The fourth quarter has historically been a busy time for the biopharma industry, with the sector generally seeing a significant uptick in M&A activity.
We asked Seeking Alpha analysts Stephen Ayers and Edmund Ingham which biotech companies they think could announce deals by the end of the year.
Stephen Ayers: Right now, I think the most obvious M&A target is Abivax (NASDAQ:ABVX). In ABTECT-1, obefazimod hit all primary and secondary endpoints in the 8-week Phase 3 induction study in ulcerative colitis, a multi-billion dollar market, which is not an easy feat. Obefazimod’s mechanism (a novel miR-124-enhancer) is differentiated and highly complementary to existing JAK/S1P/anti-TNF pathways.
Notably, inflammatory bowel disease/ulcerative colitis has been a popular space for M&A activity. Recall that Roche (OTCQX:RHHBY) dished out over $7 billion for a subcutaneous anti-TL1A inhibitor two years ago. In addition, Merck (MRK) spent $10.8 billion to acquire Prometheus Biosciences in early 2023. The deal centered around PRA023, an IV/SC anti-TL1A monoclonal antibody.
Obefazimod is a great fit for inflammatory bowel disease franchises needing a once-daily, oral anchor. Takeda (TAK) comes to mind. It has Entyvio IV/SC, but lacks a best-in-class oral. Others include Johnson & Johnson (JNJ) (post-Stelara loss of exclusivity; building Tremfya Crohn’s), Novartis (NVS) and Sanofi (SNY) (the latter two lacking meaningful ulcerative colitis orals).
Why before 2026? Maintenance readouts, expected in 2026, typically drive step-ups, so it wouldn’t surprise me to see preemptive offers, either in the form of a full takeout or U.S.-only rights.
With that said, I would never advocate investing in a biotechnology stock on M&A speculation alone. Oftentimes, these types of stocks will have “acquisition premiums” built into their valuation. If nothing happens on this front, its valuation may needlessly suffer until the next major catalyst.
Edmund Ingham: In the prevailing economic environment, I’d speculate that most large pharma companies are looking to acquire biotechs with assets that are in later-stage studies or even recently approved, providing relatively derisked sources of revenue.
Companies that have recently commercialized or soon-to-be commercialized drug programs tend to have rising share prices (as the market anticipates near-term revenues), so I’d focus my search on companies with Phase 3 clinical stage assets or recently approved assets whose share prices are up, let’s say, >50% on a six-month basis.
A few stand out. Mineralys Therapeutics (NASDAQ:MLYS) is one, its share price surging in recent weeks as its lead candidate, lorundrostat, establishes best-in-class credentials in uncontrolled or resistant hypertension. The drug could be approved before the end of next year and may have multi-billion dollar revenue potential, making Mineralys a sought-after target. The current market cap is $2.83 billion, but any M&A deal would likely cost >$5 billion, in my view.
Another is Olema Pharmaceuticals (NASDAQ:OLMA), whose breast cancer drug palazestrant is a selective estrogen receptor degrader – a class of drug that is becoming attractive to Big Pharma. In fact, Olema is already partnered with both Novartis (NVS) and Pfizer (PFE), and analysts have speculated about a bidding war breaking out between the two companies. Olema’s market cap is just $550 million at the time of writing.
A third company is Liquidia (NASDAQ:LQDA), market cap $2.3 billion, whose pulmonary arterial hypertension, or PAH, drug Yutrepia is finally on the market after years of delays and stunning analysts with its early sales data. PAH is a multi-billion dollar market, and any pharma moving for Liquidia would be hoping to capitalize on its unique dry powder inhalation technology becoming patients’ preferred option.
Finally, it’s worth mentioning companies developing GLP-1 drugs to help patients lose weight, like Novo Nordisk’s (NVO) Wegovy and Eli Lilly’s (NYSE:LLY) Zepbound, two drugs that are likely to become all-time bestsellers. Companies with intriguing programs that pharmas may want to acquire include Septerna (SEPN), Terns Pharmaceuticals (TERN), MBX Biosciences (MBX), Altimmune (ALT), Zealand Pharma (OTCPK:ZLDPF) and Viking Therapeutics (VKTX).