23 October 2020
GAM Investments’ Christophe Eggmann and Jenna Denyes examine the recent uptick in M&A activity in the biotech sector and discuss the importance of identifying innovative companies.
Biotech has had somewhat of a bumpy ride this year. Despite recovering well from the initial March selloff, and breaking through a long-term trading range in April, the sector has lagged behind the wider market. As the business environment and company operations have finally returned to some level of normality, recent weeks have seen an uptick in M&A activity.
In early September, Gilead announced the acquisition of Immunomedics for USD 21 billion. This acquisition will help strengthen the company’s oncology portfolio, a key strategic objective in recent years. A week later, Illumina, widely considered to be the global leader in next-generation sequencing technology, announced the acquisition of Grail for USD 7 billion. Grail is developing an early screening system for cancer using blood samples. For Illumina, this represents a pivot out of a largely technological focus to add an additional clinical component, while also entering the competitive liquid biopsy space. This buying spree, which has been positive for the space as a whole, continued with the USD 12 billion acquisition of MyoKardia by Bristol-Myers Squibb. All of these targets were acquired at a substantial premium, highlighting the value large-cap biopharma places on innovation as they seek to strengthen their strategic positioning.
MyoKardia is a biopharmaceutical company focused on cardiovascular disease. Their lead pipeline candidate ‘Mavacamten’ is under investigation in both obstructive and non-obstructive hypertrophic cardiomyopathy. These diseases result in thickening heart muscles and electrical signalling irregularities which can cause dizziness, breathing difficulties, chest pain, and can be fatal. This medication aims to correct the biological underpinning of the disease on both a muscular and electrical signalling level. Following a successful Phase III clinical trial, where there were statistically significant improvements in patient symptoms, functional status, biomarkers and patient quality of life, the company plans to submit a New Drug Application to the US Food and Drug Administration (FDA) in early 2021. Since hypertrophic cardiomyopathy is difficult to diagnose given the general and non-specific symptoms, MyoKardia applied innovative machine learning approaches to develop a less invasive diagnostic test using simple commercially available smart watches. This should improve diagnostic rates, both addressing a substantial area of unmet need while simultaneously increasing the size of their potential market.
When considering a position in companies such as Myokardia, we believe a personal approach is essential. In our view, meeting face to face with management teams is crucial in order to accurately assess a drug development programme in historically risky therapeutic areas before public data readouts from clinical trials. Meetings allow you to reach beyond standard analyst statements and get to the heart of unaddressed concerns or questions. They are an integral component of our investment process, and highlight the value that be gained from direct access to management teams. The emphasis on innovation in Myokardia’s approach to small molecule development and diagnostics was clear – and the value of this clearly reflected in the price paid by Bristol-Myers Squibb in 2020.
We remain confident that a focus on innovative approaches to addressing unmet medical needs will prove helpful in identifying companies where we see potential for long-term growth.
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. Reference to a specific security is not a recommendation to buy or sell that security. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice.