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  • Jonathan Poyer

SGEN & PRVB Shock and Awe Acquisitions Might Not Be Outliers

The quarter got off on the right foot with Monday at the JP Morgan Healthcare conference delivering three $1 billion+ bolt-on M&A transactions, seemingly indicating deal count will be trending higher in 2023.

Shock and awe M&A followed later in the quarter with a pair of eyebrow-raising valuations.

Pfizer (PFE) announced the acquisition of Seagen (SGEN) for ~$43 billion or $229 per share, a ~33% premium to the prior day’s closing price. SGEN shares had been trading at elevated levels since the WSJ speculated a takeout was in the works since early February. Should the deal close, it would be the largest biotech deal since 2019 (BMY-CELG) and is expected to provide a fund flows tailwind as deal proceeds are reinvested.

The deal values SGEN at ~20x current revenue of ~$2.2 billion, but PFE projects the 2030 revenue contribution from SGEN’s assets will be >$10 billion. Notably, PFE’s projections are well ahead of 2030 Wall Street numbers of ~$8 billion and are perhaps the only way they could justify the lofty valuation of the deal. PFE does not expect the deal to be accretive until 2028, and some analysts project the deal may never be accretive.

PFE’s willingness to pay a very high price for unprofitable SGEN signals the desperate need for large players to augment revenues and should benefit the valuations of other stand-alone commercial biotechs.

Likewise, Sanofi (SNY) emphasized the willingness to pay up for strategic commercial assets with the announcement it was acquiring Provention Bio (PRVB). The deal price was a whopping 273% premium to the prior close or $2.9 billion for PRVB’s first in class therapy for type 1 diabetes, TZIELD, a CD3-directed antibody.

Notably, SNY had an existing co-promote agreement with PRVB, but initial revenues for the drug have yet to be reported. SNY did not comment on when the deal might be expected to be accretive.

The S&P Select Biotech Index continues to consolidate above the 2022 lows as green shoots push through the scorched earth. Reset valuations, cash flush pharma balance sheets and the strategic imperative for growth heighten expectations for M&A. Although it’s not yet apparent at the S&P Select Biotech Index level, good news is starting to pile up for a growing number of individual components.

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