M&A In Small-, Mid-Cap Biotechs Isn't Slowing Down

November saw two major M&A moves in the healthcare space: Shire PLC (ADR) (NASDAQ: SHPG)'s approximate $7 billion acquisition of Dyax and AstraZeneca's roughly $3 billion acquisition of ZS Pharma.

Investors thinking that M&A activity within the sector, especially among small- and mid-cap companies, will cool down may be wrong in thinking so, at least according to Michael Yee of RBC Capital Markets.

M&A Activity Not Over

According to Yee, M&A activity among small- and mid-cap healthcare firms "doesn't seem to be slowing down" as "good late-stage" and "de-risked" drugs should continue to command a high value, regardless of any political rhetoric.

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Media outlets reported on Friday that AstraZeneca is eyeing a $5 billion-plus acquisition of Acerta Pharma, a privately held pharmaceutical company that just began a Phase 3 test for its oral cancer drug, ACP-196. On Monday, the company confirmed the media reports, affirming it is considering a bid for the company.

According to Yee, AstraZeneca may be interested in acquiring Acerta to further develop its immune-oncology PD-L1 business, specifically in solid tumors and potentially create a "theoretical pre-clinical synergy."

Will There Be Competing Bids?

Yee continued that AstraZeneca isn't the only player in the space that is looking for potential acquisitions.

Amgen, Inc. (NASDAQ: AMGN) already holds an equity investment in Acerta and is also looking for deals up to $10 billion. As such, an acquisition of Acerta "would seem like a natural fit," although some investors may not want the company to "overpay" for a drug that was just in a Phase 1 study 12-18 months ago.

Meanwhile, Celgene Corporation (NASDAQ: CELG) already owns a similar drug from its Avila acquisition, but it has shown "lackluster data and 'contrasts' with Acerta's "selective potency but high efficacy."

Finally, Gilead Sciences, Inc. (NASDAQ: GILD) "doesn't theoretically need" Acerta, as the company acquired a similar drug that has shown "strong" response rates.

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