As we look towards the future, it seems that 2023 will be a big year for biotech mergers and acquisitions (M&A). Already in March 2023, a $43 billion acquisition is on the books, and with the top 10 largest biopharma deals in 2022 totaling around $65 billion (and $96.1 billion for the whole year) it's clear that the industry is on the move.
In recent years, we have seen a surge in M&A activity in the pharmaceutical industry as larger companies seek to enhance their portfolios and take advantage of the innovation that young biotechs can provide. While deals focused on cancer, rare diseases, and immune disorders have been particularly popular, there have also been acquisitions in other areas of drug research.
While the high premiums associated with these acquisitions (averaging 85% in 2022) can make them an expensive proposition for buyers, they reflect the value that biotechs have been able to generate through their innovative research and development efforts. Biotechs have been successful in securing large amounts of funding from private investors and the public markets, which has made it necessary for potential buyers to offer up more money to secure deals.
When it comes to biotech M&A activity, cancer has been one of the hottest areas of focus. This is due in part to the significant progress that has been made in the development of cancer treatments in recent years. With new treatments showing promise in clinical trials and the potential for significant profits in the market, larger companies are looking to acquire young biotechs in the space.
One reason why cancer has been such a hot area of focus is the prevalence of the disease.
Cancer affects millions of people worldwide and is a leading cause of death. As a result, there is a significant need for new and innovative treatments.
Another reason why cancer is such an attractive area for M&A activity is the potential for significant profits. Cancer treatments can be expensive, and the market for these treatments is large. With new treatments showing promise, larger companies are looking to acquire these treatments and bring them to market.
In addition to cancer, rare diseases and immune disorders have also been areas of focus for biotech M&A activity. Like cancer, these areas of drug research have seen significant progress in recent years, with new treatments showing promise in clinical trials.
Looking ahead to 2023, it seems that pre-existing smallcap biotech companies could be a good investment for retail investors. These companies, particularly those that have some wins under their belt, such as fast track approvals or other asset victories, could be particularly attractive to larger companies looking to expand their portfolios.
Investing in smallcap biotech companies in the hopes of a buyout is a strategy that has worked well for many investors in the past. If a larger fish does come along and buy out a small biotech company, the investor stands to benefit from a 100% premium on their investment.
It's important to remember, however, that investing in biotech companies requires a long-term view. These companies are often in the early stages of development, and it can take years for them to bring a product to market. Even with a successful product, it can take time for the company to generate meaningful revenue.
It's also important to do your due diligence before investing in any biotech company. This means researching the company's pipeline, understanding the regulatory environment in which they operate, and evaluating their management team.
Overall, it seems that 2023 will be an exciting year for the biotech industry, with continued M&A activity expected. For retail investors looking to get in on the action, investing in smallcap biotech companies with some wins under their belt could be a smart strategy, provided that they do their due diligence and take a long-term view. With the potential for a 100% premium on their investment, there is certainly potential for significant returns for those who are willing to take the risk.
