice. Please do your own diligence before making any investment decisions.

Article history:

Originally posted 8/9/22

Updated 8/30/22