Biotechnology ventures involve costly research and development and a 10-20 year delay in generating product revenues. The high risk nature of early stage biotech research is primarily funded through venture capital, with high risks resulting in potentially high rewards. While the biotech venture model has remained relatively unchanged over the past 30 years, the exit strategies employed by companies and venture capitalists have adapted to the market conditions prevailing over time.
There are three primary biotech exit strategies. The traditional route has been to fund a biotech venture through to a successful public floatation (IPO). However, as IPO markets have become more challenging, a second key route has emerged whereby early-to-mid-stage biotech ventures are being acquired by or merged with bigger pharmaceutical and biotechnology companies looking to secure new technologies and pipeline prospects. Alongside these two major exit strategies sits the alliance and licensing model which effectively provides a partial exit strategy for companies and venture capitalists, often involving a dilution of risks and the bringing forward of potential returns.
Establishing the most effective route to exit for a biotech venture is critical in ensuring value is maximized for key stakeholders and the associated technology. However, more critical than selection of exit strategy is the planning and effective execution of exit. Fledgling biotech companies owe their existence to the promise of a valuable exit for the early-stage funder. As a result, each and every biotech company must be able to demonstrate that all plans and actions are effective steps towards the realization of success exit, even where the method and timing of exit are largely undecided. ’Biotech Exit Strategies’ report provides a detailed review of current and future trends in biotech exit strategies and uses real-life case studies to illustrate the key challenges and critical success factors involved in executing an exit for biotech investors. The report provides a unique strategic analysis for successfully dealing with the prevailing challenging financial conditions facing biotech companies and investors.
Key Findings
Establishing the most effective route to exit for a biotech venture is critical in ensuring value is maximized for key stakeholders and the associated technology. However, more critical than selection of exit strategy is the planning and effective execution of exit.
Total private and public funding for biotech companies fell by 59.1% in 2008 to a five year low of US$10.8 billion. Public companies were hardest hit, as a result of public funding markets contracting in the wake of the credit crunch and global financial crisis in the second half of 2008.
A total of 15 biotech IPOs raised more than US$100 million between 2004 and 2008. The last major biotech IPO was the floatation of nanotechnology diagnostics company Nanosphere, which raised US$112.7 million in October 2007.
Several recent biotech M&A deals have resulted from partnerships established through long-term strategic alliances. In 2008, Novartis’ US$880 million acquisition of Speedel, Sanofi-Aventis’ US$553 million acquisition of Acambis, Ipsen’s US$441 million acquisition of Tercica and Teva’s US$360 million acquisition of Bentley all followed earlier alliances between the two parties.
Use this report to…
• Gain a full understanding of recent biotech funding and exit trends, including IPOs, M&As and licensing and alliances, and their impact on biotech company valuations and investor returns.
• Add future forecasts for funding conditions and exit conditions to the strategic planning process.
• Reference and benchmark 15 in-depth case studies outlining best practices and key learnings from recent biotech exit activity.
• Compare and contrast the key benefits and challenges associated with different routes to biotech exit.
• Audit current planning milestones and create a checklist of critical success factors associated with the three different routes to biotech exit
• Implement a detailed framework for biotech planning, combining the funding lifecycle with exit valuations and interim clinical, commercial and financial parameters
Key issues…
IPO market is closed. Report identifies trends and proposes alternatives to an immediate IPO.
Reverse mergers. Report outlines a new trend in reverse mergers that provide an alternative route to public listing when IPO markets are closed
M&A instead of IPO. Report highlights the rise of the M&A exit, and confirms its importance in the down cycle for biotech IPOs.
Alliance buy-outs. The report details the delicate balance in pursuing alliances aimed at an eventual partner buy-out exit without limiting M&A exit opportunities with third parties.
Path to exit. The report provides a framework for planning a biotech investor exit and details the valuation objectives, milestone parameters and eventual funding to exit lifecycle.
Discover...
• What are the alternative routes to biotech investor exit and how do these approaches impact on the funding lifecycle?
• How do the current challenging funding conditions impact on biotech exit alternatives?
• What are the likely future trends in biotech funding and exit opportunities?
• With a closed IPO market, how can biotech companies realize a investor exit event?
• How do licensing and alliance agreements impact on likely future exit opportunities and their valuations?
• What are the differences between an enterprise-level and asset-level valuation, and when is each appropriate to planning an exit?
• Which clinical, commercial and financial parameters best track biotech progress towards a successful exit?
Biotech exit strategies
Executive Summary 10
An introduction to biotech exit strategies 10
Biotech exit trends 11
IPO exit strategies 12
M&A exit strategies 13
Alliances and licensing exit strategies 14
Building the path to exit 15
Chapter 1 An introduction to biotech exit strategies 18
Summary 18
Introduction 19
The biotechnology funding lifecycle 20
IPO as an exit strategy 21
M&A as an exit strategy 21
Alliance/licensing as an exit strategy 22
Developing a path to exit 22
Chapter 2 Biotech exit trends 26
Summary 26
Introduction 27
Biotechnology funding trends 27
IPOs are down and will be for a while… 30
M&A is up… 31
Licensing is down slightly but still delivering value… 31
Biotechnology productivity trends 34
Biotech exit strategy trends 36
IPO trends 37
M&A trends 37
Alliances/licensing trends 38
Future exit strategy trends 41
Reverse mergers 41
Creative financing 42
The quasi-public corporation 43
Chapter 3 IPO exit strategies 46
Summary 46
Introduction 47
The traditional exit strategy 47
Key benefits 49
Key challenges 50
Case study insights 50
Bioheart – 2008’s only US IPO 51
MolMed – 2008’s biggest IPO 52
Acorda – Two rounds of follow-on offerings in 2008 52
Talecris Biotherapeutics –IPO registration leads to acquisition 53
Alimera Sciences – Proposed IPO withdrawn 54
Key success factors 55
Timing is everything… 56
Products, products, products… 56
Commercial validation from partners and investors… 57
Corporate management talent… 57
Chapter 4 M&A exit strategies 60
Summary 60
Introduction 61
The emerging exit strategy 61
Key benefits 63
Key challenges 64
Case study insights 65
Piramed – 2008 big pharma acquisition 65
U3 Pharma – 2008 Japanese pharma acquisition 66
OncoGenex Technologies – 2008 reverse merger 67
IDM Pharma – Reverse merger at risk of delisting 68
Protein Sciences – 2008 terminated biotech acquisition 69
Key success factors 71
Clinical validation… 71
Commercial potential… 71
Existing relationships… 72
Committed management… 72
Chapter 5 Alliances and licensing exit strategies 74
Summary 74
Introduction 75
The part exit strategy 75
Key benefits 77
Key challenges 78
Case study insights 79
Adnexus – Laying the tracks for an eventual buy-out 79
MacroGenics – Generating a funding catalyst 81
ChemoCentryx – Blockbuster strategic alliance, but no IPO 82
Anacor – Key partnerships but no IPO 84
Phenomix – Licensing instead of IPO 86
Key success factors 87
The right deal with the right partner at the right time… 87
Reinforcing the long-term exit strategy… 87
Creating, not limiting opportunities… 88
Chapter 6 Building the path to exit 90
Summary 90
Introduction 91
Defining the objectives 91
Asset-level exit 92
Enterprise-level exit 93
Keeping options open 93
Setting the parameters 94
Clinical 95
Commercial 96
Financial 96
Building on success 97
Responding to failure 98
Chapter 7 Appendix 102
Research sources 102
Bibliography 102
List of Figures
Figure 1.1: The biotechnology funding lifecycle 20
Figure 1.2: The biotechnology path to exit 23
Figure 2.3: Global biotech funding trends (US$bn), 2004-08 28
Figure 2.4: Global IPO trends, 2004-08 30
Figure 2.5: Biotech M&A trends, 2004-08 31
Figure 2.6: Biotech alliance and licensing deal trends, 2004-08 32
Figure 2.7: Biotech alliance and licensing value trends (US$m), 2004-08 33
Figure 2.8: New product approvals – leading biotechs versus leading pharma, 2004-08 35
Figure 2.9: R&D productivity – leading biotechs versus leading pharma (US$bn), 2004-08 36
Figure 2.10: Number and value (US$bn) of US biotech IPOs, 2004-08 37
Figure 2.11: Number and value (US$bn) of M&As, 2004-08 38
Figure 2.12: Biotech alliances and licensing trends (US$m), 2004-08 39
Figure 2.13: Biotech alliances and licensing trends by development stage, 2004-08 40
Figure 3.14: Average IPO exit values in US (US$m), 2004-08 48
Figure 4.15: Average major biotech M&A exit values, 2004-08 62
Figure 5.16: Average licensing/alliance part exit values (US$m), 2004-08 76
Figure 6.17: Defining biotech exit objectives 92
Figure 6.18: Setting biotech exit parameters 95
List of Tables
Table 3.1: Leading US IPOs (US$m), 2004-08 47
Table 3.2: Bioheart profile: 2008’s only US IPO 51
Table 3.3: MolMed profile: 2008’s biggest IPO 52
Table 3.4: Acorda profile: 2008’s only double follow-on offering 53
Table 3.5: Talecris Biotherapeutics profile: 2008 proposed IPO leads to M&A 54
Table 3.6: Alimera Sciences profile: 2008 proposed IPO withdrawn 55
Table 4.7: Leading private biotech M&A deals, 2006-08 61
Table 4.8: Piramed profile: 2008 big pharma M&A exit 66
Table 4.9: U3 Pharma profile: 2008 Japanese pharma M&A exit 67
Table 4.10: OncoGenex Technologies profile: 2008 reverse merger 68
Table 4.11: IDM Pharma profile: reverse merger at risk of delisting 69
Table 4.12: Protein Sciences profile: terminated 2008 biotech M&A exit 70
Table 5.13: Leading private biotech licensing and alliance deals (US$bn), 2006-08 75
Table 5.14: Adnexus profile: strategic alliance leading to 2007 M&A exit 80
Table 5.15: MacroGenics profile: strategic alliance as a 2008 funding catalyst 81
Table 5.16: ChemoCentryx profile: strategic alliance but no 2008 IPO 83
Table 5.17: Anacor profile: two key partnerships but no 2008 IPO 85
Table 5.18: Phenomix profile: 2008 strategic alliance instead of IPO 86
Adnexus
Alimera Sciences
Anacor
BioHeart
ChemoCentryx
IDM Pharma
macroGenics
MolMed
OncoGenex Technologies
Piramed
Phenomix
Protein Sciences
Talecris Biotherapeutics
U3 Pharma
Other selected research from the 'Biotechnology' category:
Stakeholder Opinions: Diabetic Renal Disease
Biotech for Wellness: Driving successful R&D and licensing in nutraceuticals through new business models and collaboration
Other selected research from the 'Business Development' category:
Deals and alliances in sensory and dental diseases
Deals and alliances in autoimmune and inflammatory diseases
Other selected research from the 'Finance & Investment' category:
Royalty Financing Terms and Agreements in Pharma, Biotech and Diagnostics, 2nd edition
Biotech Exit Strategies: Delivering value to investors in a challenging funding market
Other selected research from the 'Management' category:
Personalizing Disease Management Through Technology Solutions: Part II - Vendor Landscape
Product Lifecycle Management, 2006