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Mergers and acquisitions could be a “tailwind” into the end of the year, especially after recent announced deals by Pfizer Inc. (NYSE:PFE), according to a Jefferies analyst.
M&A could pick up, particularly into January, when the JPMorgan Healthcare conference takes place, which tends to be a deal catalyst, Jefferies analyst Michael Yee said on Friday.
“People start to get excited into January,” Yee explained.
Last month Pfizer (PFE) agreed to buy Global Blood Therapeutics (GBT), in a deal that valued he sickle cell disease drug maker at $5.4 billion and in May the pharmaceutical giant agreed to acquire Biohaven Pharmaceutical (BHVN) for $11.6 billion in cash. And in April Pfizer agreed to purchase closely held ReViral for up to $525M.
Yee highlighted the recent rally in SPDR S&P Biotech exchange-traded fund XBI (NYSEARCA:XBI), which is 25% off its bottom.
“I think it’s a really important data point that we’ve had a bunch of positive clinical data sets, a bunch of financings, a bunch of good news and I do think we are headed higher into the end of the year and into 2023,” Jefferies said in a CNBC interview.
“You have had a bunch of deals in the past two months, Pfizer being particularly aggressive in the space, deploying a lot of their Covid money across the space, got everybody excited,” Yee added.
Yee highlighted that even with Inflation Reduction Act and the Medicare negotiation and drug pricing concern that has always been a worry for the sector, the biotech group moved higher over the last two months.
“We think people digested that, we think people are comfortable with that,” Yee said. “You look at where stocks and valuations are, basically five to six year lows on valuation. People are willing to forgo that, particularly in this macro, recessionary environment, there’s not a lot of concern about that.”
Last month a report said that J&J (JNJ), Merck (MRK) and Regeneron (REGN) were the most exposed to Medicare drug price negotiation.
“With M&A, drug pricing behind us, I think you can start to dip your toes back into here,” Yee said. “I like the pullback here, by the way, a 10% pullback is healthy and I think we move higher off of this correction,” Yee added.
Also see a recent RBC Capital Markets report found the negotiation would impact revenue for pharmaceutical and biotech companies, but it wouldn’t be that significant.
