What’s Going On Here?
Cancer’s horoscope must be in season: on Monday, two giant pharma companies – the US’s Merck and France’s Sanofi – snapped up smaller cancer-focused biotech firms, spending more than $5 billion in total. Fortune favors the brave…
What Does This Mean?
An aging population means cancer treatment is expected to be a booming market for years to come – and several biotech firms are duly exploring new cancer drugs as a result. Investors in two of them saw stars on Monday: Merck announced its almost $3 billion purchase of ArQule, paying more than double what its stock was worth on Friday, and Sanofi said it would buy Synthorx for triple what its stock was worth last week, shelling out $2.5 billion.
Why Should I Care?
The bigger picture: Cancer’s rising sign.
As life expectancy rises, cancer diagnoses are predicted to increase 60% by 2040, creating large new markets for pharmaceutical firms to metastasize into – especially as patients become resistant to existing treatments (tweet this). Buying companies developing cancer treatments, then, has become increasingly popular among the world’s pharma titans – successful drugs can bring in millions if not billions of new revenue and profit, especially if drug prices continue to rise.
For markets: Watch and wait.
Hefty share price premiums – like those paid by Merck and Sanofi – are typical for biotech acquisitions, partly because early investors hope to be well-compensated for their risk: investing in a biotech company before its new drug has begun clinical trials, after all, is very risky. Investors in Sage Therapeutics know all too well what can go wrong: last week, the company revealed that trials of its flagship depression drug weren’t going to plan – and its stock plunged 56%. That might be why pharma companies often wait to see whether a drug is promising – but it typically means paying big bucks down the line, and taking the risk that early positive data doesn’t give way to failure later on.
