By Seth Yakatan, Katan Associates
2013: Year in Review
It is clear that 2013 was one of the best years ever enjoyed by the Biotechnology industry, in the financial markets, ever.
US Biotechnology equities out-performed the broader financial markets which soared to record highs in 2013. Both the AMEX and NASDAQ Biotech indexes almost doubled the performance of the broader exchanges. The share prices of 81 biotechnology companies more than doubled in 2013.
In excess of 55 life sciences companies went public on US exchanges last year, representing the largest grouping of such initial public offerings in well over a decade. Therapeutics companies, which composed 75% of the offerings, increased an average 39.7% from their IPO price. After a blazing hot summer for these new issues, when 20 companies completed IPOs, many of which were upsized, oversubscribed, and likely overvalued, the pace of IPOs cooled towards the end of 2013. Overall financing proceeds generated from IPOs increased by 241.8% from 2012 to 2013, while proceeds from follow-on offerings more than doubled during the period.
Mergers and Acquisitions
Even more amazing is that value of mergers and acquisitions of biotech and medical technology companies climbed more than 20% over the levels seen in 2013, to represent in excess of $131.8 billion in transaction value. Thermo Fisher Scientific’s $13.6 billion acquisition of Life Technologies and Amgen’s $10.4 billion takeover of Onyx Pharmaceuticals were the biggest deals of the year. The top 100 deals alone had a combined value of $150 billion, with 26 deals having a value of or exceeding $1 billion. Most 2013 M&A deals involved big biotech and big pharma companies snapping up smaller companies in order to bolster pipeline and capabilities, a trend which has been a constant theme for the last decade..
While the public market and M&A activity was at an all-time high in 2013, it was still difficult to raise private capital. Burrill & Co. reported that private life sciences companies raised $11.5 billion globally during 2013, only a modest 2.1% percent more than in 2012. Early-stage financings continued to be difficult.
Partnering activities continued win the biotechnology area during 2013 as pharmaceutical companies continued to externalize their research operations, gain product pieline, and offset patent losses. Of the $35.4 billion in potential value of partnering deals with disclosed values, $14.2 billion were discovery or pre-clinical collaborations, often with an option to license when the compound achieved proof-of-concept. The majority of the top 50 largest licensing deals during 2013 were for molecules at Phase II stage of clinical development. In 2013, the top 50 collaborations, partnerships and licenses cost an average of $99 million in up-fronts and $641 million in total deal values. Unsurprisingly, up-front payments in 2013 were directly proportional to the stage of development, with less money being paid out for early-stage deals.
The question that looms for 2014 is will these trends continue?
While 2013 was extremely robust from a pubic capital markets and mergers and acquisition perspective, it was about average from the perspective of private capital raises and partnerships. This robust performance has left many investors and partricpiants in the sector seeking more capital and more molecules. It has left many inside and outside the industry wondering what will 2014 bring?
Conventional wisdom would provide that the boom seen in 2013 cannot be sustained. Through mid-February 2014 the bull marches on! During January 2014 6 companies went public raising approximately $39.0 million. Through mid-February another 12 went public generating proceeds in excess of $772.0 million. It seems that at least for February, the window remains open
Mergers and Acquisitions
Already this year we see one trends continuing, specialty pharmaceuticals and generics companies will be buyers as a way to bolster pipeline with more branded components. Already in 2014 we have seen Actavis is extending its deal spree when it agreed to buy Forest Laboratories for about $25 billion. Given its management troubles and the second-lowest valuation among the 11 major global generics makers there is much speculation that Teva Pharmaceuticals will be taken over during 2014.
About the Author:
Seth Yakatan brings more than 20 years of experience as a corporate finance professional, actively supporting small cap and major companies in achieving corporate, financing and asset monetization objectives through the successful structuring and management of strategic transactions and investments totaling more than several billion dollars in value.
Over the past twelve years as a co-founder of Katan Associates (KAI), Seth has successfully structured and managed strategic alliances and deals, based on his insight and expertise in the US and Global Life Science sector, including numerous buy- and sell-side M&A transactions.
Completed Life Science transactions at KAI include:
- Twelve buy and sell-side M&A engagements, generating aggregate transaction value in excess of $345 million.
- Numerous early-stage pharmaceutical partnering assignments with aggregate value generated for clients of more than $875 million.
- Facilitation of several royalty monetization transactions, with aggregate realized value in excess of $125 million.
Seth is a recognized as an expert in the valuation of life sciences companies, stemming from industry experience and academia. He has authored several publications and lectured and guest lectured at corporate workshop and universities on valuation theory and real-world practice and case studies, and consulted to several state and provincial governments worldwide on commercialization and capital access initiatives.
Seth holds an MBA in Finance from the University of California, Irvine and a BA in History and Public Affairs from the University of Denver.
Seth enjoys being a Dad to his two children, participating in triathlons and cycling.
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