Pfizer’s $2.3 billion buyout of immuno-oncology biotech Trillium, which spent most of 2019 in penny-stock territory, has tongues wagging about whether this will prove the biotech M&A push many want from a sluggish 2021.
Pharmas have all year (and in fact long before 2021) bemoaned what was seen as high valuations for small to medium biotechs. Values for these companies have risen sharply amid the pandemic as investors flocked to life sciences when it appeared they could help, quite literally, to save the world.
COVID has also made deals more difficult. The environment is more high-risk, with clinical trials in some areas prone to ongoing disruption, and key life science events have been virtual since March last year. Many of the accidental-in-the-elevator meetings between C suite managements that have in the past led to major deals (and you’d be surprised how often that happens), never happened.
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Also, while the sector as a whole has been up and down and many biotechs have seen their valuations jump, others have been hit. Analysts at Piper Sandler said biotechs valued between $1 billion and $10 billion “have seen noticeable multiple compressions, with many names down 50% plus this year despite the absence of negative catalysts.”
Piper Sandler adds that while M&A flow can be “lumpy” at times, the Pfizer and Trillium deal “is not likely to be the last one this year, nor the last one to drive sentiment higher.”
The S&P Biotech seems to agree, up by nearly 5% on the deal and the wave of sentiment riding it. There is however always caution to be urged. Pfizer is flush with cash: It’s expecting around $33 billion this year from its BioNTech-partnered COVID vaccine, which is now fully FDA approved and may well see extra income for years in boosters.
The New York-based giant also has a relatively weak pipeline for such a major pharma. Pfizer's late-stage pipeline is gene therapy heavy and the last year has shown how manufacturing and safety concerns can make these bets a risky proposition.
In short, Pfizer has a lot of extra cash that was likely unexpected 18 months ago and a pipeline to fill. A deal worth $2.3 billion is still pretty small fry for a company like Pfizer—really a tuck-in rather than a transformative acquisition. Though Trillium builds on the “don’t eat me” cancer craze of late, which saw Gilead snap up biotech Forty-Seven in March last year for $4.9 billion, it’s hard to see a pattern in the tea leaves just yet.
Analysts at RBC also urge caution when it comes to FDA approvals and the impact on M&A and sentiment. While the controversial approval of Biogen’s Alzheimer’s drug Aduhelm has seen more cash flowing into the neuro space and boosted biopharma into thinking it may have an easier ride at the agency, things are still mixed.
Push back on the Aduhelm decision, including from groups who still question the therapy's effect, and the fact that there is still no permanent FDA commissioner in place, is hitting the sector.