Expect Pharmaceuticals M&A Activity to Rebound After COVID-19 Eases

The pharmaceutical industry is often a hotbed of takeover rumors. Some experts believe that speculation and deals themselves could heat up again after the coronavirus outbreak subsides, potentially benefiting exchange traded funds, such as the SPDR S&P Pharmaceuticals ETF (NYSEArca: XPH) and the VanEck Vectors Pharmaceutical ETF (NASDAQ: PPH).

PPH tracks the MVIS US Listed Pharmaceutical 25 Index. That index “is intended to track the overall performance of companies involved in pharmaceuticals, including pharmaceutical research and development as well production, marketing and sales of pharmaceuticals,” according to VanEck.

With some smaller biotech and biopharmaceutical companies sporting more attractive valuations following coronavirus-induced declines, more industry consolidation could be on the way.

“The drop in market value for biopharmaceutical companies and a need to diversify portfolios have set the stage for a surge in M&A in 2020 even as the coronavirus pandemic and market volatility stall near-term dealmaking, experts said,” reports S&P Global Market Intelligence.

Takeover Talk

Industry observers believe that when market volatility declines and the coronavirus is put in investors’ rearview mirrors, pharmaceuticals mergers and acquisitions activity could heat up in a big way.

“Although the market decline and focus on virus-related operations has likely slowed down progress on dealmaking, the conditions are also ripe for a surge in M&A as equity valuations are lower and high levels of cash burn a hole in drugmakers’ pockets, Senior VP & Managing Director of Healthcare Banking at Huntington Commercial Bank John Langenderfer said,” according to S&P Global Market Intelligence.

The equal-weight XPH seeks to provide investment results that correspond generally to the total return performance of an index derived from the pharmaceuticals segment of a U.S. total market composite index, which represents the pharmaceuticals segment of the S&P Total Market Index. In seeking to track the performance of the S&P Pharmaceuticals Select Industry Index, the fund employs a sampling strategy.

As Andreas Dirnagl, managing director and head of global healthcare research at Mitsubishi UFJ Financial Group, notes, select areas of the biopharma space could draw interest from larger pharma buyers.

“For one, vaccine development could gain a renewed interest in an effort to get in front of any future outbreaks, Dirnagl said. Companies in the oncology and cell and gene therapy spaces, already highlighted as M&A targets in 2020, should continue their pursuits despite temporary coronavirus-related setbacks, he said,” according to S&P Global Market Intelligence.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.