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) 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. 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 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. GILD "doesn't theoretically need" Acerta, as the company acquired a similar drug that has shown "strong" response rates.