Will Mergers & Acquisitions Activity Continue to Boost Cancer Therapeutics Stocks?
After plummeting in 2022, mergers & acquisitions (M&A) activity in the biotech sector picked up in 2023. Bolstered by robust balance sheets, large pharmaceutical companies may continue snapping up smaller biotech companies with promising research pipelines. Why do large pharma companies want to acquire biotech companies? Why is this likely to continue into 2024?
Deal Values Rose in 2023
M&A deal activity in the life sciences sector plummeted to $309 billion in 2022 from $517 billion in 2021. However, deal activity began showing signs of life in 2023 as deal value rose to $381 billion, according to a study from McKinsey & Company.[1] Biotech companies accounted for 61% of 2023’s activity.
Activity Points to a Continued Rise in 2024
Deal activity picked up in the fourth quarter, with six of the ten largest deals occurring in the fourth quarter of 2022 and four in the last five weeks.[2]
Big Pharma Reaching for Revenue
Big pharma may need to acquire biotech companies to replace revenues as many of their blockbuster drug patents expire. A report from Stifel shows that in 2023, drugs with revenues of over $41 billion had their patent expire and $141 billion will come off patent through 2028.[3]
Stifel’s analysis demonstrates that major pharmaceutical companies have traditionally pursued acquisitions as a strategic avenue to access novel drug portfolios. Between 2015 and 2021, 41% of new drug approvals came through major pharmaceutical acquisitions and 25% were from licensing.
Big Pharma’s Strategic Advantage in Biotech Acquisitions
Big pharma not only has the desire to acquire biotech companies but also has the capacity. Global consulting company EY estimates that the pharmaceutical sector has over $1.37 trillion available for M&A.[4] At the same, time biotech valuations have declined almost 70% from their peak.[5] This combination implies that 2024 could be a good year for M&A activity in the biotech sector.
Oncology – A Favored Target
EY estimates that growth in the oncology market will outpace that of the overall pharmaceutical industry. As a result, oncology is likely to be a favorite acquisition target segment over the next five years.[4]
EY notes in the past five years, oncology companies were the dominant target of M&A activity.
As a favorite target, acquired oncology companies have commanded higher multiples than other segments of the pharmaceutical industry.[4]
Leading to a Potential Investment Opportunity
M&A activity may boost the stocks of oncology companies. Big pharma needs to replace revenues and oncology companies may provide the desired growth. Additionally, as a favorite target, oncology companies may command attractive premiums.
Oncology companies may offer investors an attractive investment opportunity.
How May Investors Gain Exposure to Companies in the Oncology Industry?
The Range Cancer Therapeutics ETF
The Range Cancer Therapeutics ETF (CNCR) seeks to track the performance, before fees and expenses, of the Range Cancer Therapeutics Index. The index aims to track the performance of a portfolio of stocks that are involved in the development and distribution of cancer drugs and treatments.
[1] Life Sciences M&A Shows New Signs of Life, McKinsey & Company 2/29/24
[2] Dunleavy, Kevin, JPM24: Pharma Firepower, M&A Surge Last Year Bode Well for Dealmaking Prospects, Fierce Pharma, 1/8/24
[3] Why Invest in Biotech, Stifel, 11/23/23
[4] How Life Sciences Can Make the Right Deals in a Time of Change, EY, 1/8/24
[5] Life Sciences M&A Shows New Signs of Life, McKinsey & Company 2/29/24
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Cancer Therapeutics Companies Risk. The success of Cancer Therapeutics Companies heavily depends on the outcomes of clinical trials and obtaining necessary regulatory approvals for the development of new drugs and other treatments for cancer-related conditions. These companies face risks related to the failure of clinical trials, unforeseen safety issues, delays in the regulatory approval process, or failure to obtain approvals altogether. Cancer Therapeutics Companies are highly dependent on the development, procurement and marketing of drugs and the protection and exploitation of intellectual property rights. Changes in healthcare policies, reimbursement rates, patent laws, or regulations governing drug development and commercialization can significantly impact industry and individual companies. These changes may affect profitability, market access, and the viability of certain products or technologies.
