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  • Jonathan Poyer

Shock & Awe - Biotech M&A Steaming Up

Updated: Apr 25, 2023

Taking a look at the M&A activity in the biotech sector, "Shock and Awe" is about all that one can say. Consider two recent examples and hold onto your hats for what is coming:

1) Prometheus Biosciences - RXDX

Merck offered to purchase for just under $11B. Prometheus just finished an Ulcerative Colitis trial with positive phase II data and the stock responded quite well:

We have not seen pharmaceuticals with only Phase II trials get acquired like this before let alone for the overwhelming premium that was paid. Consider, the drug cannot even be approved until 2026-2027 after the Phase III trials. The cost of clinical trials alone will be well over a million dollars. With cost of capital around 5%, Merck will have to be in this for over $15B. So why is Merck so interested? Merck is going to face generic competition on its drug Keytruda for example (representing 40%+ of their bottom-line revenue).

2) Bellus Health (BLU)

GSK is purchasing Bellus for $2B. The key acquisition is a drug for chronic cough, the first new agent approved to control cough in many, many years. A competitor Merck acquired from Afrin Pharma is still not approved.

These acquisitions reinforce the message that the large firms are active and in play. The shock and awe is necessary in such an interesting time.

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