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Phathom Pharmaceuticals (NASDAQ:PHAT), rhythm pharmaceuticals (NASDAQ:RYTM) and Vaxcyte (NASDAQ:PCVX) are the most likely targets in the pharmaceutical sector, according to a Needham analyst.
The three companies are the most likely to be acquired in Needham’s coverage universe, according to Needham analyst Joseph Stringer wrote in a note Friday. Needham has a Buy rating and $26 price target on Phathom (PHAT), a Buy rating and a $95 price target on Vaxcyte (PCVX) and a $50 price target and buy rating on Rhythm (RHYTHM).
“We believe M&A activity will remain above average for the remainder of 2024 and will shift more towards mid-market target companies, with deal sizes ranging from $1 billion to $3 billion and a particular focus on oncology, immunology and rare diseases,” Stringer wrote in the memo.
Stringer pointed out that there were a total of 13 M&A deals during the first quarter, well above the quarterly average of 8.2 since 2018, and the 7 deals for listed companies were above the quarterly average of 4 ,9 since 2018.
Stringer expects Bayer (OTCPK:BAYRY), Roche (OTCQX:RHHBY), and Regeneron (REGN) to be more likely to buy early-stage companies. Takeda Pharmaceutical (TAK), Biogen (BIIB), Bristol-Myers Squibb (BMY), and Pfizer (PFE) are more likely to buy late-stage companies.
“Average trade size, daily premiums and equity withdrawal multiples have all hovered around their respective historical averages over the past few quarters,” Stringer explained. “A preference for late-stage companies is still evident, but we note that a recent wave of deals for early-stage biotech companies may reflect the pharma sector’s greater appetite for riskier assets.”
The Needham analyst also pointed out that average takeout premiums appear to be declining. In 1Q24, the average 1-day takeaway premium was 73%, lower than the historical average. by 77%.
According to Stringer, takeout stock multiples have also trended downward in recent quarters. Of the 4 most recent public deals for which financial data is available, all were below the historical average.