Jefferies has predicted more small tuck-in deals to come, as biotechs struggle to access capital despite key clinical milestones on the horizon.
And just like that, pharma is acquiring again. After a mostly dull first quarter, deals are heating up as we head into the final month of the half.
Sanofi has earned the badge as the biggest buyer, putting up $9.5 billion to acquire rare disease specialist Blueprint Medicines on Monday. But Bristol Myers Squibb eclipsed that total with a mega licensing deal to work with BioNTech on a solid tumor bispecific for potentially more than $11 billion.
The outlays have been at times surprising, featuring smaller biotechs with little fanfare around them. Jefferies noted last week that three small-cap biotechs had been acquired—Vigil Neuroscience (Sanofi), Regulus Therapeutics (Novartis) and Inozyme Pharma (BioMarin)—which speaks to the tough biotech markets, cheap stocks and a challenging fundraising environment. The year so far has been difficult for these small companies, as buyers looked to more liquid larger companies instead, Jefferies noted. Johnson & Johnson’s $14.6 billion acquisition of Intra-Cellular Therapies in the first quarter is an example.
Jefferies, in a pair of recent notes, predicted more small tuck-in deals to come, as biotechs struggle to access capital despite key clinical milestones on the horizon.
“If valuations remain pressured, we predict the number of small-cap M&A deals could rise in the next 6–12 months—particularly as SMID-cap cash runways steadily decrease (a function of time)—forcing SMID-caps to decide whether to raise cash (either via non-dilution or dilution) or simply seek alternatives (M&A, reverse mergers),” Jefferies wrote on Sunday.
The number of biotechs trading under cash has peaked at 22% of the sector. This is the highest point by far in at least nine years, according to Jefferies. The firm says that about 80 companies are in this ballpark. The previous high mark over the past nine years was 68 in 2022.
“In some sense, the potential suitor now has more leverage, but we’d argue that an M&A deal would be a win-win proposition for both parties in this kind of market environment, as management teams may also need to think about what is in the best interest of shareholders,” Jefferies wrote over the weekend.
Last week, Jefferies noted that biotech follow-on financings totaled just $3 billion in the first quarter, the lowest in three to four years. In the first quarter of 2024, $11 billion was raised.
“This is not necessarily a reflection of the fundamentals but more a reflection of the risk-off approach biotech investors are taking in the current environment,” the analysts wrote.
Jefferies flagged 10 biotechs that could become targets in the near term, including Kalvista Pharmaceuticals, Rezolute, Ventyx Biosciences, aTyr Pharma and more. All of these companies have fairly advanced assets in areas where pharma has been prowling.
Ventyx in particular has Phase II Parkinson’s disease results expected this quarter and a deal with Sanofi that provides the pharma with right of first negotiation (ROFN) on an acquisition. Ventyx’s shares climbed on the Vigil acquisition, since Sanofi also had a ROFN agreement with that biotech and the deal indicated a clear desire for novel central nervous system therapies, according to Jefferies. While Sanofi has a head start at negotiations, the agreement does not stop other pharmas from making bids. Jefferies noted that Lilly and AbbVie have interest in immunology and CNS, and therefore could be players.
Billion Dollar Buyouts
Eli Lilly’s $1 billion buy of under-the-radar pain biotech SiteOne Therapeutics was an example of the small-cap takeout—a diversifying one for the pharma, whose main focus for the past while has been on weight loss and diabetes. BMO Capital Markets heralded the deal as a chance for Lilly to branch out from the world of GLP-1s, where it is in a tight battle with Novo Nordisk.
Sanofi also exemplified the tuck-in trend in the deal signed prior to Blueprint. On May 22, the French pharma offered $470 million upfront to take on Vigil, and in particular its TEM2 Alzheimer’s candidate VG-3927. Jefferies said the 250% premium on Vigil’s share price suggested there was a competitive process behind the scenes.
Another theme has been big licensing deals with Chinese biotechs, continuing a trend that ticked up late last year as the region’s biotech sector rises. In a Friday note, Truist Securities said that “China based biotechs have become a force to be reckoned with.” Pharmas are increasingly looking there for M&A, according to the firm. But of late, many pharmas are opting for licensing deals with eye-popping milestone possibilities.
On Monday, Regeneron plunked down $80 million upfront for a late-stage GLP-1/GIP agonist from Hansoh Pharma. The deal could ultimately be worth up to $1.93 billion in various milestones. The week prior, Pfizer put $4 billion on the line in one of the biggest China-licensing deals of recent memory to work with 3SBio on a PD-1/VEGF bispecific antibody.
Bristol Myers Squibb’s $11 billion deal with BioNTech also has roots in China, with the bispecific antibody at the heart of the deal originating from BioNTech’s nearly $1 billion buyout of China-based Biotheus in November 2024. Coincidentally, that was the same month Merck signed a licensing deal worth up to $3 billion with China-based LaNova Medicines for a similar asset.
The BMS-BioNTech deal was part of “succession planning for Opdivo,” BMS’ blockbuster immune-oncology med, according to BMO Capital Markets. Similarly, Merck is facing patent expiration of Keytruda. The focus on immuno-oncology is a theme right now in industry as companies search for the next big blockbuster.
