Mergers and acquisitions in 2023 are off to a good start

Mergers and acquisitions are a normal part of business, but 2023 has already brought many opportunities in the biotech industry. The growth in mergers and acquisitions appears to be driven by two major deals: the sale of LHC Group Inc. (Nasdaq: LHCG) for $6 billion to UnitedHealth (NYSE: UNH) and sale of Signify Health Inc. (NYSE: SGFY) for $8 billion to CVS Health Co. (NYSE: CVS). While larger companies like AstraZeneca PLC (Nasdaq: AZN), Moderna (Nasdaq: MRNA), and Gilead (Nasdaq: GILD) have recently initiated deals, here are three lesser-known acquisitions you may not be aware of.

Leap Therapeutics, Inc. and Flame Biosciences

Leap Therapeutics, Inc. (NASDAQ: LPTX) has acquired Flame Biosciences for $86 million. The acquisition is intended to provide control of Flame’s current product program, which includes a clinical-stage anti-Claudine 18.2 antibody—known simply as FL-301—and two other preclinical candidates. This acquisition will add a second gastric cancer drug to its core asset, DKN-01, which recently received orphan drug designation from the FDA. It will also increase LPTX’s total cash balance to approximately $115 million, fully funding DKN-01 and FL-301.

The merger will provide current Flame shareholders with nearly 20 million shares of LPTX common stock and approximately 137,000 shares of newly designated Series X non-voting convertible preferred stock. Approval of the transaction will then result in the conversion of the Series X shares into 1,000 shares of LPTX common stock. Leap will also pay 80% of the net after-tax proceeds from the transaction, if any, to Flame shareholders.

This was a smart strategy for Leap as the stock had been declining for the past year but has started to rebound. And while LPTX is still down 67.35% over the last 12 months, the news of the acquisition appears to be helping to shore up the value. It has already jumped by over 46% since the beginning of the year. The stock is barely close to breaking even as a penny stock, but earnings are still negative. However, the 354% gain certainly warrants a Buy rating.

BioNTech SE and InstaDeep

BioNTech SE (NASDAQ: BNTX) is a biotech company that develops immunotherapies for cancer and other infectious diseases. So what could they possibly want from a GPU-accelerated deep learning company? BioNTech acquired InstaDeep in early January as part of a plan to bolster its presence in the growing field of AI-based drug discovery and development to compete with the likes of Sanofi SA (NASDAQ: SNY), which recently paid $21.5 million to partner with Insilico Medicine.

The acquisition of InstaDeep from London is just the latest step in this relationship, as they have been cooperating since 2020, implementing several dozen projects during that time. However, the completion of this agreement will add approximately 240 exceptional specialists to BioNTech’s roster and existing global infrastructure of research partners.

BioNTech will pay approximately $400 million for the transaction to acquire all remaining shares of InstaDeep. The sale will also make InstaDeep shareholders eligible to receive future milestone payments – based on performance – up to ~$247 million.

BioNTech’s acquisition of InstaDeep didn’t have as much of an impact on the stock price as other mergers since the beginning of the year. Of course, that could also have something to do with the fact that BioNTech is only down 19% since the end of December and almost 9% since last year.

More importantly, the stock is up 5% since the last quarter. The stock is also trading in a 52-week range. While the 3.22 P/E is low, it is still better than other post-merger metrics. Earnings are expected to grow, but it could take at least another year to break even, but the 45.8% gain helps support a Moderate Buy rating.

Shockwave Medical and Neovasc Inc.

Cardiovascular device company Shockwave Medical (Nasdaq: SWAV) also acquired smaller competitor Neovasc Inc. earlier this month. Neovasc Inc. (Nasdaq: NVCN) shares are up nearly 30% on the news, now trading at $27.65 and poised to break above a 52-week high. With a market cap of just $75.84 million, buying Shockwave at $27.25 per share represents a nearly 25% premium on an enterprise value of about $100 million.

As part of the deal, Neovac shareholders will receive $47 million in deferred payments based on achieving key regulatory milestones. These payments are likely to be tied to the success of Neovasc’s new angina drug, Neovasc Reducer.

Unfortunately, the news had the opposite effect on Shockwave stock. Shares are down about 4% after the announcement closed about 10% earlier this week. The good news is that SWAV is still 33% higher than it was a year ago. SWAV has a fair upside potential of 37%, with at least 27% projected earnings growth. However, the stock gets a Moderate Buy rating because $0.92 EPS is low, but the 80.70 P/E could mean the stock is currently overvalued.

The article M&A in 2023 is off to a promising start first appeared on MarketBeat.