Biotech M&A Keeps Bankers Busy

As economies grapple with the economic disaster of the novel coronavirus, the value and number of M&A deals worldwide have deflated.

Biotech delivered some welcome news to a faltering mergers and acquisitions market last month when it was the focus of two multibillion-dollar deals: Johnson & Johnson’s purchase of biotech developer Momenta Pharmaceuticals for $6.5 billion in cash, and Sanofi’s $3.4 billion agreement to buy San Francisco–based Principia Biopharma. New Jersey–based J&J said the Momenta deal provides an opportunity for its Janssen Pharmaceutical subsidiary to broaden its leadership in treating immune-mediated diseases. Sanofi, which has a large budget for acquisitions, is on the hunt for more biotechs.

The two takeovers were a bright spot in a traditionally slow month for a global M&A market that was already running at a seven-year low. As economies grapple with the economic disaster of the novel coronavirus, the value and number of M&A deals worldwide have deflated.

“Some opportunistic deals are still occurring, but it will take a bit more time for confidence levels to return to the boardroom as deal makers assess post-Covid business models and valuations,” says Matt Toole, director of deals intelligence at Refinitiv.

Yet, capital markets activity is keeping investment bankers busy in the absence of big M&A deals. Corporate bond markets shattered all-time records and equity capital-raising volumes surged in the second quarter, Toole says.

IPO bankers skipped vacation this year, says William K. Smith, CEO and co-founder of Renaissance Capital. Capital raised from new listings set a record for the month of August. And while the J&J and Sanofi deals were a rare bright spot for M&A, they reflected a hot market in their own industry; four health care IPOs came to market in a single week last month, averaging a 39.9% return from their offer price. “With those numbers, we expect the biotech boom to continue in the fall,” Smith says.

The race for a vaccine and treatment for the coronavirus has spurred interest in the biotech sector. German-based coronavirus vaccine developer CureVac, backed by Bill Gates, soared 249% in its Nasdaq debut on August 20, the largest first-day gain for a US IPO in 15 years.