NorthernBioStrategies
Wallflowers and Bidding Wars
BioTech

Wallflowers and Bidding Wars: Small Biotech Deals in r/r Melanoma

Alfred Corrigan•
#competitive landscape#pharmaceutical#strategy

We believe that while traditional valuation models may work well for large public companies in several sectors, they leave out information on deal probabilities (acquisition, co-development, licensing) that is often critical to the success of small biotech companies. If this thinking holds true alongside value investing principles, it opens the door to sets of potentially undervalued companies. Here, we use this to investigate how small biotechs producing small molecules and antibody drugs in anti-PD-1 r/r Melanoma fill a strategic gap that we believe make them likely targets for acquisition and licensing.

Why is everything rated “strong buy”?

Even in a year when the S&P Biotechnology Select Industry Index has risen 71.31% (close 19/06/2026), analyst ratings of single companies have been overoptimistic and diverged from real-world outcomes1. We believe that part of the cause is that rNPV, for all its rigour, leans on assumptions that flatter early-stage stories. Small companies without manufacturing, sales and marketing usually need a deal (licensing, co-development or acquisition) to commercialise and survive. This event is built-in to a traditional rNPV to give revenue forecasts, but in reality often results in vastly overstated success.

When searching for investment candidateswe start by considering a pool of companies in a setting we believe favourable to deal outcomes. Specifically, we find that biotechs developing small-molecule and antibody therapies for cutaneous anti-PD-1 r/r melanoma are promising deal candidates when they pair strong clinical data, solid IP, a novel mechanism and a management team open to a deal. Strong data and IP already lift any rNPV, and the deal lens adds two questions: whether those fundamentals fit a particular acquirer’s strategic gap and whether several buyers feel that gap at once. That is where the rest of this piece looks.

Market opportunity for small molecule and anti-body therapies

Ipilimumab remains the most-used option after anti-PD-1 failure though patients typically progress within two to three months, creating a low efficacy bar for therapies in trials. Lifileucel, the cell therapy approved in 2024, showed excellent durability data but faces structural limitations in peak penetration given complex manufacture, a demanding cold chain and low physician confidence. An acquisition also looks unlikely as a buyer could reuse little of its infrastructure2. That leaves clear room for a small molecule or antibody which is simpler to make and ship, easier to trust, and for most candidates in trials, combinable with pembrolizumab or nivolumab.

A strong strategic fit

We see a particularly good fit at Merck, Bristol Myers Squibb, Pfizer, Novartis and AstraZeneca, driven by pipeline gaps, looming patent losses and existing infrastructure. In 2025 pharma dealmaking rebounded to roughly $223bn, about 39% of it in oncology, with the Keytruda and Opdivo patent cliffs a major reason why3 4. These five are the asset’s natural long-term homes rather than its first buyers: small caps are often acquired first by mid-sized companies, which are themselves targets further up the chain. A broader shift toward smaller bolt-on deals and earlier-stage licensing only raises the odds.

Competitive tension

The fit is not limited to one buyer and that overlap creates tension. When several companies can each justify the same asset, the chance one moves rises and a rival bidder pushes the price higher. Simultaneous Keytruda and Opdivo cliffs concentrate that motivation while failed in-house programmes such as AstraZeneca’s discontinued ceralasertib leave gaps a competitor’s success would expose5. The tension comes and goes: strongest when data are fresh and several buyers lack an option, weaker as data age or the company’s cash runs low. We view the tension as currently very high.

Headwinds

The risks are real. Chinese checkpoint inhibitors and bispecific antibodies are squeezing pricing and giving big pharma a cheaper way to refresh immuno-oncology portfolios. However, most are “me-too” drugs blocking the same PD-1/PD-L1 checkpoint and chasing first-line markets which does little for patients who have already failed anti-PD-1 and need a genuinely different mechanism6 7. That only sharpens the premium on novel mechanisms. Regulatory risk is also elevated: the rejection of Replimune’s RP1, despite durable responses, shows how fragile an accelerated-approval route can be8 9. Finally, thinly funded companies face financing and timing pressure that erodes their deal leverage.

What it means for investors

For small biotechs in anti-PD-1 r/r melanoma, value hinges on the probability of a deal multiplied by the negotiated value and rNPV is one input into the final value. On that measure the group of small biotechs developing small-molecule and antibody therapies for cutaneous anti-PD-1 r/r melanoma sits at an unusually favourable intersection of open clinical headroom, strong strategic fit and competition among several plausible buyers, even after the regulatory and financing risks of companies this size.

Footnotes

Footnotes

  1. Z. He et al., “A multi-dimensional assessment of the accuracy of analyst target prices,” Int. Rev. Financ. Anal., 2024, 93, 103183, DOI: 10.1016/j.irfa.2024.103183. ↩

  2. J. Chesney, K. D. Lewis, H. Kluger, O. Hamid et al., J. Immunother. Cancer, 2022, 10, e005755. ↩

  3. AlphaSense, Biotech M&A: Trends and Outlook for 2026, 2026, https://www.alpha-sense.com/resources/research-articles/biotech-m-and-a-2026-outlook/ (accessed June 2026). ↩

  4. Labiotech, The next pharma patent cliff: how 2026–2032 will reshape revenue, 2025, https://www.labiotech.eu/best-biotech/pharma-patent-cliff/ (accessed June 2026). ↩

  5. MONETTE: ceralasertib ± durvalumab in PD-(L)1-resistant advanced melanoma, Clin. Cancer Res., 2025, DOI: 10.1158/1078-0432.CCR-25-3951; ClinicalTrials.gov NCT05061134. ↩

  6. Y. Zhou et al., Front. Pharmacol., 2022, 13, 910656, DOI: 10.3389/fphar.2022.910656. ↩

  7. E. Kakavand et al., Cancers, 2023, 15, 2718, DOI: 10.3390/cancers15102718. ↩

  8. RP1 plus nivolumab in advanced anti-PD-1-failed melanoma (IGNYTE), J. Clin. Oncol., 2025, 43, 3589–3599, DOI: 10.1200/JCO-25-01346. ↩

  9. Replimune Group Inc., RP1 BLA regulatory updates (FDA Complete Response Letter, 2025; PDUFA decision, April 2026), https://ir.replimune.com/. ↩

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