Clovis Oncology Inc. (CLVS, Financial) and Denali Therapeutics Inc. (DNLI, Financial) are among the most likely biotechs to be acquired, according to industry publications. Denali, by far, would be the most expensive of the pair with a market cap of $6.4 billion, while Clovis is far more digestible with a market value of only $567 million.
But the rate of acquisitions in the space needs to pick up the pace if any deals are going to get done. According to the pharma consultant firm Evaluate, takeovers ground to a halt in the second quarter after a tepid performance for the first three months of the year.
During the April to June timeframe, only a single deal was worth more than $1 billion, and quarterly transaction values and deal counts were the lowest in five years. “Yet, while biotech is still in an overall bull market, the year so far has been decidedly choppy, which normally would have provided plenty of buying opportunities,” reported Evaluate.
A total of only 24 deals were consummated in the second quarter, with a combined value of just $3.2 billion. That lackluster showing was far below the $20.3 billion in the first three months of the year, a figure that was nothing to rave about either. Moreover, the $3.2 billion of transactions made it the worst for mergers and acquisitions in more than a decade. The last time things were this soft was in the third quarter of 2011, when $3.7 billion changed hands. In the second quarter, nothing even came close to AstraZeneca’s (AZN, Financial) buyout of Alexion last December. In fact, the biggest deal was MorphoSys’ (MOR, Financial) $1.7 billion acquisition of Constellation.
So what’s to account for the drastic slowdown? There seem to be many factors, starting with the high valuations of many small biotechs. Members of Big Pharma just aren’t finding any bargains out there. Another reason is more and more biotechs don’t need to go the acquisition route given they can readily access funds from both public and private investors.
Another factor cited by Evaluate is concerns that governments are looking askance at combinations because of antitrust implications. “Though the scope of these proposals could indeed threaten all pharma M&A, given that it is driven by a desire to curb companies’ pricing power and ultimately make drugs more affordable, how this might play out is still unclear,” Evaluate wrote.
If and when M&A activity does pick up, Clovis and Denali could be the most coveted of the biotechs.
Clovis’ leading medication is Rubraca, which is approved for the treatment of metastatic castration-resistant prostate cancer as well as for the treatment of recurrent ovarian cancer. The company also has a solid pipeline targeting various types of cancer. The company could be a nice fit for a pharma looking to get into or expand its portfolio of cancer medications.
In May, Boulder, Colorado-based Clovis announced it would sell up to $75 million in new stock. At $4.83, the company’s shares are flat for the year, although they have traded as high as more than $11.
South San Francisco-headquartered Denali is much cheaper than it was earlier this year, when the shares traded at near $94; the stock can now be had for just under $53. The company’s second-quarter results were an unpleasant surprise for investors as its quarterly loss of 50 cents per share exceeded the Zachs estimate of 37 cents, the third time in the last four quarters Denali fell short of earnings per share estimates.
Denali has a variety of drug candidates in testing to treat neurogenerative diseases such as Parkinson’s, dementia and Hunter syndrome.
According to Pharma’s Almanac, many of the companies that have been active in M&A in the past are good candidates for dealmaking in the short term, including Biogen Inc. (BIIB, Financial), Eli Lilly and Co. (LLY, Financial), Pfizer Inc. (PFE, Financial), Amgen Inc. (AMGN, Financial) and Merck & Co. Inc. (MRK, Financial).
Other prospective takeover candidates include:
- Alnylam Pharmaceuticals Inc. (ALNY, Financial)
- CRISPR Therapeutics AG (CRSP, Financial)
- Intercept Pharmaceuticals Inc. (ICPT, Financial)
- Sarepta Therapeutics Inc. (SRPT, Financial)
- Medigene AG (MDGEF, Financial)
- Albireo Pharma Inc. (ALBO, Financial)
- BioLineRx Ltd. (BLRX, Financial)
- Ocular Therapeutix Inc. (OCUL, Financial)
