Second Half of 2019 Set to Be Busy for Biotech M&A

While Bristol-Myers Squibb Co.’s merger with Celgene Corporation and AbbVie Inc.’s acquisition of Allergan Plc have dominated the biotech news cycle so far this year, many industry insiders expect that the second half of 2019 will be just as busy for biotech M&A.

In a note to clients, Jefferies trading specialist Jared Holz cautioned that the slowdown in M&A activity typically expected during the summer months may not arrive this year in the biotech sector: “Do not sleep on the summer. Conversations with several banking contacts suggest mergers will not slow down in what are normally seasonally slow months.”

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Janus Henderson life sciences portfolio manager Andy Acker concurred, noting that “there’s high interest from big pharma and big biotech in making acquisitions” due to slowing organic growth and high levels of free cash flow.

So far this year, Bloomberg reports that the number of drug sector M&A deals is on pace with 2018’s total; however, thanks to several mega-cap deals, this year’s total volume has beat last year’s year-to-date totals.

Industry analysts believe that Vertex Pharmaceuticals Inc., Incyte Corp. and Biogen Inc. are all likely potential targets for a large-cap deal, although Holz and Cantor Fitzgerald analyst Alethia Young indicate that Biogen is a “wildcard” who could be either a buyer or seller. In addition to Biogen, possible acquirers named by analysts include Eli Lilly & Co., Pfizer Inc., Merck & Co., Sanofi, Novartis AG, Johnson & Johnson, Gilead Sciences Inc. and Amgen Inc.

There’s no clear consensus as to whether the back half of 2019 will be dominated by more mega-mergers in the biotech space or smaller acquisitions. In a phone interview with Bloomberg, Holz indicated that “anything is possible;” while there are fewer major targets remaining than were out there at the beginning of the year, both large-scale and small-scale deals are equally likely.

Holz believes that there’s one major factor that will drive higher-than-usual biotech M&A over the remainder of the year: the desire to close any deals before the political landscape changes due to the 2020 election. As Holz notes, biotech companies will want to “beat the fundamental shift.”