3 top dealmakers expect biotech M&A to stay busy in 2020. Here are the 4 key areas that are ripe for takeovers.

• While 2019 became the year of the megamerger in life sciences M&A, top Wall Street dealmakers don't expect that to repeat in 2020, they said Monday at the BIO CEO & Investor Conference.
• But top bankers from JPMorgan Chase, Raymond James, and Centerview Partners all anticipate a busy year for dealmaking, driven by smaller acquisitions to bolster company's pipelines.
• "I do anticipate more of the $1 to $5 or $1 to $10 billion deals in the next few years, rather than big pharmas becoming bigger," said Eric Tokat, a partner at Centerview Partners, who has advised on deals exceeding $350 billion in total value over his career.
• The group named precision oncology, immunotherapy, rare diseases, and big data as hot areas to watch for 2020 deals.
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Despite a quiet start to 2020, expect another busy year of dealmaking in biotech.

That was the outlook delivered on Monday by three Wall Street veterans who've been involved in many of the industry's M&A deals. They spoke on a panel at the BIO CEO & Investor Conference in New York.

Dealmaking will be driven by smaller transactions focused on bolstering company's pipelines of potential future treatments, rather than the massive mergers that led the way in 2019, they said. Areas of focus for buyouts include big data, cancer treatments, rare diseases, and complex biotech manufacturing, the bankers said.

2019 was marked by two massive acquisitions with Bristol-Myers Squibb buying Celgene for $74 billion and AbbVie agreeing to take over Allergan in a $63 billion transaction. In all, pharma and life sciences firms struck about $358 billion of transactions last year, according to a PwC report.

"I do anticipate more of the $1 to $5 or $1 to $10 billion deals in the next few years, rather than big pharmas becoming bigger," said Eric Tokat, a partner at Centerview Partners.

Biotech dealmaking is now driven by science

Biotech dealmaking has shifted signficantly in the past five years, Tokat said, referencing the 2014-2015 period where drugmakers like Valeant Pharmaceuticals, Mallinckrodt, and Endo International rapidly acquired treatments and whole companies.

Now, deals are being driven more by the opportunities created from rapid scientific progress, with an explosion of biotechs testing new therapeutic platforms. After the last two years brought record levels of life sciences M&A, Tokat said he believes "this time is really different" on the question of if M&A has yet to reach a peak because of the science.

"I think we are just in the first or second inning of this scientific revolution," he said. "As the science delivers, I think we will continue to see dealmaking."

Tokat has been involved in both types of deals, such as when Valeant bought Salix Pharmaceuticals for north of $10 billion in 2015. That deal was driven less by the gastrointestinal specalist company's science, and more by financial engineering plans on the part of Valeant.

Tokat has also advised on a range of multibillion-dollar deals in 2019, including Merck buying ArQule for $2.7 billion and Sanofi acquiring Synthorx for $2.5 billion. ArQule and Synthorx both work on cancer treatments. All told, the Centerview partner has been involved in life science deals totaling more than $350 billion.

Tokat said these new deals are being driven by a focus on acquiring therapies that can change the standard of care for a disease, sometimes even curing diseases. But it's also worth noting that the acquisitive strategy of companies like Valeant (now called Bausch Health) and Mallinckrodt have effectively failed. Both of their stocks have plummeted significantly from their peaks over the past few years.

Dealmakers expect oncology, rare diseases, and big data to be hot in 2020

Tokat expects the majority of M&A this year will happen in two areas: oncology and rare diseases.

His prediction is in part driven by simple math: of the roughly 110 companies holding $1 billion-plus market values right now, Tokat estimates that half of are working to treat cancer or rare diseases.

Andrew Gitkin, co-head of the healthcare investment banking practice at Raymond James, also expects more deals in that smaller range.

Gitkin, who is based in California and has focused on the West Coast biotech environment, pointed to the trend of biotechs partnering with large pharma companies as a driver. These relationships can often lead to acquisitions down the line, he said.

Big data will be a hot area for dealmaking in 2020, Gitkin predicted, saying a recurring theme he has noticed is large drugmakers generating massive amounts of data. Then, those companies aren't sure what to do with it.

He said another area to watch for deals will be in biotech manufacturing, particularly companies that have efficient and standardized ways to make cell therapies, which can be challenging to produce.

Philip Ross, vice chairman of JPMorgan Chase's healthcare investment banking, and Gitkin both agreed on a continued focus on cancer treatments, highlighting specific segments of the oncology market they expect to be particularly active.

Gitkin said immunotherapies, which use the body's immune system to fight disease, will be a hot space in 2020. JPMorgan's Ross said drugs tailored to specific types of cancer based on genetic differences, known as precision oncology, will also continue to attract attention.

On the flip side, some of the largest diseases are unlikely to be core focus areas, including heart medicines and treatments for diseases like Alzheimer's, Ross said.

Despite a $9.7 billion takeout of The Medicines Company, which is developing a heart treatment, Novartis was the only bidder at the table.

"It took at n of 1 in terms of interest," said Ross, noting JPMorgan was involved in the deal. "Six or seven showed up to the dance, but only one bid. It's a tough space."

Ross called Alzheimer's "literally the third rail" for large pharmas, given the high failure rate in finding treatments for the disease.

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