Avacta, Oxford Biomedica, Abingdon Health, PureTech Health, and GSK could be on the radar of merger and acquisition teams. Here’s why.
A few short days ago, Novacyt decided to swoop in on Yourgene, offering £16.7 million for the junior at a 168% premium to the previous day’s closing price.
Both companies saw significant share price jumps, with Yourgene CEO Lyn Rees enthusing that ‘the prospect and scale of what the new enlarged group could bring to our customers, employees and other stakeholders are exciting given the complementary fit of both businesses.’
Of course, the deal is unlikely to have excited long-term Yourgene holders, but going forward, the question is this: Which biotech is going to be bought out next?
To start with, it’s worth noting that both private equity and public companies have prepared war chests for takeovers. Both know that promising new biotechs tend to become undervalued and struggle for cash during downturns, so can buy them up on the cheap for their research. Peel Hunt considers that European private equity houses have amassed €270 billion of dry tinder alone.
Let’s take one UK life sciences titan — £164 billion AstraZeneca. In recent months, it’s bought out CinCor Pharma for $1.8 billion, Neogene Therapeutics for $320 million, and LogicBio for $68 million.
The way the buyout scene works is actually rather simple: while AstraZeneca and the other titans develop their own drugs — see the company’s new state-of-the-art facility in Ireland — it’s actually far cheaper and often better to allow a junior biotech, often spun out from a university, to take on the earliest and riskiest stage 1 clinical trials for their potential treatments.
90% of these fail, leaving one in 10 to succeed. These successes are then targeted by the titans for buyouts at large premiums, which reflects the cost of research, potential future revenue, and investor reality that many investments will have failed by this stage.
Junior biotechs are often happy to be bought out as the wet labs required for scaling simply don’t exist in the UK. And the cycle is essentially endless as larger life sciences companies have to keep buying up more drugs as they constantly see their own patents run out.
Five potential FTSE biotech merger targets
1. Avacta
Avacta shares have dropped from a record 185p in early February to just 104p today, leaving the junior with a £286 million market cap. While it remains highly capitalised with £27 million on the balance sheet, it’s a very strong potential buyout target.
Even after making multiple purchases of its own — including Coris Bioconcept for £7.4 million recently — the majors are almost certainly watching the FTSE AIM company closely.
Flagship AVA6000 — a novel form of standard chemotherapy Doxorubicin — which is coming towards the end of phase 1A clinical trials, recently reported back on its successful fifth dose escalation. Crucially, the company noted that ‘several patients in cohort 5 and earlier cohorts remain on treatment as their disease has not progressed.’
Further, AVA6000 patients are seeing a ‘marked reduction in the incidence and severity of the typical toxicities associated with the standard doxorubicin chemotherapy administration,’ with clinicians reportedly unable to tell whether patients are even on the drug. And the next cohort will be treated with 2.7 times the standard dose of Dox.
Having taken on board multiple persons of note, Avacta has also just appointed Consilium Strategic Communications as the company’s investor and media relations advisor.
2. Oxford Biomedica
Oxford Biomedica shares were changing hands for as much as 1,560p in September 2021, but the life sciences company has now fallen to 422p leaving it with a market cap of circa £408 million. This undervaluation is arguably due to the tightening monetary environment, and not because of any underlying business issues.
The company operates in the gene and cell therapy business, specialising in viral vectors. For the uninitiated, this involves re-engineering viruses to deliver genetic material into patient cells. Cutting-edge stuff, and far beyond my scientific ability.
While the company is developing its own treatments, the real money is in licensing out its tech to other businesses through it LentiVector platform. This cuts costs for the client while Oxford claims a licensing fee and royalty on sales of any drug developed using the platform.
Clients include AstraZeneca and Novartis among other heavy hitters, and a buyout has been heavily speculated for some time.
3. Abingdon Health
Abingdon Health shares have shot up by 131% over the past six months, despite poor prior performance as a result of delivering its covid-19 test to the market far too late to be of practical use.
However, the £15 million biotech has finally officially launched its Salistick pregnancy test in partnership with Salignostics, revolutionising the industry by introducing a saliva-based testing method instead of relying on urine.
This groundbreaking development has tremendous potential, considering that in the UK alone, approximately 12.5 million pregnancy tests are conducted each year. Furthermore, the global market for pregnancy test kits is expected to reach a staggering $2.28 billion by 2028.
What makes this launch even more compelling is the strategic distribution plan. Abingdon has secured a deal to sell the test at 400 Superdrug locations, in addition to making the product available on Superdrug.com. This level of accessibility positions the Salistick pregnancy test for tremendous success — as one reviewer notes, ‘Why has it taken 80 years to develop this…why did someone just think one day: Saliva has pregnancy hormones in, why not make a test?’
Of course, the company faces several challenges: building brand recognition in a fiercely competitive market, coping with a limited cash runway, and generating positive cashflow.
A buyer with deep pockets could easily decide to step in.
4. PureTech Health
PureTech Health is a £616 million Main Market biotech, which specialises in creating therapies for illnesses with no or extremely limited existing treatment options. More precisely, it works in medical trials involving the immune system, brain, and gut.
PureTech has two drugs out with both EU and US approval, another soon to be filed for FDA approval, 15 more in clinical trials and 27 candidates being investigated through its R&D engine.
Further, it owns a healthy stake in eight other biotechs, three of which already have commercial products on the market.
The stock has fallen from 294p in December to 222p today, leaving an already profitable business at an attractive valuation for a larger pharma company to take it off the market — though the premium would need to be large to gain shareholder approval.
5. GSK
GSK, formerly GlaxoSmithKline, is a £55 billion FTSE 100 pharma behemoth responsible for developing dozens of treatments in ailments ranging from cancer to HIV to immunotherapy to respiratory illness. The company is a truly global operation, with staff and factories operating worldwide.
GSK maintains 1,500 partnerships with other pharma companies and governments, but CEO Emma Walmsley has been under fire from activist investors who believe that her stewardship of the business has been underwhelming. For context, GSK shares have fallen by 25% over the past year, losing billions in market capitalisation.
In addition, GSK has also spun off its consumer healthcare division, Haleon, making the parent a more attractive proposition for a potential blockbuster merger with obvious cost synergies.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
