Sector Watch: Healthcare – M&A fever on the cards?

Following Wall St’s biotech sector getting some attention, locally healthcare stocks are the best performer so far.

Investors learned of the news that Biohaven Pharmaceutical soared 68.4 per cent after inking a deal with Pfizer valued at US$11.6 billion (AU$16.7 billion).

Could this be the start of an M&A fever in this sector?

The last deal we saw in this space was in 2020 when AstraZeneca bought Alexion for US$39 billion (AU$56.1 billion)

The acquisition premiums paid by large biotech companies for smaller ones could make this sector look attractive to invest. 

The average premium paid for acquisitions worth more than US$500 million (AU$720 million) based on the 30-day average share price in 2018 was 77.2 per cent, in 2019 it was 102.6 per cent and in 2020 it was 79.3 per cent according to Brown & Elmhirst.

The reason for this is based on the M&A activities in the sector,  measured by both deal size and number. 

So what does this means?

If this is the start of the biotech M&A fever and there are more deals on the table, it is likely that the value of each one could be higher. It then sparks the opportunity for larger biotech companies to search for undervalued ones.

Let’s look at a handful of ASX listed stocks that could be the beneficiary of this move.

Stocks to watch

According to Corporate Connect analyst Marc Sinatra, Antisense Therapeutics (ASX:ANP), and Kazia Therapeutics (ASX:KZA) are the stocks to watch. They are both focused on a therapeutic area they strongly know well. 

Antisense (ASX:ANP) has extensive experience with its developmental compound ATL102 which aims to treat a genetic disorder characterised by progressive muscle degeneration which affects the muscles of the shoulder, upper arm, the hips and thighs as you can see in the picture. Let’s see what the share price looks like this morning, they are are trading 5 per cent higher at $0.10

Lastly, Kazia (ASX:KZA) is focused on the orphan indication of glioblastoma multiforme which is the tumour of the brain or spinal cord with its flagship drug paxalisib. However, this drug could also be relevant to a number of other orphan oncology indications.

Another thing to note is if a decision from a larger pharmaceutical company occurs on progressing further on its compounds, it’s likely to work in Kazia’s favour. This is due to the greater number of projects for large biotechs to to choose from. Shares are trading 6.3 per cent lower at $0.75.