The first half of 2010 was an eventful and exciting one for financing and M&A in biotech. An analysis of data published quarterly by Biocentury revealed some noteworthy differences between the first two quarters of the year.
First of all, the total amount raised by biotech companies during the second quarter of 2010 ($8.1 billion) was 46% more than the $5.5 billion raised in the first quarter of 2010, and similar to the amount raised in the last quarter of 2009 ($7.7 billion), which was a solid one for the sector. There were 10% more companies raising money in 2Q over 1Q (219 vs. 198), and the average capital raise was 32% larger in 2Q than in 1Q ($37 million vs. $28 million).
The biotech IPO window remained open, with similar amounts raised in 1Q and 2Q 2010, $391 million and $342 million respectively, while venture funding remained in relatively similar levels during the two quarters, even though the amount raised in 2Q ($1,668 million) was slightly higher than the amount raised in 1Q ($1,297 million).
On the other hand, follow-on offerings were less popular with investors in 2Q than in 1Q, with only half the capital raised in this most recent quarter ($624 million) compared to the first quarter of the year ($1,262 million). The large increase in the total amount raised in 2Q over 1Q comes from the more than double amount of capital ($5.4 billion vs. $2.6 billion) raised through other financing means (i.e., non-IPO, follow-on or venture funding), mainly debt in the form of senior notes.
A small number of transactions in this category accounted for the bulk of the capital raised. For example, 58% of the capital raised through “other financing” in 1Q 2010 came from a single transaction, namely the $1.5 billion raised through the issuance of senior notes by Life Technologies. Similarly, 64% of the capital raised through this category in 2Q 2010, came from two large transactions: Genzyme raised $1 billion and Teva raised $2.5 billion.
The IPO window remained open in 1H 2010, but the IPOs became a lot smaller as the year progressed. Looking at the biotech IPO space, even though the total amount raised during the first half of the year ($733 million) was relatively evenly split between the quarters, there were actually more IPOs that took place in 2Q (ten) than in 1Q (six).
This, of course, resulted in a significantly lower amount raised per IPO offering in the second quarter over the first, with the average size of an IPO in 1Q being approximately $35 million, 48% lower than the average size of an IPO in 2Q, which was $65 million. Not surprisingly, a small number of IPOs each quarter accounted for the bulk of the money raised.
In 1Q, two of the six IPOs that took place—the February 2 $215 million IPO of Ironwood Pharmaceuticals, and the March 11 $90 million IPO of Aveo Pharmaceuticals accounted for 78% of the capital raised in the quarter. Similarly, two of the ten IPOs that took place in 2Q 2010, accounted for 44% of the total amount raised through biotech IPOs in the quarter, and they actually took place on the same day. On April 22, Codexis and Alimera Sciences both went public by raising $78 million and $72 million.
Continuing on the pattern of striking when the iron is hot, 55% of the money raised through an IPO in the second quarter of this year came within the three-day window between April 21 and April 23, where in addition to the Codexis and Alimera IPOs, we had the pricing of two European IPOs, with Deinove raising $16 million and AB Science raising $22 million.
Follow-on offerings also became less popular with investors as the year progressed. There was a significant slowdown in follow-on activity as the year progressed, with only half of the amount raised in 1Q being raised in 2Q ($1,262 million vs. $624 million). Furthermore, there were less financings in the second quarter, with fewer companies raising (18 vs. 25) less money per follow-on offering, with an average raise of $35 million vs. $50 million in 2Q vs. 1Q.
Consolidation in the sector continues, with the larger biotech and pharma picking off mid-cap biotechs with products approved or in late-stage development. Despite the lack of the presence of the megamergers like Merck’s takeover of Schering Plough, Pfizer’s acquisition of Wyeth, and the Roche acquisition of Genentech that took place last year, the first half of 2010 witnessed a number of transactions.
Similar to what happened in 2009, where we had the usual big pharma or big biotech acquisitions of smaller biotechs for their products and pipelines, 1H 2010 had a number of noteworthy M&A transactions.
The first half of the year closed out with the $2.9 billion acquisition of Abraxis by Celgene. This acquisition was announced only weeks after Astellas succeeded in its quest to acquire OSI for approximately $4 billion. This occurred shortly after Abbott announced it would acquire Facet Biotech for $450 million.
Finally, two days into 3Q 2010, sanofi aventis’ CEO Chris Viehbacher, who has spent approximately $17 billion in 25 acquisitions since taking over the top spot at the French drugmaker 18 months ago, discussed plans for a $20 billion acquisition in the U.S.
Could the trend of cash-rich large biopharma buying up mid to large biotechs in an attempt to address multiple issues, including drying pipelines, looming patent cliff, and ineffective R&D organizations, continue into the second half of 2010? We think yes!