Phathom Pharma, Rhythm, Vaxcyte most likely takeover targets in pharma - analyst

Phathom Pharmaceuticals (NASDAQ:PHAT), Rhythm Pharmaceuticals (NASDAQ:RYTM), and Vaxcyte (NASDAQ:PCVX) are the most likely takeout targets in the pharma space, according to a Needham analyst.

The three companies are the most likely to be acquired in Needham's coverage universe, Needham analyst Joseph Stringer wrote in a note on Friday. Needham has a buy rating and $26 price target on Phathom (PHAT), a buy rating and $95 price target on Vaxcyte (PCVX) and a $50 price target and buy rating on Rhythm (RYTM).

"We think M&A activity will remain above average for the remainder of 2024 and skew more toward mid-stage target companies, with deal sizes in the $1-3B range and a particular focus on Oncology, Immunology, and Rare Disease," Stringer wrote in the note.

Stringer highlighted that there were a total of 13 M&A deals during Q1, which was well above the 8.2 quarterly average since 2018, and the 7 deals for public companies were above the 4.9 quarterly average since 2018.

Stringer expects that Bayer (OTCPK:BAYRY), Roche (OTCQX:RHHBY), and Regeneron (REGN) are most likely to buy earlier-stage companies. Takeda Pharmaceutical (TAK), Biogen (BIIB), Bristol-Myers Squibb (BMY), and Pfizer (PFE) are most likely to buy late-stage companies.

"Average deal size, 1-day premiums, and equity takeout multiples have all hovered around their respective historical averages over the last several quarters," Stringer explained. "A preference for later-stage companies is still evident, but we note a recent flurry of deals for earlier-stage biotech companies may reflect Pharma's increased appetite for more risk-on assets."

The Needham analyst also highlighted that average takeout premiums appear to be declining. In 1Q24, the average 1-day takeout premium was 73%, below the historical avg. of 77%.

Equity takeout multiples have also trended down over the last several quarters, according to Stringer. Of the 4 most recent public deals for which financial data are available, all were below the historical average.