Biotech on Brink of M&A Eruption Just Needs a Detonator

Biotech investors might need a detonation event to deliver a wave of highly anticipated mergers and acquisitions in the wake of U.S. tax reform and consolidation in the health-care supply chain.

After surging to a three-year high in late January, the iShares Nasdaq Biotechnology exchange-traded fund has been unable to break out of a first quarter funk. Goldman Sachs analyst Jami Rubin said Friday that the increasingly aggressive pace of deals by health-care payers may be the spark that biopharma needs to start its own feeding frenzy. Many drug companies are already looking at slower growth prospects, and larger and more powerful customers will be capable of extracting even steeper discounts on medicines.

In the absence of a “key detonator” to kick start M&A -- to borrow the phrase from Pfizer Inc. Chief Executive Ian Read -- there are a number of high-profile studies set to report results in the coming months. Among the biggest is Incyte Corp.’s pivotal trial of epacadostat in combination with Merck & Co.’s Keytruda to treat melanoma, due sometime in the first half of this year. Next months’s American Association for Cancer Research meeting should also paint a clearer picture of how the blockbuster market will shape out in first-line non-small cell lung cancer, where both Merck and Bristol-Myers Squibb Co. have new data.

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