Biotech M&A Frenzy: Is the Industry Poised for a Promising Recovery in 2024?

Since last October, the biotech sector has been showing signs of recovery. This trend was underscored by the S&P Biotechnology Select Industry Index, which surged by 4.69% yesterday and jumped to a new high since Aug 2022.On 8 Jan, J&J, Merck, and Novartis each announced a series of acquisition deals, many of which featured premiums of over 100%:

In fact, the biotech industry has witnessed a frenzy of M&A deals since last Q3, with the highest demand in the anti-obesity drug and targeted cancer treatment sectors.

The performance of biotech stocks is heavily influenced by the movement of the 10-year yield. As the yield trends lower, it has a positive impact on the valuations of these stocks, thereby reducing hurdles and making it easier for biotech companies to perform well.

Tarun Chandra, an analyst from Graycell Advisors and Prudent Biotech, said that biotechnology is well-positioned to outperform the broader indexes in 2024, with potential gains of 20%-25% or even higher, provided the 10-year yield remains below 4%.

According to IQVIA, over 143 new molecules are currently being developed for clinical use, with more than eight global pharmaceutical companies working on creating their own versions of GLP-1's and GIP receptors. At least six large clinical trials on obesity drugs are expected to have results reported over the next 12 months.

Goldman Sachs stated that the anti-obesity drug market could grow to $100 billion by 2030.

The FDA granted accelerated approval to Leqembi, a drug developed by Eisai and Biogen, in January 2023. This drug has demonstrated a slower decline in cognitive function in mild cognitive impairment cases caused by Alzheimer's disease.

In October 2023, Eisai reported new progress with an injectable version of Leqembi, which has shown more efficacy in an early-stage clinical trial by removing 14% more plaque than the approved intravenous formulation.

Recent studies have shown that CRISPR-Cas-9 editing has potential for treating sickle cell disease. This potential has been realized with the recent FDA approval of two milestone treatments, Casgevy and Lyfgenia, which are the first cell-based gene therapies approved for sickle cell disease treatment in patients aged 12 years and above.

AI is expanding the possibilities of its role in biotech industry. The application of AI can accelerate drug discovery, deliver analytics, accurately diagnose medical conditions, edit gene structures and offer other useful advancements to benefit humanity.

Pharmaceutical corporations are currently the dominant participants in this sector, but other entities are quickly catching up.

Micheel Yee, Senior Equity Research Analyst at Jefferies, predicted that a possible biotech boom driven by factors including increased mergers and acquisitions.

"We've never had three years in a row of down years for biotech," Song from ETF is optimistic about biotech stocks, "I think in 2024 we need to be a little more optimistic. We have to look at it as a glass half full."