Tanking Biotech Stocks Will Mean a Big Year for Deals. Who Can Benefit?

Nearly two years after biotech stocks began falling, executives at small and medium-sized companies in the space are finally acknowledging that stock prices aren’t going to bounce back anytime soon.

When the reality sets in, it’s a buyer’s market for companies looking for acquisitions and partnerships, according to many of the pharmaceutical and medtech executives gathered at this year’s event.

JP Morgan

A health care investor conference that ends Thursday in San Francisco.

“We’re getting a lot of calls from companies that we were literally talking to six months ago,” said Geoff Martha, CEO.


(ticker: MDT), a medical device manufacturer. “We said, hey, look, we’ll buy you for X amount. And they say: “There is nothing, we are valuable [two times that].’ And now they’re calling back and saying, ‘Hey, can we start these conversations again?'”

Change has occurred in the medical device and biotechnology sector over the past few months. Recently in April, when

SPDR S&P Biotech exchange-traded fund

( XBI ) is down nearly 40% from its peak in early 2021, Merck CFO Caroline Litchfield said Barron’s biotech leaders still thought their firms were worth what they were before the market crash.

That is no longer the case, executives said on the sidelines of a JP Morgan conference. Nine months later, the XBI is trading at the same levels, but biotech boards no longer believe prices will rise again anytime soon.

“It’s completely changed in terms of both the deal structures they’re thinking about and the valuations they’re thinking about,” says chief financial officer Andrew Dickinson.

Gilead Sciences

( GILD ), a large-cap biotech.

“Things really changed in the middle of last year,” adds Gilead CEO Daniel O’Day.

This year’s JP Morgan conference, the first in-person version of the gathering since 2020, was subdued; a somber mood as the gray sky occasionally pelts the city center with rain and hail. There was a feeling at the meeting that some small and medium-sized firms would not be participating this time next year.

“I think a few companies will go under because their bottom line wasn’t strong enough,” said Sandy Macrae, CEO.

Sangamo Therapeutics

(SGMO), including a number of pharmaceutical companies



The problem for small biotech and medical device firms, which can spend years developing and testing drugs without any approved products on the market, is that depressed valuations have made it impossible to raise new money to finance their work without drastically diluting current shareholders.

“People have to find ways to make money that aren’t fair,” says Macrae. “That’s why you see people partnering or even selling the company because they don’t see a way forward.”

Big Pharma provides an alternative source of funding and a number of key players in the sector have war chests. However, companies have been slow to cut big acquisition checks, and despite high expectations, only a few big deals in 2022, including


(AMGN) for $30 billion

Horizon Therapeutics


Johnson & Johnson

‘s medical device firm bought Abiomed for $19 billion.

Instead, pharmaceutical firms favor partnerships in which they pay biotechs smaller fees to collaborate with them on individual, early-stage programs.

“We can make a lot of investments because it doesn’t require high costs,” says Anat Ashkenazi, CFO

Eli Lilly

(LLY). “And we know that some of these will fail and some of them will succeed. This is how we operate.”

Executives at small biotechs say the early pandemic era, when biotech valuations soared (often despite little evidence that their drugs would work), is clearly over. But they argue that positive data about a promising drug may still attract interest from investors and pharmaceutical companies.

“Obviously, the funding environment has changed significantly,” said Sanjiv Patel, CEO

Relay Therapeutics

(RLAY), biotechn. “I think it’s very difficult to make money without information. And I think the investor base has been very careful.”

Perhaps the clearest signal that companies would open their wallets wide for a promising asset came in mid-December.


( TAK ) bought an experimental drug being tested as a psoriasis treatment from private biotech Nimbus Therapeutics for an eye-watering $4 billion, plus an additional $2 billion in potential milestone payments.


‘s CEO, Christophe Weber, said the contract was highly competitive. “We got it by a razor thin margin,” he said Barron’s.

During the conference call, the companies announced several mid-sized biotech acquisitions. A French biopharma company


(IPSEY) received


And Pharma (ALBO) for $1 billion


(AZN) bought

CiniCor Pharma

(CINCOR) for $1.3 billion and acquired Italy’s Chiesi Farmaceutici.

Amryt Pharma

(AMYT) for $1.5 billion.

It was enough to inject some life into the biotech market, but not much. The XBI rose 5.7% and the S&P 500 rose 2.3% during the conference call.

At least one biotech was also shut down. On the first day of the conference, I.

Calithera Biosciences

(CALA), which focuses on developing cancer treatments, has announced that it will be canceled.

Email Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

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