Are We There Yet?

"It is difficult to make predictions, especially about the future."

-- Danish proverb, later attributed to Niels Bohr, Yogi Berra, and others

The S&P Biotech ETF (XBI) is down -29.8% YTD as of December 27, 2022 after declining -20.5% in 2021.

Will 2023 make it three down years in a row?

The Role of M&A

Industry observers often track big pharma M&A as a leading indicator of investor confidence. If Pfizer, Merck, and the like are willing to step in and buy small and mid-cap biotech companies, then the sky is not falling.

If strategic buyers are willing to value good companies on their long-term merits despite near-term uncertainty, the rationale goes, the public markets might as well do the same.

What happened on the M&A front during 2022, and what can we expect in 2023?

1. Life sciences M&A volume declined by approximately 50% in 2022. Fewer deals got done in a declining market.

2. Big pharma has hundreds of billions of dollars in cash available to make acquisitions. It also needs to rebuild its product portfolio to replace declining revenue from drugs going off-patent.

3. PwC expects M&A volume to return to more 'normal' levels in 2023 - double that of 2022.

The life sciences innovation sector has never seen three consecutive years of negative public market returns. "Mizuho does not expect 2023 to rewrite history."