Biotech may not be able to fend off M&A in the coming months, experts say

Biotech companies have largely fended off a buying frenzy from Big Pharma following peak valuations in early 2021, but Silicon Valley Bank’s collapse may leave many small and midsize companies vulnerable to acquisition.

Nearly half of US biotech companies banked with SVB prior to the collapse, reported KQED, and experts say these companies will likely have fewer lending options. Now, biotech companies may wonder which lending partner is still willing to fund their long-term visions, since it typically takes years for them to see any ROI (it takes an average of 10 to 15 years to bring a drug to market).

Enter Big Pharma: Big Pharma seems well-positioned to snap up these biotech companies (which have a combined market cap of about $350 billion as of May 2022) coming off pandemic years, when companies like Pfizer made billions in profits from Covid-19 vaccines and treatments.

They might feel like it’s a race against the clock, especially as some blockbuster drugs, like AbbVie’s Humira, come off-patent and execs feel the pressure to find new drugs to take to market, Arda Ural, EY Industry Markets Leader of Health Sciences and Wellness, told Healthcare Brew.

“Pharma’s topline is estimated to take a hit in the range of $258 billion over the next three years” due to expiring patents, he said, and Big Pharma companies seem to have set money aside in preparation.

“At the beginning of 2023, Pharma held a record $1.4 trillion in its collective balance sheet to deploy toward acquisitions as needed,” Ural said. “Amid this environment, we believe this year will see more large-scale transformative dealmaking when compared to 2022.”

Lindsay Rosenwald, CEO of Fortress Biotech, a Florida-based company that acquires and commercializes pharma and biotech products, told Healthcare Brew that Big Pharma seems price insensitive.

“If a company has what they want, they’ll buy it no matter what the price,” Rosenwald said.

Pfizer, for example, is planning to drop $43 billion to acquire Seagen, a Washington-based biotech.

Cheap? In this economy? Biotech companies may be available at a discount due to having less than 18 months in cash and trading below cash levels, or when a stock price is listed below actual balance sheet finances, Rosenwald said.

“This is a ‘tale of two cities’ dilemma, where the late and de-risked assets remain highly valued, while the early-phase assets face a steep discount in their valuations,” Ural said.

Mark Litton, CEO of Athira Pharma, a Washington-based biotech working to develop drugs for Alzheimer’s and other neurodegenerative diseases, told Healthcare Brew the company has been conservative with its cash and is hoping to have data next year.

Due to limited cash runways and falling valuations, smaller firms might feel pressure to exit or sell as the public market opportunities dwindle, said Ural.

“Back in ’21 and ’20, the industry was raising $15–$20 billion a year just in IPOs,” Rosenwald said. “Now, it’s probably 5% of that. So, it’s really been terrible.”