Big caps under pressure

Buysiders eye gene therapy, SMID-cap catalysts in 2Q19

Biogen’s fall in the wake of its decision to discontinue late-stage trials of Alzheimer’s therapy aducanumab is yet another reminder that large caps are in dire need of new pipeline products, and could serve as a boon to SMID-cap companies that buysiders see as takeout targets.

Biogen Inc. has shed $15.5 billion in market cap since announcing on March 21 that it would discontinue a pair of Phase III and a Phase II trial of its anti-amyloid mAb. The company is currently valued at $47.5 billion (see “Biogen’s Lead Balloon”).

“In terms of M&A, Biogen 100% needs to get very active, so now you have one large buyer with some urgency. That is good news for smaller companies,” said Loncar Fund’s Brad Loncar.

The recent spate of gene therapy buyouts and continued interest from pharma has investors looking for players with broad pipelines and manufacturing capabilities.

Meanwhile, expectations around the American Society of Clinical Oncology (ASCO) meeting are tempered, as investors guard against putting all their immuno-oncology eggs in one basket.

Fading fortunes for big caps

Specialists remain wary of large cap names, and the Biogen blow-up has only exacerbated the sentiment.

“With big caps, we had an industry that could do no wrong a few years ago, and now it looks more like big pharma in terms of growth and margins,” said Abingworth’s Andrew Sinclair. “They’re not offering the same potential rewards and excitement, and short of mega-M&A and Celgene-type acquisitions, it’s not as easy for investors to justify,” he added, referring to the Jan. 3 announcement that Bristol-Myers Squibb Co. would acquire Celgene Corp. in a deal valued at $74 billion.

Borho agreed, adding, “Amgen is trading much more like a large cap pharma company. Celgene is becoming a pharma company, and Gilead and Biogen need M&A to fix their pipelines. We need to have

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