Biotech Companies Riding the M&A Wave

⚡ Five Second Summary:

The biotech dealmaking window is back after a two-year hiatus. 

In January 2024 biotechs in the US raised US$6.2BN in equity capital - the highest total since February 2021 which was also when the S&P Biotech ETF was trading at all-time highs. 

The change in sentiment could kick off a wave of M&A and deals across the biotech space just like we saw in 2021.

📊 The Chart

🤔 What's Happening:

  • The deal window across the US biotech space is open again after a two-year drought that pushed some biotechs into insolvency. 

  • US$6.2B was raised by biotechs in Jan-2024, the highest total previously was in February 2021 which was when the S&P biotech ETF was trading at all time highs. 

  • The S&P Biotech ETF fell to a third of its 2021 highs and has only recently moved 40% higher from its 2023 lows. 

  • Jefferies head of equity markets, Jesse Mark said - most of the deals being done were “opportunistic” from companies who have been starved of capital for the past two years. 

  • Most of the funding is flowing to the bigger end of town - companies that are relatively advanced in the drug development process. Capital is yet to start flowing into the riskier earlier stage companies.

🔢 Numbers + Facts:

  • Biotechs raised US$6.2BN in equity in January - the largest monthly total since February 2021. 

  • US$5.6BN was raised by already listed companies, and the remainder through IPO’s. 

  • The S&P Biotech Exchange Traded Fund (ETF) is up ~40% since late October. 

  • Analysts say the pick up in biotech M&A is in part due to the US regulator’s approval of Amgen’s $28BN acquisition of Horizon Therapeutics in September.

  • Only 38 life science companies went public between 2022-2023, the lowest in a decade - compared to 179 across 2020-2021. 

🔮 Looking Ahead:

  • A pick up in sentiment and large capital flows into the biotech market is a strong leading indicator of increased M&A activity in 2024. 

  • As more advanced drug developers raise capital, cash could start flowing down into smaller companies that are a lot earlier stage and who have been cash starved for over two years now.

📈 The Company: Arovella Therapeutics (ASX:ALA)

Market Cap: $165M | Share Price: $0.18 | Industry: Biotech

Arovella Therapeutics (ASX: ALA) is developing an off-the-shelf cancer cell therapy treatment.

ALA is currently pre-clinical and is looking to get into clinic in 2024. 

How does ALA fit into the story?

In the last 12-months ALA has taken advantage of depressed valuations of biotech companies and technology by making some licence deals of its own.

The two key additions ALA has made to its cancer killing platform include:

  • Cytokine technology that “boosts” the effectiveness of its treatment, and 

  • Monoclonal antibody that “targets” a range of different cancers

As the outlook for M&A improves in the biotech space ALA could capture the attention of a larger player looking to add a promising cell therapy platform to its drug development pipeline.

📰 Mainstream Media Coverage

Financial Times

“There’s been a noticeable, dramatic improvement in sentiment among investors…

Fundraising has been encouraged by a rebound in stock prices, expectations that the Federal Reserve will soon start cutting interest rates, and a boom in mergers and acquisitions activity in the sector.”

Fierce Biotech

“Coming off one of the worst periods for IPOs in recent history, analysts have suggested the first two offerings from biotechs this year are proof that the sector is on the road to recovery.”