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Merck, Johnson & Johnson and Bristol-Myers Seen as Most Active in M&A

Likely targets include Biomarin, Bluebird, Deciphera and Iovance

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Jun 29, 2021
Summary
  • Drop in share prices of biotechs likely to spur deal activity.
  • Buyers looking for innovative treatments in cancer and gene therapy.
  • Concerns about increased government scrutiny of industry deals subside.
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Fierce Pharma reported RBC Capital Markets said a nearly 10% drop in biotech stocks for the first six months of the year could ignite a bonanza of second-half deals.

The past appears to be prologue. RBC noted the only other time in the past five years when biotech stocks lost ground and deals were down, merger and acquisition activity rallied in the second half of the year, and the same could occur in 2021.

Four companies are cited as prominent acquisition targets: Two gene therapy developers-- Bluebird Bio Inc. (

BLUE, Financial) and Biomarin Pharmaceutical Inc. (BMRN, Financial)-- along with Deciphera Pharmaceuticals Inc. (DCPH, Financial) and Iovance Biotherapeutics Inc. (IOVA, Financial). Biomarin is the biggest of the quartet with a market cap of nearly $15.5 billion. Shareholders might be pleased if a buyer would be just willing to match the company’s 52-week high of nearly $132 given the stock now trades at $84.40.

Bluebird and Deciphara are the smallest of the four, both valued at about $2.1 billion. Bluebird shares have taken a big haircut, dropping by more than half in the past year, while Deciphera tallied a decline just short of 50%.

The most motivated buyers are expected to be those companies seeking to bolster their pipelines: Merck & Co. Inc. (

MRK, Financial), Johnson & Johnson (JNJ, Financial), Bristol-Myers Squibb Co. (BMY, Financial), Vertex Pharmaceuticals (VRTX, Financial), Biogen Inc. (BIIB, Financial) and Gilead Sciences Inc. (GILD, Financial).

In the past, acquirers often sought new assets to fill in the gaps caused by drugs losing their patent protection. Things are different this time around. Buyers seem to be motivated by the quest for innovation. “There is a lot of capital and strong balance sheets in the industry, so companies are going to continue to use those to support their overall strategic initiatives,” Sky Milch of PricewaterhouseCoopers said in an interview.

It’s somewhat of a surprise that industry observers see such a vigorous market for M&A in life sciences. Earlier this year, it appeared President Joe Biden and the Federal Trade Commission would set the bar higher for approval of deals in pharma and biotech. That prompted worry that proposed takeovers would be carefully scrutinized for anti-trust implications, thus putting a dent in industry activity.

It looks like those concerns were unwarranted—at least for now. The more than 200 deals in the first half of 2021 are double what they were for the same period a year earlier, although Covid undoubtedly played a role in subduing activity. The value of the first half deals jumped more than 400% to $123.3 billion, paving the way for robust M&A in the second half.

It is expected companies with cancer drugs and gene and cell therapies will be major draws. Last year ushered in a couple of huge deals in those areas, including Eli Lilly and Co.’s (

LLY, Financial) $1 billion purchase of Prevail Therapeutics, which is developing two gene therapies for rare diseases. Earlier this year, Amgen Inc. (AMGN) paid just short of $2 billion for Five Prime, which is working on a promising drug for gastrointestinal cancers. And last week, UniQure NV (QURE) jumped into the fray by announcing it would fork over about $55 million to add privately held French gene therapy developer Corlieve Therapeutics.

Disclosures

I am/we are Long JNJ, VRTX, BMY, GILD, LLY and AMGN.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com
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