By The biotech sector is starting the year off strong with two small acquisitions by pharmaceutical giants Merck and Johnson & Johnson. Following a period of decline over the past three years, the biotech industry experienced a two-month price surge, and these recent acquisitions indicate that the sector is on an upward trajectory.
The annual J.P. Morgan healthcare conference in San Francisco kicked off on Monday, drawing a large crowd of investors and healthcare executives to the city. It has become customary for pharmaceutical companies to announce significant acquisitions during this event. While there were no major deals announced on the first day of the conference, the two acquisitions that were unveiled stand out due to the substantial premiums offered by the acquiring companies.
This bullish move by big pharma is a positive sign for the biotech sector. The SPDR S&P Biotech ETF, which serves as a key indicator for the industry, had experienced a drastic 60% drop from February 2021 to October 2023. However, since then, it has rebounded with an impressive 40% increase, largely fueled by optimism surrounding potential interest rate cuts and increased mergers and acquisitions.
Johnson & Johnson wasted no time and announced on Monday that it will be acquiring Ambrx Biopharma, a biotech company specializing in cancer treatment, for approximately $2 billion. The deal comes at a premium of 105.4%, with Johnson & Johnson paying $28 per share compared to Ambrx’s Friday closing price of $13.63.
Merck, on the other hand, revealed its acquisition of Harpoon Therapeutics, another cancer-focused biotech company. Merck will be acquiring Harpoon for $680 million, offering a premium of 118% over Harpoon’s Friday closing price of $10.55 per share.
These acquisitions serve as a testament to the promising future of the biotech sector. With large pharmaceutical companies showing confidence and investing in innovative biotech ventures, the industry is poised for continued growth and advancement.
Promising Biotech Deals Defying the Odds
In a surprising turn of events, the premiums paid in recent biotech M&A deals have soared above industry averages. According to Evercore ISI analyst Liisa Bayko, premiums in 2023 reached an impressive 61%, well above the median of 43%.
These premiums not only outshined last year’s attention-grabbing deals but also highlighted the fierce competition among pharmaceutical companies for promising biotechnology targets. Despite the previous roadblocks caused by plummeting biotechnology stocks in 2021 and 2022, it seems that the tides have turned. Biotechnology boards are now more receptive to higher valuations, resulting in an easing of the dealmaking process for these coveted companies.
The notable deals that took place in late 2022 further exemplify the industry’s commitment to securing groundbreaking biotechnology advancements. AbbVie, for instance, made headlines with its substantial premiums, offering a remarkable 73% premium for the biotech Cerevel in an $8.7 billion deal announced in December. Not to be outdone, their 95% premium for ImmunoGen in a deal announced in November showcased their determination to stay ahead of the game.
On Monday, Harpoon shares surged by a staggering 109.9% during premarket trading, while Merck shares witnessed a slight dip of 0.1%. Ambrx shares experienced a massive 98.5% jump, while Johnson & Johnson shares suffered a minor setback of 0.2%.
However, not all biotech companies fared as well. Cytokinetics, which had been a subject of intense dealmaking speculation, saw its shares drop by 5.5% during premarket trading. The absence of a deal announcement on Monday left investors disappointed.
Speaking of deals, Johnson & Johnson’s target, Ambrx, is currently developing cancer drugs known as Antibody Drug Conjugates (ADCs). This specific field has witnessed a flurry of major acquisitions in recent months, with Pfizer’s monumental $43 billion acquisition of Seagen taking center stage. Each big pharma company is eager to secure a piece of this game-changing technology.
The world of biotech is evolving at an unprecedented pace, and as these premium deals demonstrate, the industry’s appetite for innovation has never been stronger.
Josh Nathan-Kazis (contact details removed)
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