What's M&A Like In The Biotech Sector Right Now?

Michael King, of JMP Securities, and Les Funtleyder, of E Squared Capital, were on CNBC Thursday discussing M&A activity in the biotech sector.

The Sanofi-Medivation Deal

Talking about Sanofi SA (ADR) SNY’s offer for Medivation Inc MDVN, King said he believes the latter will be acquired. It’s only “a matter of time and price,” he stated. “If Sanofi is serious, I think they should raise their bid,” he added. According to JMP’s research, Medivation could justify a valuation of more than $70 per share – well above the current $59.80, just based on its lead, prostate cancer drug, Xtandi. In addition, the company counts on a “wonderful pipline,” he assured. So, a higher bid should come, the expert concluded.

Related Link: BTIG Comments On Bluebird Bio's Q1 Print, Highlights Future Catalysts

Merck Also Looking Into M&A

On Thursday morning, Merck & Co., Inc. MRK’s CEO said the company is looking for more deals to expand its pipeline, rather than consolidation deals – although they would be open to a large one.

While Funtleyder did not directly comment on these words, he did say he believes late stage assets are more likely to be acquired than early stage ones. This is why E Squared Capital has been looking into the biotech sector, seeking for attractive late stage companies – without clinical trial risk – that could be bought out. However, he added, the medical devices industry is more likely to post strong performance than the biotech sector.

The Sector In General

Will M&A help the biotech sector get out of “its funk?” Power Lunch’s anchor asked.

“I sure hope so,” King responded. “I think there is enough organic growth and enough breakthrough science for the sector to lift itself.”

The investor pointed out that large cap stocks are currently trading close to historic lows, in terms of valuation. This makes them relatively alluring on a valuation basis, he replied.

King went on to explain, “The one dysfunction between the desire and actual realization of M&A is the bull market of 2013–2015, where managements and boards saw their stocks at $40, $50 a share.” However, the stocks are now trading at single-digits, and nobody is willing to pay even $20 per share, he concluded. “So, that’s the real sticking point in M&A.”

Funtleyder concluded – and King agreed, stating he thinks companies want to be friendly in the M&A space, and that “they’ll be an increase in deal activity after the election.”

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.