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Burrill & Company Release: Life Sciences M&A Values Soar in 2011

5/14/2012 8:29:40 AM

SAN FRANCISCO, CA--(Marketwire - May 14, 2012) -

Global M&A activity in the life sciences reached $159.7 billion in 2011, up 7.5 percent from $148.6 billion the previous year, but as the weak IPO market helped make acquisitions a preferred exit for life sciences companies, the trend may be self-perpetuating by preventing some of the most promising companies likely to spark investor excitement from going public, according to CEO and author G. Steven Burrill.

Overall, the total value of biopharmaceutical therapeutics deals in 2011 fell to $76.3 billion compared to $92.6 billion in 2010, but average deal values climbed to a little more than $1 billion from $683 million, a 47 percent increase. The 2011 average was buoyed by the acquisitions of Genzyme ($20.1 billion), Nycomed ($13.7 billion), and Pharmasset ($11 billion). Median premiums for biotech M&A targets rose in 2011 to 34 percent, up from 25 percent the previous year, but down from levels in 2007 to 2009.

"One lesson from 2011 was the reminder that biotech companies have the ability to create enormous value," says G. Steven Burrill, CEO of Burrill & Company, a diversified global financial services firm focused on the life sciences industry and author of Biotech 2012: Innovating in the New Austerity. "As evidenced by Pharmasset, which was years away from bringing its first product to market, value is not a derivative of sales and earnings, but opportunity."

Although M&A deal activity in the first quarter of 2012 kept pace with the first quarter of 2011 in terms of the number of deals, total deal values fell 66.5 percent, skewed partly by last year's $20.1 billion acquisition of Genzyme in February by Sanofi. Still there were only a handful of $1 billion plus deals in the first quarter of 2012 and two of them were for medical device makers. Several large potential acquisitions in 2012 have been stymied by an inability for buyer and seller to agree on price. This includes Roche's bid for Illumina, GlaxoSmithKline's effort to buy Human Genome Sciences, and Bristol-Myers Squibb's attempt to acquire Amylin Pharmaceuticals.

M&A has become the preferred exit strategy for privately-held companies as the market for initial public offerings in recent years was at first effectively shut down by the global recession and continues to be muted. In 2011, life sciences companies that went public sold 28 percent more shares than they had planned and raised 13 percent less than they had hoped. Some fund managers have complained that the most attractive companies too often are snapped up by Big Pharma before ever going public.

"Though development-stage companies were able to attract impressive valuations, the pressure to provide venture capital investors with returns may deprive many of these companies from ever realizing their full potential by steering them away from public markets," says Burrill. "The trend is understandable, but one consequence is that the companies that can attract investors and perform in the aftermarket are being self-selected out of the public universe."

Consider Advanced BioHealing, maker of Dermagraft, an artificial skin made from living cells that is used to treat diabetic foot ulcers. The day before its initial public offering was to be consummated, Shire stepped in and acquired the company for $750 million. The company was expected to price at the mid-range of its $14 to $16 target, which would have valued it at a market cap of $732 million. Venture investors in the company saw the opportunity for a faster return and the ability to avoid the regulatory complications of being a public company.

Other notable acquisitions of privately held companies included Amgen's potential $1 billion purchase of BioVex and Daiichi Sankyo's potential $935 million acquisition of Plexxikon. The number of therapeutics deals in 2011 was evenly divided between the first half of 2011 and the second half, but deal values fell steadily quarter-to-quarter throughout the year. Of the total $76.3 billion in transactions for these companies, nearly 65 percent was realized in the first half, and just 13 percent realized in the final quarter. The drop in total values reflected the sharp drop in market values of potential target companies triggered by the fight over the debt ceiling in the United States and the European debt crisis.

The push for innovation drove M&A activity into development stage companies as large pharmaceutical and biotech companies sought to replenish their pipelines with promising drug candidates. M&A deal activity declined for companies with marketed products or only pre-clinical drug candidates compared to activity in 2010. But companies that had clinical stage candidates were increasingly sought as acquisition targets. In fact, 37 percent of transactions were for clinical-stage companies, up from about 8 percent in 2010. At the same time, acquisitions for companies with marketed products fell to 58 percent compared to 86 percent the previous year.

The hunt to acquire innovative products in many ways shaped the year in M&A. Even generic drug powerhouse Teva Pharmaceuticals got in on the action when in October 2011 it completed the acquisition of Cephalon for $6.8 billion. Teva beat back a hostile offer for Cephalon from Valeant Pharmaceuticals by offering a 39 percent premium to Cephalon's stock price on March 29, 2011, the day before Valeant made its unsolicited bid.

Activity focused on U.S.-based targets climbed more dramatically than global activity overall, reaching a total of $95.2 billion in 2011, a 32.5 percent increase from $71.9 billion. Even though North America was the source of half the acquirers and a little more than half the targets for the year, it was the lowest level it's been for North American targets and acquirers during the past five years. That reflects the shift in activity from North America, Europe, and Japan, to emerging markets, which drove the rest-of-world category up to 17 percent of the total as an acquirer and 18.5 percent as a target, the highest level it's been over the past five years.

M&A transactions of private companies in each of the past five years have outnumbered the M&A transactions where public companies were targets. Nevertheless, the percent of deals involving private targets was near its lowest level over the past five years with just 54 percent of transactions involving private targets.

The M&A environment, in part, is shaped by the difficulty emerging growth companies face in obtaining the capital needed to fund their development programs. Although 2011 was a banner year for the industry in terms of the total capital raised, the high volume of debt offering by large companies skewed the picture. Out of $47 billion of financing raised by U.S. biotechs in 2011, 62.2 percent, or $29.2 billion, was through debt issues. A considerable portion of this money was raised by the bigger companies and was often used to buyback shares.

"The austerity that is pervasive today does not have to be a threat to innovation," says Burrill. "It can drive capital efficiency, place an emphasis on value creation, impose discipline, and prioritize projects that represent true innovation. The challenge is to bring creativity to new business and financing models to make that possible."

U.S. BIOTECH FINANCINGS 2007-2011 (exclusive of medical technology and devices) (USD M) PUBLIC 2007 2008 2009 2010 2011 IPO 2,041 6 1,217 1,199 1,292 PIPE 1,618 1,174 1,713 1,802 1,389 Follow-on 6,311 2,081 6,297 3,234 4,895 Debt 6,749 5,273 11,201 17,846 29,239 Other 611 2,580 693 2,146 5,315 PRIVATE VC 4,236 5,050 4,383 4,831 4,823 Total Financings 21,566 16,164 25,504 31,058 46,953 PARTNERING 17,268 19,782 33,913 34,001 22,888 TOTAL 38,834 35,946 59,417 65,059 69,841

Biotech 2012: Innovating in the New Austerity examines key developments in finance, regulation, policy, and the broader healthcare market, and examines the challenges the industry is facing and how it is responding. Burrill & Company's 26th annual report on the life sciences industry is a critical resource for life sciences professionals who want to understand where the life sciences industry is going. The electronic edition is available today.

To purchase a copy or download the table of contents, a list of charts, and a sample chapter, go to A single-user PDF can be purchased for $319. Discounts on multiuser licenses are available. The print edition is available for $349. The 352-page book features more than 200 charts and graphs. For information on multi-seat licenses contact Bryan Plescia, director of business development for Burrill & Company at

About Burrill & Company
Founded in 1994, Burrill & Company is a diversified global financial services firm focused on the life sciences industry. With $1.5 billion in assets under management, the firm's businesses include venture capital/private equity, merchant banking, and media. By leveraging the scientific and business networks of its team, Burrill & Company has established unrivaled access and visibility in the life sciences industry. This unique combination of resources and capabilities enables the company to provide life sciences companies with capital, transactional support, management expertise, insight, market intelligence, and analysis through its investments, conferences, and publications. Headquartered in San Francisco, the company oversees a global network of offices throughout the United States, Latin America, Europe, and Asia. For more information visit:

Daniel Levine
Managing Director
Burrill & Company
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