Venture-Capital Stays Strong in Biotech Financing

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PTSM: Pharmaceutical Technology Sourcing and Management

PTSM: Pharmaceutical Technology Sourcing and Management-01-09-2013, Volume 9, Issue 1

Financing from initial public offerings and global mergers and acquisitions were down in 2012 and venture-capital funding stayed strong.

As the biopharmaceutical industry enters another year, a review of financing trends in the industry shows both positive and negative signs. On the plus side, overall financing (public and private) for life-science companies was up on a global level and in the United States. Venture-capital funding remained strong, but money raised from initial public offerings (IPOs) was down, and mergers & acquisitions (M&A) activity was also down on a value basis.

Crunching the numbers
US life-sciences companies raised a record amount of capital in 2012 with a total of $71.1 billion in public and private financings, up from $57.4 billion in 2011, a 23.9% increase, according to a recent analysis by Burrill & Company. When the potential value of partnering transactions are included in the numbers, the total for 2012 was $91.7 billion, a 13.9% increase over the $80.4 billion raised through financings and partnering transactions in 2011.

Global life-sciences venture financings totaled more than $12.4 billion in 2012, an increase of nearly 23% compared with 2011, and US-based venture-capital funding increased nearly 22% to approximately $9.5 billion. Venture investors, however, are moving away from early-stage financings, according to the Burrill & Company analysis. Companies are relying more on alternative sources of financing, including accelerators, angel capital, corporate-venture sources, and private equity investment. Of the top 10 private financings in 2012, all but one had significant backing from private-equity firms or strategic investors, according to the Burrill & Company analysis. Although privately held therapeutics developers had the largest portion of funding with a total of $5.1 billion in 2012, digital health and life-sciences information technology deals showed the largest increase in activity, with a 58.5 % increase to $748 million.

A total of 16 life-sciences companies completed IPOs in the United States in 2012, the same numbers as in 2011. Although the numbers of IPOs were on par, the money earned from them fell by 16% in aggregate in 2012. In 2012, the 16 IPOs in the US raised nearly $1.1 billion, down from the nearly $1.4 billion raised in 2011. Global IPOs were also down in both number and value. In 2012, there were 37 IPOs that raised $2.1 billion compared with 45 IPOs in 2011 that raised $3.8 billion, according to the Burrill & Company analysis.


Global and US-based M&A also was down in 2012 compared with 2011. On a global basis, companies in 2012 announced a total of $109.2 billion in M&A transactions, down 31.2% in 2011, according to the Burrill & Company analysis. Big Pharma and Big Biotech continue to be the most active acquirers. Although generic drugs and consumer health were large areas of activity, the top deals involving innovative biopharmaceuticals in 2012 included Bristol-Myers Squibb’s $7-billion acquisition of Amylin Pharmaceuticals, GlaxoSmithKline’s $3-billion purchase of Human Genome Sciences, and Dainippon Sumitomo Pharma’s $2.6-acquisition of Boston Biomedical, which is developing drugs to target cancer stem cells.

Looking ahead
For the life sciences in 2013, Burrill & Company expects that an improving world economy, tempered by economic instability in Europe, fiscal uncertainty in the US, and political unrest in the Middle East. On the life-sciences front, the firm expects the industry to raise $100 billion in capital, with financings heavily weighted to the large companies and to the use of debt. In private financing, it projects that traditional venture investors will become less relevant to start-ups as they continue to migrate not only toward later-stage deals, but public-company investments as well. Angel, corporate venture, disease advocacy groups, and philanthropic organizations will fill the growing gap. Marketability or evidence of market potential will continue to be an important criterion to secure funding. With growing wealth in emerging markets, Burrill projects that investors in these parts of the world will become more prominent and new cultures of entrepreneurship will give rise to a growing number of life-sciences startups outside the United States. Burrill projects that private financings to grow 20% in 2013.

Helped by increased public-market activity and jobs stimulation on a US federal level, Burrill expects the number of life sciences IPOs to increase to 25 in 2013. On the M&A front, the firm projects that M&S will increase by at least 20% with a pick-up in acquisitions of mid-cap life-sciences companies and at least one Big Pharma or major biotech merger in 2013. Deals targeting drug companies that reach into Latin America, the Middle East, and Southeast Asia, will also drive activity, according to the Burrill & Company analysis.