The M&A market is under the weather. Nearly halfway into 2023, global transaction values total $1.1 trillion, $900 billion less than this point last year.
One of the lone bright spots for investors looking to find relief has been the healthcare sector, which has actually seen M&A volume increase nearly 25% to $157 billion, according to data compiled by Bloomberg.
There are a few reasons pharmaceutical and medtech companies have been the exception. First, major drugmakers are always chasing the next blockbuster drug — and they’re willing to pay up to do it.
In March, Pfizer spent a whopping $43 billion to acquire the biotechnology company Seagen. The deal adds Seagen’s antibody-drug conjugates technology to Pfizer’s protein engineering and medicinal chemistry capabilities, with the goal of generating novel target combinations.
Merck followed suit, paying $11 billion in April to buy Prometheus, a precision medicine company with a lead drug candidate designed to treat a tumor-related target associated with both intestinal inflammation and fibrosis.
Other large firms, including Eli Lily and Novartis AG have gotten in on the fun too in recent weeks, sending the stocks of the smaller firms they acquired skyrocketing.
Deal activity expected to remain strong
The spending spree isn’t likely to slow down anytime soon, according to analysts at PricewaterhouseCoopers.
“As price gaps between buyers and sellers have begun to narrow, we expect deal activity to remain strong in the second half of the year,” analysts wrote.
“While debt markets remain challenging and the broader macroeconomic backdrop is unclear, companies with capital flexibility have become more willing to deploy the resources needed to acquire assets with significant upside potential.”
Meanwhile, even as medtech deals have lagged behind pharmaceutical ones, companies are looking for targets that “accelerate the push towards patient-centric ecosystems and product-enabled services.”
“Improving conditions such as higher procedure volumes, easing supply chain challenges and new technologies coming to market are likely to support increased M&A activity, they wrote.
Spotlight on emerging biotech
There are no shortage of young small-cap companies that could attract the attention of the pharmaceutical giants in the future.
Similar to Prometheus is New York-based Immunic Inc (NASDAQ:IMUX), a biotechnology company developing a clinical pipeline of orally administered, small molecule therapies for chronic inflammatory and autoimmune diseases. It has caught the attention of market analysts with the release of positive data from the maintenance phase of its Phase 2b CALDOSE-1 trial of lead asset vidofludimus calcium (IMU-838) in patients with moderate-to-severe ulcerative colitis (UC).
Atossa Therapeutics Inc (NASDAQ:ATOS) is another cancer-focused pharmaceutical company developing a proprietary neoadjuvant treatment for women with estrogen receptor positive breast cancer. A Phase 2 study evaluating the treatment recently became fully enrolled.
Then there’s Tiziana Life Sciences Ltd (NASDAQ:TLSA), which is developing the only fully human anti-CD3 monoclonal antibody used in the treatment of intracerebral hemorrhage, a subtype of stroke.
Promising data from a mouse model of collagenase-induced ICH was shared in a presentation at the Annual American Academy of Neurology conference.
In Canada, Valeo Pharma Inc. (TSX:VPH, OTCQB:VPHIF) is a Montreal-based company developing treatments for neurodegenerative diseases. It recently reported record quarterly revenues of $13.6 million for its second quarter ending April 30, 2023, representing a substantial increase of 184% compared to the same period last year.
Despite some challenges in the debt markets and an uncertain macroeconomic environment, pharmaceutical deal activity shows no sign of slowing as we enter the second half of the year. Price gaps between buyers and sellers are shrinking, and companies that have the financial flexibility are more willing to invest their resources in acquiring assets that have a high potential for growth.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
Follow him on Twitter @andrew_kessel