Biotech Market Update: Q2 2024 in Review

M&A activity and IPO trends

Biotech mergers and acquisitions (M&A) persisted in Q2, with 12 reported deals, totaling 28 so far this year, according to data from Biopharma Dive.

This ongoing trend indicates Big Pharma’s sustained interest in biotech assets to drive growth and development in key therapeutic areas. With patent expirations and pricing pressures caused by US President Joe Biden’s Medicare initiative, large pharmaceutical companies are willing to invest in opportunities to maintain their competitive edge.

Immunology and oncology emerged as the most active areas of investment, with immunology accounting for five M&A deals and oncology contributing three. Vertex Pharmaceuticals (NASDAQ:VRTX) announced a US$4.9 billion deal to acquire Alpine Immune Sciences in April, while Johnson & Johnson (NYSE:JNJ) grew its immunology portfolio by agreeing to acquire Yellow Jersey and Proteologix in May. The Yellow Jersey deal was finalized on July 11.

Meanwhile, Biogen (NASDAQ:BIIB) signed a US$1.15 billion contract to acquire HI-Bio on May 22, and Abb Vie (NYSE:ABBV) acquired Celsius Therapeutics on June 27.

In oncology, Novartis (NYSE:NVS) acquired Mariana Oncology for US$1 billion upfront on May 2 and agreed to US$750 million in additional milestone payments. Genmab (NASDAQ:GMAB) bought Profound Bio for US$1.8 billion on May 21, continuing a surge in M&As for antibody-drug conjugate (ADC) developers that began in Q1. Japanese pharmaceutical company Ono (ADR:OPHLF) acquired Deciphera on June 11, closing a deal that was struck on April 30.

However, there was a notable decline in initial public offers (IPOs) in Q2, with only three occurring compared to nine in Q1. A more promising macroeconomic outlook in the final weeks of 2023 spurred a surge in dealmaking in late December 2023. Contrary to initial projections of about four rate cuts in 2024, with an initial cut in June, the first cut now appears to be set for September. This unexpected change may have contributed to a slowdown in IPOs.

Venture capital (VC) remained a primary funding source for biotech startups. However, as Biopharma Dive reporter Gwendolyn Wu explained in an article published on June 6, firms have shifted their investment strategy to favor M&A deals and pharma partnerships over IPOs.

Pre-clinical stage companies had a particularly challenging time securing VC funding in Q2. Of the three IPOs offered this quarter, two – Contineum and Rapport – were backed by pharma giant Johnson & Johnson. The third, Alumis, was expected to begin Phase III trials of its lead candidate, ESK-001in the second half of 2024, ahead of its IPO announcement. The trial began on July 29.

Nevertheless, global law firm Orrick has reported a notable 22.1 percent increase in venture capitalist funding in the US year-over-year in its analysis of the life science industry, indicating continued interest in the life science sector by private companies.

Tech company Canaan (NASDAQ:CAN) added $100 million to its biopharma fund and hired Dr. Schoenbeck to guide investments, while Regeneron Pharmaceuticals (NASDAQ:REGN) committed $500 million in Q2 for a venture arm to foster biotech innovation. The trend suggests that the pullback in Q2 may have been influenced by various macroeconomic factors such as the Federal Reserve’s higher-for-longer policy.

Research and development

In Q2, the healthcare sector witnessed increased investment and research activity, with the development of glucagon-like peptide-1(GLP-1) receptor agonists taking center stage as the supply became scarce. Eli Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO), the two companies behind the explosive GLP-1 drugs Ozempic, Wegovy, Mounjaro and Zepbound; announced plans to invest billions to increase their production capacity in response to growing demand.

New clinical data became a major headliner at the 2024 American Diabetes Association conference on June 21 - 23. GLP-1s have been proven effective at managing type 2 diabetes, and recent studies have shown that the main ingredient in Ozempic may also help reduce the risk of kidney failure.

PwC’s 2024 Mid-Year Outlook report suggests that GLP-1s will continue to become widely adopted as the supply increases, potentially impacting the demand for products and services used to treat diabetes, sleep apnea, cardiovascular disease and other conditions related to obesity.

Another focused area of research has been oncology, which attracted the most upfront payments for M&As in the first half of 2024, according to Oppenheimer Healthcare Investment Banking’s M&A and Strategic Collaboration Insight report.

Nuclear medicine emerged as a potential game-changer in cancer treatment, while CAR-T cell therapy also saw significant advancements as companies explored new use cases such as treating lupus. Meanwhile, gene therapy, which has faced challenges due to its high cost and logistical issues, remained an area of interest for investors.

Research and development in neurological disorders also gained traction. Promising clinical trials and breakthroughs in research and technology-fueled progress in treating various disorders including schizophrenia, Parkinson’s disease and Alzheimer’s disease.

On May 30, BlueRock Therapeutics, a wholly-owned subsidiary of Bayer (OTCPINK:BAYRY), announced that the US Food and Drug Administration (FDA) granted Regenerative Medicine Advanced Therapy designation to its investigational Parkinson’s disease treatment, bemdaneprocel, allowing for an accelerated review process.

On June 6, Bristol Myers Squibb (BMS) (NYSE:BMY) presented new long-term efficacy data at the 2024 Annual Congress of the Schizophrenia International Research Society from its EMERGENT-4 trial evaluating KarXT, a drug the company acquired when it bought Karuna Therapeutics in 2023. In patients with schizophrenia, continued use of the drug led to sustained improvements in schizophrenia symptoms over a 52-week period.

Of course, artificial intelligence (AI) has played an increasingly significant role in healthcare research, particularly in blood testing for cancers and advancing the understanding of protein structures and functions.

Partnerships like the one between Gingo Bioworks (NYSE:DNA) and Novo Nordisk aimed to leverage AI to optimize the manufacturing process for chronic disease medications, potentially improving yield, purity and scalability. This could lead to cost savings, lower drug prices and better patient access to medications.

Notable changes in share prices and market capitalization

The NASDAQ Biotechnology Index, which tracks the performance of publicly traded biotech companies, was trending downward at the start of the quarter, but has been on an upward trajectory since mid-April, with some volatility observed throughout Q2.

Price movements are attributed to factors, including clinical trial outcomes, regulatory approvals and strategic partnerships, highlighting the significant impact biotech-related developments have on the overall performance of healthcare companies.

Shares of Moderna (NASDAQ:MRNA) stock jumped by 8 percent on April 9, when early-stage trial results of a cancer vaccine developed in collaboration with Merck (NYSE:MRK) suggested the vaccine was effective in treating certain cancers of the head and neck when used with Merck’s Keytruda. The vaccine, based on mRNA technology, had previously shown positive results when used with Keytruda as a treatment for melanoma.

In the race to develop the next blockbuster weight loss drug, a few contenders emerged as potential front runners in Q2.

Amgen (NASDAQ:AMGN) experienced its highest valuation since 2009 after the company’s CEO, Robert Bradway, said he was “very encouraged” by early results of its obesity drug, MariTide. Bradway addressed investors during a call following the release of Amgen’s Q1 2024 results on May 2, causing the share price to open 11.82 percent higher on May 3.

Meanwhile, rivals Novo Nordisk, Eli Lilly and Viking (NASDAQ:VKTX), major players in the competitive obesity drug landscape, saw their stocks slide between two and six percent. Viking Therapeutics later saw its stock price jump, nearly 30 percent, after the drugmaker moved its weight loss injection to late-stage trial.

Roche (OTCQX:RHHBF) shares also gained over 4 percent in May following positive results from an early-stage clinical trial for its weight-loss pill, solidifying its role as a key contender in the obesity drug market.

Novavax's (NASDAQ:NVAX) shares soared following the release of Q1 2024 results on May 10, which coincided with the announcement of a licensing deal between Novavax and France-based biopharmaceutical company Sanofi (NASDAQ:SNY). Under the terms of the deal, which is reportedly worth at least US$1.2 billion, the companies wil co-commercialize Novavax’s Covid-19 vaccine and collaborate to develop a combination vaccine against Covid and influenza. Sanofi will also take a 4.9 percent stake in Novavax for US$70 million.

Finally, shares of Eli Lilly have experienced steady growth throughout the quarter, bolstered in part after an FDA panel unanimously recommended the approval of its Alzheimer’s drug, donanemab, on June 10. The treatment was later approved on July 2. The company’s diversified product portfolio, including drugs for cancer, diabetes and immunology continues to contribute to its overall performance.

Outlook

Looking forward to the second half of 2024, several emerging trends in the biotech industry are expected to shape the market landscape. New technology will continue to drive discovery, such as renewed research into ion channels. Findings suggest that ion channels could have implications for the development of treatments for neurological disorders.

Investment in obesity medication is expected to continue. Michael Kleinrock, senior research at healthcare analytics firm IQVIA Institute for Data Science told Reuters in May their data suggest global spending on obesity medication could reach US$131 billion by 2028

With the drug negotiation period between the Centers for Medicare and Medicaid Services and drug companies concluded, the landscape may shift as companies adjust to new pricing structures. Additionally, the upcoming results of clinical trials for drugs treating cancer, obesity, cardiovascular health and neurological disease, as well as a new mRNA vaccine cytomegalovirus from Moderna, could impact market dynamics.

Furthermore, the Federal Trade Commission’s close monitoring of M&A activities could lead to increased regulatory scrutiny and potential challenges for companies seeking to merge or acquire others. Novo Holdings’ US$16.5 billion dollar acquisition deal with developer and manufacturer Catalent (NYSE:CTLT) has attracted significant attention from regulators.

On the international front, the introduction of the Biosecure Act in May 2023 may have long-term implications for US-based biotech firms. The Act mandates that companies must cease all business activities with certain Chinese firms by 2032.

This legislation could potentially impact the industry’s supply chain and partnerships, leading to both risks and opportunities for investors.