Migraine-Drug Deal Hype Turns Into a Giant Headache
(Bloomberg Opinion) -- Biohaven Pharmaceutical Holding Co. has rapidly transformed from one of biotech’s darlings into a cautionary tale of overheated M&A hype.
Shares of the developer of migraine treatments surged in April after Bloomberg News reported that the company was considering a sale; the stock then took another leg up earlier this month when Biohaven canceled plans to attend a Goldman Sachs health-care conference, fueling speculation a takeover was imminent. All those gains evaporated this week when the company instead announced that it was selling more shares, something that wouldn’t happen if a deal was in sight. As of midday Tuesday, the stock was down 35 percent from its highs:
Biohaven’s ongoing single status shouldn’t have come as so much of a shock. The company has arguably never been as compelling an M&A target as some investors and analysts seem to think, and faces significant risks if it has to go it alone. Deal hype isn’t a self-fulfilling prophecy in biotech; in fact, it can sometimes backfire and result in the exact opposite.
In the case of Biohaven, the company’s lead drug in development is a migraine pill that takes the same approach as a group of three recently approved injectable medicines that can help prevent the debilitating headaches. Biohaven's drug is a fast-acting alternative, but it will have to compete for a subset of the market with cheaper generic options and a direct rival from Allergan PLC.
The drug’s tough path forward is one of the reasons Biohaven was likely open to a buyout; this launch will be even harder and slower without the financial resources and commercial expertise of a larger company. But that same dynamic is also potentially what’s keeping potential suitors away. Biohaven just isn’t the sort of company that pharma has been buying.
The sweet spot of M&A in the industry has centered around cancer drugs and rare-disease treatments that command very high prices, partly by sidestepping the pricing and reimbursement problems that dog larger and more competitive markets such as the one for migraine remedies. Most recent biopharma acquisitions above $1.5 billion have been for companies working in these areas or for drugs that already generate sales. It’s possible that a drugmaker could decide to do something different, but it would need a compelling reason, and the hype-driven ascent of BioHaven’s valuation doesn’t help.
This is pretty clearly a situation where takeover excitement got well ahead of reality, which isn’t uncommon in biotech. But context matters, and any investment thesis that depends on big pharma expensively bucking an M&A trend to get itself into a possible price war deserves some extra skepticism.
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Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.
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