Room to rally in 2Q

Biotech out-performance could continue in 2Q if M&A rally keeps up

Strong small and mid-cap performance coupled with robust M&A has brought the sector back from 4Q18 correction territory, and chances are good for the momentum to continue given the ample capital ready to be recycled back into biotech, and lack of growth opportunities elsewhere. Buysiders are optimistic the sector will keep up with if not outpace the broader markets -- particularly if the M&A rally continues.

The first week of the new quarter has already seen a spate of new deals, including an M&A transaction and an IPO from companies working on non-alcoholic steatohepatitis (NASH) programs.

On April 1, Novartis AG acquired IFM Tre Inc. and its trio of NLRP3 antagonists, which are in development for a range of inflammatory diseases, among them NASH.

NGM Biopharmaceuticals Inc. raised $106.7 million in an IPO on April 4, making it the second NASH company to list on NASDAQ in two weeks; Genfit S.A. raised $125 million through a dual listing on March 27.

“We need to see a few more deals just like in Q1. Everything else is almost secondary.”

Sven Borho, OrbiMed

But M&A is the major theme. “The most important ingredient for Q2 biotech outperformance is M&A. We need to see a few more deals just like in Q1. Everything else is almost secondary,” OrbiMed’s Sven Bohro told BioCentury.

Bristol-Myers Squibb Co. kicked off the year with plans to acquire Celgene Corp. in a cash and stock deal valued at more than $70 billion -- the largest-ever pure biotech takeout -- and the first quarter saw three additional deals valued at over $1 billion (see “Bristol-Myers’ Next Phoenix Act?”).

Upfront payments alone across 14 disclosed deals in 1Q19 will provide investors with nearly $50 billion in dry powder, a significant bump up from the $30.3

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