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Oct 1, 2011 (Vol. 31, No. 17)

Tracking Operational Financing Trends

Analyzing the Rapid Worldwide Growth of the Bioindusty Spanning 30 Years

  • Global Arbitrage

    Biotechs also now need to look beyond their own borders to emerging markets for financing and market opportunities.

    Smart companies will look outside their borders and think strategically about the different value their products may hold in different markets, particularly where the industry is in an earlier stage of development and acquiring critical technology may provide greater value to them.

    Companies are now taking a variety of alternative approaches to access capital, such as turning to registered direct offerings, selling future product royalty streams, and selling options to promising compounds.

    In addition, since biotech companies are competing in an investment-constrained environment they often only have sufficient funds to complete one phase of a project successfully before building the capabilities required to move their project through the next phase. This is why companies are beginning to adapt their business models to a more virtually integrated one.

    A biotech start-up today, therefore, finds itself in an industry that is radically different than it was 30 years when many of biotech’s elite companies got their start. The world market for health and wellness has also undergone profound globalization. Companies are not simply setting up foreign subsidiaries to manage local activities such as clinical trials and marketing. Rather, they are reaching out through mergers, acquisitions, partnerships, and alliances to establish needed technologies and skill sets.

    In addition, new international companies that blend talents and experiences from various parts of the world are being born. These global operations afford a number of advantages beyond the acquisition of complementary technologies including greater distribution and market access.

    Global emerging markets, particularly in China, India, and Brazil, will grow faster than the U.S. and Europe. Increasing affluence, a growing middle class, and government policies will make healthcare big business in these countries.

    The global nature of biotech will put pressure on the U.S. to maintain its dominance and we will see increasing evidence of other countries/regions taking the lead in some technologies and business sectors.

  • Return of the IPO Market

    Click Image To Enlarge +
    Figure 2. United States IPOs: IPO activity has picked up in the last 26 months as the economy has improved.

    As the economy continues to improve, and investors become more willing to test the public equity markets again, IPO activity is picking up. The current environment now favors risk-mitigated companies rather than earlier-stage development companies. Capital markets both in the U.S. and globally have continued to strengthen, signaling a return of investor confidence.

    The IPO window has remained open for almost 26 months (Figure 2), and the improving performance of the newly minted biotech IPOs during this period are reflective of biotech’s improving fortunes overall and the strengthening of the capital markets.

  • Click Image To Enlarge +
    Biotech IPOs between 2009 and 2011

    The average performance of the 29 biotechs listed in the Table was approximately 21% at the end of May 2011.

    The IPO runway is also full, and it is likely we will see more biotech companies complete their IPOs in the coming months. To get the deals done, however, they may have to modify their pricing strategies and offer a larger number of shares.

  • Partnering Revenues

    Biotech partnering transactions have become hot in parallel with the improving capital markets. The U.S. industry raised $30 billion through partnerships in 2010—about 10% less than the record total the previous year. Biotech companies continued to benefit from big pharma’s willingness to pay for its innovation.

    Partnering revenues have now become a staple for many biotech companies and this situation is likely to remain, if not accelerate, in the years ahead as drug companies look to broaden product lines, replace revenues lost to patent expiration, and expand into emerging markets, where the industry growth rate is much higher than in developed nations.

    Expect to see the biotech industry, as a whole, perform better in the months to come as the financing environment continues to improve. There will be no major slow down in big pharma’s appetite for biotech partnering.

    Both big pharma and large biotech will compete for companies with advanced product pipelines and important technology. Partnership deals will reflect shared risk with smaller up-front payments and larger payouts on the achievement of milestones. Collaborations with emerging market players in China, India, and Latin America will also increase.

    The business models that were used to create current value will not be effective going forward. The successful companies of tomorrow will be virtually oriented and globally focused. One thing is certain: the biotechnology industry is here to stay. There is still much more to come and be written about in the next 30 years.


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