More Mid-Cap Biotech M&A May Be Coming

In a new report, Citi analyst Yigal Nochomovitz takes a look at buyout opportunities in the biotech space. According to Nochomovitz, there are several names that are likely targets in Citi’s coverage universe.

“Average cash for large Pharma/Biotech is near historical highs (~$10B/company, >$180B aggregate),” Nochomovitz explains. “Plus commentary from Pharma/Biotech mgmt. teams over the past ~6 months points to a clear willingness to engage in deal-making.”

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Small-midcap biotech stock enterprise values are down about 35 percent so far in 2016. Nochomovitz sees the combination of low valuations for target companies and high cash levels for potential buyers as the groundwork for a coming M&A boom.

Nochomovitz believes that the wild swings in valuations may take time for buyers to adjust to, and the majority of deals may not happen for another one to three quarters. He notes that potential buyers have noted in recent commentary that they are in the market for early-stage assets, which is different than previous M&A cycles.

Citi sees the following eight companies under its coverage as the most likely buyout targets over the next 18 months:
Ardelyx Inc ARDX
Medivation Inc MDVN
Ophthotech Corp OPHT
Puma Biotechnology Inc PBYI
Portola Pharmaceuticals Inc PTLA
Ultragenyx Pharmaceutical Inc RARE
Relypsa Inc RLYP
Versartis Inc VSAR

Disclosure: the author holds no position in the stocks mentioned.