A Mixed Year for US Biotech Financing

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PTSM: Pharmaceutical Technology Sourcing and Management

PTSM: Pharmaceutical Technology Sourcing and Management-02-01-2012, Volume 8, Issue 2

Venture-capital financing was up last year in the US biotechnology industry, but public-equity financing, exclusive of debt, declined.

The biotechnology industry represents an important source of potential outsourcing for contract providers of drug-development and manufacturing services, particularly among smaller, emerging biopharmaceutical companies. Financing trends in the biotechnology industry, therefore, are important indicators of the health of the biopharmaceutical sector and of the financial strength of a potential customer base for contract service providers.

Although the biotechnology industry finished the first half of the 2011 on pace for one of its biggest years of fundraising, global economic worries and political fights over government debt in Europe and the United States weighed heavily on financial markets and tempered financing for 2011. “These pressures not only hampered companies' ability to obtain funding in the second half of the year, but also raised the specter of cuts to governments' expenditures on healthcare and biomedical research,” said G. Steven Burrill, CEO of Burrill & Company, a global financial services firm focused on the life sciences industry, in a Jan. 3, 2012, press release. “With capital scarce and expensive, companies will need to focus their investments on clear paths to revenues. They will also have to develop products that push beyond incremental improvements on available products and instead concentrate on disruptive solutions that make healthcare costs more sustainable,” he said.

On a global basis, life-sciences companies during 2011 raised a total of $82.4 billion in public financings, up from $65 billion in 2010, according to Burrill & Company. Debt financings dominated fundraising both years and accounted for the overall fundraising growth in 2011. On a global basis, life-sciences companies’ debt offerings increased 46.4% from $37.8 billion in 2010 to $55.5 billion in 2011. Global life-sciences public-equity financings (initial public offerings [IPOs], private investment in public equity [PIPEs], and follow-on offerings totaled just $16.0 billion, a 7.9% increase over the $14.8 billion raised in 2010, due largely to follow-on financings in China.

In the United States, public-equity financings in 2011 totaled $5.7 billion, down 17.4% from $6.9 billion a year ago, according to Burrill & Company. As on a global basis, US life-science companies’ debt offerings increased 17.6% in 2011, from $30.6 billion in 2010 to $35.9 billion. Fundraising slowed considerably in the US in the second half of the year as markets swung in the face of the European debt crisis and the fights in the US over the raising of the debt ceiling, the Standard and Poor's downgrade of US credit, and the inability to reach agreement in Congress on how to reduce the budget deficit, explained Burrill & Company in its release.

On a global basis, 46 life-sciences companies went public in 2011, up from 39 in 2010. Although the number of IPOs increased in 2011, the total amount raised decreased by 44.6% compared to 2010, down from nearly $6.8 billion in 2010 to $3.7 billion in 2010, according to Burrill & Company. In the US, a total of 16 life-sciences companies went public in 2011 and raised $1.4 billion compared to 20 companies that went public in 2010 and that also raised $1.4 billion in those IPOs. As a group, life-sciences IPOs of 2011 fell 29% from their initial offering prices as of the close of the year. Ten companies that went public did so below their target price ranges and, as a group, these companies sold nearly 28% more shares than they had set out to sell while raising 13% less than they had hoped.


Mergers and acquisitions (M&A) were up in 2011, both globally and in the US. Global biotechnology M&A activity was valued $160 billion in 2011, up 7.5% from 2010, according to Burrill & Company. M&A activity with US targets also rose, up 32.5% in 2011 compared to 2010 from $71.9 billion in 2010 to $95.2 billion in 2011. Some key deals in 2011 included the completion of long negotiation between Sanofi and Genzyme in Sanofi’s acquisition of Genzyme, which included the use of contingent value rights that could be worth up to $14 each, notes Burrill & Company. These rights closed 2011 at $1.17, a reflection of Wall Street's uncertainty about their value. Those rights could add as much as $3.8 billion more to the agreed-on $20.1 billion deal. Other notable deals included generic-drug producer Teva Pharmaceutical buying the biopharmaceutical company Cephalon for $13 billion; Takeda buying Switzerland's Nycomed for $13.7 billion to broaden its access to Europe and emerging markets; and Gilead's planned $11 billion purchase of hepatitis C drug developer Pharmasset.

Financing raised through partnering deals, however, declined significantly in 2011. Global partnering financing fell 38.3% in 2011, from $61.3 billion in 2010 to $37.8 billion in 2011, according to Burrill & Company. Financing from US partnering and licensing deals took a commensurate plunge and fell 32.8% in 2011 from $34.0 billion in 2010 to $22.9 billion in 2011.

“As we begin the new year, the volatility that has characterized the financial markets in the second half of 2011 is likely to continue,” noted the Burrill & Company release. “Europe's sovereign debt crisis will take years to work through and with 2012 being an election year in the United States, the divide between the parties is not likely to be bridged. While the industry continues to raise a substantial amount of capital, much of it is going to fund large, well-established companies.”