Biotech Growth (BIOG) has notched up its eighth M&A (mergers and acquisitions) success this year with US pharmaceuticals giant Eli Lilly snapping up psychedelic drugs company AtaiBeckley for $2.8bn, or $6.75 a share.
Shares in Nasdaq-listed AtaiBeckley, a 1.1% holding for BIOG, surged 33%, or $1.79, to $7.15 above the offer price as the market priced in some of the $2.50 per share contingent value rights that could be paid if the company hits key performance targets. If the milestones are met, the total amount Eli would pay would rise to $3.8bn, a 73% premium to Wednesday’s closing share price.
A clinical-stage biotech developing drugs for the treatment of psychiatric disorders, AtaiBeckely was formed from the $390m merger of two European companies last November before moving to the US.
Atai Life Sciences in the Netherlands combined with Beckley Psytech, a UK company spun out of the Beckley Foundation founded in 1998 by the late Countess of Wemyss and March, Amanda Feilding, to research the effects of psychoactive drugs.
Its lead drug BPL-003, a mebufotenin benzoate nasal spray used to treat depression, is based on a chemical found in the Sonoran Desert toad in North America. Advanced phase 3 trials have begun after it received breakthrough therapy designation from the US Food and Drug Administration earlier this year.
Geoff Hsu, BIOG co-manager at Orbimed Capital in New York, said: “AtaiBeckley is developing innovative treatments for psychiatric disorders, an area of significant unmet medical need. Its lead programme, BPL-003, has shown encouraging progress and results and has the potential to offer a differentiated treatment option for patients with treatment-resistant depression.”
M&A activity has ramped up this year as the sector has revived from the doldrums. BIOG, whose shares have more than doubled over 12 months, has already benefited from the acquisitions of portfolio holdings Avidity Biosciences, Cidara Therapeutics, Amicus Therapeutics, Apellis Pharmaceuticals, KalVista Pharmaceuticals, Esperion Therapeutics and Nuvalent.
Hsu said the latest deal validated the investment strategy of targeting innovative small and mid-cap biotechnology companies where much of the sector’s breakthrough science was taking place.
Separately, Hsu, who runs the portfolio with Josh Golomb, saw over a third of shareholder votes at BIOG’s annual general meeting cast against his re-election as a board director.
BIOG shares slipped 2.5%. or 39.5p, to £15.64 this morning.
Our view
Richard Williams, senior analyst at QuotedData, said: “M&A across the biotechnology sector continues to gather momentum, with large pharmaceutical companies facing looming patent expiries and thinning late-stage pipelines, and smaller biotech companies remaining valued well below what strategic acquirers appear willing to pay. While AtaiBeckley represented only around 1.1% of net asset value (NAV), it joins a growing list of portfolio companies to have attracted takeover interest this year, reinforcing management’s argument that public market valuations are failing to fully recognise the worth of high-quality development-stage biotech companies. A sustained flow of deals at healthy premiums (this one could reach a 73% premium to the share price) should highlight that the latent value is not reflected in the biotech sector share prices.”
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