The Big Red Biotech Blog

VC Funding Down in Qtr 1 a Problem?

An analysis of venture capital funding for biotechs in Qtr 1 showed it dropped by 43%.   PricewaterhouseCoopers did further work to show that companies who received their first round of funding dropped by 53% and dollars invested in deals dropped 38%.

This has been taken by some as an indication that the biotech arena is starving for cash to support the growth of new companies.  Of course, the movement of VCs out of this area has also been a hot topic the past few years. 

However, Bruce Booth of Atlas Venture is less worried. And......he actually makes his living in VC.  Booth says that one shouldn't get too upset over quarter to quarter variations in investments.  He notes that Qtr 1 2012 is still within 10% of Qtr 1 2011 -- which turned out to be a good VC year in life sciences.  Finally, he says that VC investing in biotech as a percentage of total VC capital has remained pretty stable over the last decade at approximately 25%. See Fierce Biotech. Not to worry.

 

 

 

 

 

Posted by Bruce Lehr May 10th 2012

Biotech Markets and Funding

Here's a good article by Bruce Booth of the Life Sci VC blog discussing the heyday of IPOs in the 1991-1994 span versus, the history of these deals to date, and the current investment environment.  What's the story?

IPOs of that era paid handsomely to the VC backers of the time.  The average step-up in valuation over the private invested capital was -- 4x.   There was a very low cost-of-capital provided by public equity investors in that period. Much lower than today.  For most of the past decade, step-ups on total invested capital have typically been only 1.5x or so.  Sadly, high capital intensity has been the signature of many of the past decade’s IPO stories.

The playing field has changed since then as investors realized over that time span that only a subset of the 1991-1994 IPO window have accrued real value over time.  Gilead, MedImmune and Vertex might be considered notable exceptions.  Most of the other IPOs have underperformed all the major indices.

 Booth instructs that there is a major flaw in the former IPO model that 3 main features:

• high capital intensity funding large portfolios, requiring serial public equity, with little focus on capital efficiency
• endless cycles of “rinse and repeat” anti-shareholder behaviors where new investors are recruited to fund the promise at the expense of existing shareholder dilution
• management teams too focused on “built-to-last” company survival vs shareholder value maximization, even when the best outcome for existing shareholders, and often patients, is to sell now and access the balance sheet resources of a bigger company

These flaws have led to IPOs a less attractive means of fudning.  As Booth says, if most IPOs trade down after their IPOs, why bother buying at the offering.  Seems rational.  So in the current environment, private backers are becoming more activist and push for strategies that maximize their return in these companies -- which includes the proposition of selling the company "realtively early" to big pharma players. This avoids the dilution problem described above if trying to go the long haul.  The old IPO model is gone.

In the current situation, one of the big change drivers is Big Pharma R&D productivity issues and their increasingly active M&A interests.  Big Pharma in recent weeks has tried to make deals for Human Genome Sciences, Amylin and Illumina -- but were thwarted by big shareholder interests. As described above, activist big shareholders are playing a larger role in trying to maximize their investments and have resisted these perceived "low ball" offers. With more buyers crowding into the market, the pressure to pay a premium is just going to go higher. That's a trend with which biotech investors are well attuned.  See Fierce Biotech. 

Posted by Bruce Lehr May 5th 2012

 

 

Good Article on Security of Virtual Biotechs

Here is a good article from Stewart Lyman at Xconomy (I find I like a lot of Stewart's articles) regarding the solidity and security of virtual biotechs. The article questions whether this is a model that we'd want to perpetuate as a dominant form. Why not?

The basic argument against this type of company has two main prongs.  The more serious of the two in my view is that these companies are often built on a research idea or premise that they acquired somewhere else (often academia) and don't have the wherewithal to confirm whether the science is sound. If these companies embark on a development program with the underlying science being bad, they are doomed to fail.  Stewart cites many cases where the literature is either flawed (retractions) or non-reproducible. See the Amgen and  Bayer studies on this issue.  Reproducibility was less than 11% for "landmark" cancer papers for example.

The second argument is because the companies are virtual, they don't contribute to the development of vibrant biotech clusters. Clusters help sustain an ecosystem by providing a steady labor pool and a critical mass of intellectual power and innovation. Leading biotech clusters continue to draw investment in places like Boston, San Francisco and San Diego. Virtual companies -- are well -- virtual. They don't provide a lot of infrastructure and contribution to clusters.

The main reason virtual biotechs are popular of course is that they reduce the capital needs of the company.  The company really then focuses on a good management team and hopefully a good molecule/technology. But if the quality of the latter is compromised, that's where the idea falls apart. And of course, these companies are really just building a project to be sold.

Posted by Bruce Lehr May 4th 2012.

Biotech Investment Returns: Diversified Fund vs Healthcare-only Fund

Will I earn more if I invest in biotech ventures through a Diversified investment fund or one that specializes in Healthcare only investments? 

Perhaps surprisingly (perhaps not), the Life Sci VC blog's shows that Diversified funds have done better from 2002-2011, 12.3% to 7.1% total value (realized + unrealized returns).

There is no certainty as to why this may be the case, but a leading hypothesis is that diversified funds may have a bias towards "leaner, more capital efficient biotech bets."  Because they have competing tech deals they may do instead, these funds may also avoid "big burn regulatory bets" and "big science platform deals that lack a product-focus". 

Or it may just be a statistical fluke.  Read for yourself. It is an interesting result regardless given that healthcare funds are supposed to the the investment experts in this area.

Posted by Bruce Lehr Apr 12th 2012.

Corporate VC Makes Biotech World Go Around

According to this post from Life Sci VC, corporate Venture Capital groups are now essential to the biotech ecosystem and provide the bulk of capital to fudn new companies -- at least from Atlas Funds point of view -- which appears to be a representative one indeed.

From Atlas data, corporate VC had only 5% involvement in their projects from 2000-2005, that rose to 33% from 2006-2008 and now stands at a whopping 67% from 2009-present. What's more?  The funds range in size from $100 M - $500 M and account for at least $2.5 B in VC money, according to author's estimates.

That's a lot of money.  Money that new companies in biotech are increasingly dependent upon. An Xconomy underscores this today with a piece on the dearth of cash available to biotechs from traditional VC sources.  Have a read. Clearly the availability of more money is needed to get these new biotech ventures off the ground to take advantage of innovative science.

 

Posted by Bruce Lehr Jan 23rd 2012

 

 

 

Atlas Shire's Up Investors Rare Disease Portfolio

Yesterday, Atlas Ventures announced a new alliance with Shire Pharmaceuticals to explore investment opportunities in early-stage rare disease therapeutics. The partnership leverages Shire’s capabilities and knowledge in the research and development of rare diseases with Atlas’ expertise in the formation and growth of early stage companies. 

The creative alliance structure provides an opportunity early in the venture process to utilize all of Shires capabilities in rare diseases from research to commercialization, while leveraging the extensive Atlas network and experience in company formation. Under the agreement, professionals from both Shire and Atlas will be dedicated to work closely together to advance the collaboration effort.

Financial terms of the deal aren’t being disclosed. But Atlas indicated that Atlas and Shire will seek to create a small portfolio of investments over the years of the partnership. Shire will also get option rights in these deals, through which it will have the opportunity to acquire the companies at a pre-determined price if the startups reach certain scientific goals. 

By structuring the investments to give Shire the option to acquire, the partnership “secures access to these innovations for Shire, while mitigating the downstream liquidity risk for the team and investors." An Atlas spokesman said,  “We are quite excited about how these unique platforms will enable us to further experiment with the early stage venture model.”

See Life Sci VC Blog, Xconomy, and Fierce Biotech.

 

Venture Funding Decrease is Big Pharma's Gain

From Fierce Biotech, it seems that big pharma has happily stepped into the funding void created by the collapse of venture funding for biotechs to do more deals earlier and cheaper than before.  Says Dan Zabrowski, head of Roche's drug partnership unit,  "We are doing around 50 to 60 partnership deals a year now, compared to around 30 deals per year before the crisis [of 2008]. Today, we start deals earlier with less upfront payments and share the risk with our partners."

Who says a funding crunch is so bad?  This is not exactly a hardship for big pharma.

Posted by Bruce Lehr Dec 12th 2011.

The 2011 Biotech Graveyard

 

 

 

 

Fierce Biotech published its 3rd annual recount of the Biotech Graveyard.  In 2011, we lost another 8 companies to the vaguaries of drug discovery and financing in the biotech world. The companies who met their demise are as follows:

• Advanced Life Sciences
• Altair Therapeutics
• Ambrilla Biopharma
• ARYx Therapeutics
• Peptimmune
• Phoenomix Corporation
• Tolerx
• Transdel

Many of these were effectively one-trick ponies whose drugs failed to show efficacy in the clinic.  In many cases, the companies also lost the backing of a big pharma partner to continue paying the bills required to bring a therapy fully to market. Of course, the capital markets don't offer an alternative source of funding to companies of this ilk at this juncture.  Result?  Liquidation of assets if any.

Posted by Bruce Lehr Oct 31st 2011.

FDA Pledges to Speed Up New Drug Regulatory Process

You've heard it. The FDA is slowing down the introduction of new drugs through an overly cumbersome regulatory process -- or so charge the critics. 

In a most recent example, the New Venture Capital Association cited a new survey that indicated that 39% of its members had decreased investment in the life sciences.  Another 39% of VC groups plan to do so over the next few years which could result in a decrease of more than $500 M in venture capital aimed at biotech.    The decrease they say is due to the unpredictability of the FDA regulatory approval process -- that results in delays and cost increases to the introduction of new drugs and lessens the ROI that can be achieved by VC groups. One third of the VCs surveyed say they will increase their investments in Europe, with 44% planning to spread their wings in Asia and only 13% planning to get more ambitious in North America. 

In response, the FDA pledges to speed up the process -- particularly for new drugs targeted at serious unmet needs.  Thes drugs will receive an "expedited drug development path".  The new path will be overseen by a new deputy commissioner who will govern the regulatory process for biologics and cell based medicines. Personalized medicines will receive top priority under the new plan.

"The Obama Administration is committed to encouraging the entrepreneurs and businesses that are hmodernizing and strengthening our health care system," said HHS Secretary Kathleen Sebelius.

 

 

 

 

Posted by Bruce Lehr Oct 8th 2011.

Contract Research Organizations Are Hot Hot Hot!

Two private equity firms paid $3.9 billion in cash for Pharmaceutical Product Development -- a CRO.  Why?  A recent RW Baird survey of 388 drugmakers and biotechs sheds some light on the matter. Namely, prices at CROs rose by 42% in Qtr2 (up from 33% in Qtr1).  This coupled with an expected increase of 3.6 to 8 percent in R&D budgets among drugmakers and biotechs makes the area look attractive.

Why Contract Research Organizations Are Hot // Pharmalot.

CRO clients report that their R&D budgets for outsourcing will go up on average by 9% again projecting good growth potential for the sector. CROs in fact have seen their share of market projects rise from 35% to 38% in 2011. The folks at RW Baird project over the very long term this might rise as high as 60 to 80 percent.

Further, "The vast majority of internal pharma staff surveyed believe that they are spending the same, or more, per unit of outsourced work today than in the recent past," writes RW Baird analyst, Eric Coldwell.

Thus the influx of private investors to a perceived market opportunity with the added bonus of NOT having to report quarterly earnings as seen in the public sector.

 

Posted by Bruce Lehr Oct 4th 2011 

Incredible Shrinking BioPharm

More good analysis from Bruce Booth of the Life Sci VC blog. This time he shows us that the the number of pharmaceutical and biopharm companies with a market cap over $50 M has shrunk from 329 in 2005 to only 240 today.  That's a 27% reduction in only 5 years.  Ouch!

Booth goes through all the numbers accounting for attrition and addition of companies during that interval.  Many companies of course merged, were acquired, shutdown -- in fact 40% of the original 329 (or 129) shared in that fate. Another 64 shrunk below the $50 M cap size -- resulting in only 136 surviving from the original cohort.

Booth says that drivers for shrinkage (no, not cold pool water ala George Costanza), are not enough companies maturing into public companies, not enough new ones getting started and too many disappearing in mergers. It appears that the best companies get acquired and the rest have trouble gettign any funding as VC pools (cold shoulder not water) have dried up in this sector. 

How do we fix?  We need access to public market sources of low cost capital to fuel long term growth in this sector.  Otherwise, we will likely see movement toward more attractive funding environments in the East. 

Posted by Bruce Lehr Sep 9th 2011.

 

Icahn Exits Biotech?

I saw this short piece in In the Pipeline this morning, Derek Lowe noted that Carl Icahn apparently has liquidated his positions in Biogen (shed 8 million shares since June), has no holdings in Amgen and nothing in Regeneron. He appears to have left the building. Derek comments, he must be "finding no positions worth taking" and that probably isn't a good thing either.

To paraphrase, "Old Biotech investors never die they just fade away." And if you read Fierce Biotech this morning too let's hope the industry isn't fading towards China in the future.

Posted by Bruce Lehr Aug 16th 2011.

Is Pharma Dealmaking Becoming More Difficult?

Yes it is.  No it isn't.  Depends upon whom you ask and when.

In a survey of 18- business development executives considering deals from 2006 through 2010, the responses were remarkably split I thought. The majority of biotech respondents (36%) said they could drive terms with pharma (though you can see 64% thought they were on equal footing or were more takers than givers of terms).

So we turn over to pharma.  well, 44% of pharma respondents (again the majority) said their negotiating power had increased with biotechs.

Is Pharma Dealmaking Becoming More Difficult? // Pharmalot.

What about upfront payments?  Biotechs (55%) said they had dropped - though 31% reported an increase. Flip sides of the coin to pharma, and 51% saw an increase with only 32% seeing a drop.  We in the same deals?  A more objective third party analysis of the reported deals shows about a 5% decrease in the upfront value for the 2006-2010 time period.

Average deal volumes and payments seemed to be pretty steady over the period.  Any loss of leverage pharma experienced due to dwindling pipelines and perhaps some desparation to license short-term revenues seems to have been counterbalanced by a bad funding-environment for the biotechs.  Status Quo.

Posted by Bruce Lehr June 16th 2011.

 

 

Lilly’s New Biotech Company Builds on Alliance Strategy

This post from PharmaTech Talk discusses Lilly's exploration of new business models - spurred by this week's announcement that it is forming a new biotechnology company, called BioCritica, with private investors. BioCritica will focus on the development and commercialization of hospital-based, critical-care compounds including Lilly's Xigris for the treatment of severe sepsis. The company will also receive rights to acquire other compounds currently in prec-clinical development at Lilly.

PharmTech Talk » Eli Lilly’s New Biotech Company Builds on Alliance Strategy.

BioCritica is another model that Lilly is trying to help find an outlet for select products in its pipeline that might be better exploited by the alternative commercial strategy. It is a similar experiment to Lilly earlier this year committing $150 M to severall venture funds for early stage research and development. The arrangment is known as the Mirror Portfolio. Lilly continues to explore alternatives to its traditional model as it looks for novel ways to manage its pipeline and commercial portfolio to maximum effectiveness - with greater flexibility and better resource utilization.

 

Posted by Bruce Lehr May 24th 2011.

New Biotech Licensing Model to Pay Investors

Xconomy's Luke Timmerman did a nice piece this morning on the difficulty Biotech's are having with paying off their investors in the current economic climate.  He quotes, Jim Posada, a former dealmaker at Lilly and GlycoFi, as promoting a licensing based model. This is based on the observation that Biotech IPOs are non-existent and that Big Pharma outright purchases of Biotech companies is also becoming much more difficult.

Posada's model offers another way. Under it, new Biotech's would seek relatively small investments from its backers -- say $10-$15 million over 3 years.  The company would take a drug through animal testing and phase I -- demonstrating safety and efficacy to that point. Then it's time to take that package to Big Pharma to gain a licensing deal.  Big Pharma would be asked to offer upfronts in the $30-$50 million range with heavier multi-hundred million milestone based payouts. However, the upfronts would be sufficient to pay off the early investors of the $10-$15 million at a reasonable return for their risk.  The milestone based rewards might never be realized but aren't critical to paying off the intitial funders.

Posada recently structured such a deal with Resolve Therapeutics and its lupus property in development. They raised their first two million.  So relatively modest investments might get the ball rolling through early stage development until a Big Pharma partner can with more confidence make its licensing deal.  It cuts the risk for everyone involved and makes it match the reward in a reasonable time frame. The Biotech will still need to have good programs in the right disease areas and keep its capital investments under control until funding warrants more. In the first stage, these companies may take on a much more virtual look. It's a trend whose time has come.

Posted by Bruce Lehr May 23rd 2011. 

 

Insitutional Investors Play Tug-o-war with Actelion future

Who will win control of Actelion's board?  Will it be Elliott Advisors and sympathizers or their opponents BB Biotech AG, Rudolph Mag and allies?  Right now it looks like a neck and neck battle. The US consulting group Georgeson is working a straw poll with Actelion investors on Elliott's behalf in preparation for battle at the May 5th annual meeting.  They say a group of International Institutional investors will decide it.

Elliott tells the WSJ it has the upper hand now -- what else would they say?  We've lost?  They say International Shareholder Services will back their candidates.  It will come down to a close vote at the May 5th meeting and will hinge on a group of 18% in the middle who are primarily instituional investors. 

Again, we won't have to wait long -- May 5th hovers in the near future. See Fierce Biotech and warm up the ropes.

 

Posted by Bruce Lehr April 22nd 2011.

 

Will Academia-Pharma R&D Deals Threaten VCs?

This headline comes from the very good Life Sci VC blog.  It asks whether the large uptick in Big Pharma and Academia broad R&D pacts (see Sanofi-Harvard, Pfizer-Washington U, Bayer-UCSF, UCB-Harvard, Sanofi-Stanford, Gilead-Yale, Pfizer-UCSF, etc.) will exhaust VC opportunities for startup deals?

In a word, No!  In two words, Hell No! 

Life Sci concludes that this type of deal making still only impacts a very small proportion of the total academic projects out there.  For example, the Sanofi-Stanford deal announced this week is for a maximum of 5 programs per year in an institution with literally more than 100 with 50 departments and 100's of falculty. The pool is not exactly dry as a result of Sanofi's commitment.

Life Sci also argues that this new association of academia and pharma will help academia better understand the requirements for translational activities and what it really means to run a lead optimization program to industrial standards. Moreover, big pharma can help with academia funding gaps by covering more overhead in these deals and also fill a role in providing more early stage funding that VCs are shying away from in today's more risk-averse environment. VCs can jump in later on projects that may lose funding from their initial partners for a variety of "non-program" reasons.

Also while Big Pharma offers another alternative for academia partnerships and early funding, it may not be for everyone as there will be varying tolerances of academic groups for big pharma bureacracy as projects move inside the pharma R&D organization in later stages. Some good academic groups may choose not to engage with such a model.

The post concludes:

At the end of the day, I think there's a (mostly) healthy vetting process conducted by early stage VCs in evaluating, co-creating, funding and helping govern new startups out of academic labs. When done well, Pharma benefits from this,  as does academia.  I don't see these broader partnerships as threatening or significantly reshaping this important role of VC and their startups in the process of translating discoveries into clinical innovations. 

I would agree.  I think big pharma is adding not subtracting by entering these relatinships.  It's broadening the model.  It brings more commercial knowledge to earlier stages toward discovery. It has more of an evolutionary feel to big pharma R&D model than revolutionary feel to me. It may help create a more collaborative and open environment in the process -- that will hopefully result in more translational successes - that I think emboldens and actually helps everyone involved.  Success breeds success.

Posted by Bruce Lehr April 20th 2011.

Kinsella & More Vs. Hutton & Samuels on VC Biotech

In the Red corner, Kevin Kinsella and Bob More will speak to so-called big pharma bad behaviors in negotiating with biotechs - like "back-end" loaded deals, bad-faith negotiations, and no-risk partnerships.  Behaviors that they say cal into question whether "the partnership between Big Pharma and biotech can really continue"

In This Corner: Kinsella & More Vs. Hutton & Samuels on Venture Biotech.

In the Black corner, Camille Samuels and Wende Hutton will argue that if are a "have" versus a "have not" and you ARE selective, you can still drive value with big pharma in cutting a deal.  "We're not in some Pollyanna period where everything is up and to the right."

The debate happens at the San Diego Venture Group breakfast tommorrow (April 19th) at the Hyatt Regency, La Jolla.  In essence, is Big Pharma behaving badly or do VC's need a better class of clients to supply to market demand?

 "Let's Get Ready to Rumble!"

 

Posted by Bruce Lehr April 18th 2011.

Kinsella says Pharma needs Biotech

Xconomy continues its good series of articles spawned from Kevin Kinsella's comments that Big Pharma was becoming much more predatory in its behaviors within deals with biotechs.  His basic point is that Big Pharma is destroying the VC investment ecosystem that really has supported the biotech industry over the years.  Without that support, if Biotech VCs dry up - the capital to invest in "big projects" to attack the really tough diseases like cancers, neurodegenerative disorders, metabolic diseases, etc won't be there to take this to late stages.

The Kinsella Debate Continues over Pharma versus Biotech, Worlds in Collision.

Kinsella says that Antoine Papiernik's comments that this just reflects a weak point in history where pharma is in stronger financial position than biotech's and their VC backers misses the point. His contention is that this pharma behavior is unusual and is damaging the last of the VCs playing in the area.  When these VCs are gone - and they can direct their money elsewhere whenever they want - then much new biotech development will also be gone or endangered.  Then where will pharma get its new highly innovative products? 

If Kinsella's contentions are correct, and you look at how pharma (Sanofi's CEO today said they want to direct more investment to biotech) is actively trying to move into the biotech arena with deal making -- and if too high a percentage of these deals are bad for the biotech investors -- then one does indeed have to wonder where will the products come from? 

It is possible to kill this golden goose too.  Under this scenario, Big Pharma's short term gain is also its long term loss.

 

 

 

 

 

Posted by Bruce Lehr April 12th 2011.

Actelion Strikes Back!

Actelion, in the face of criticism and a board challenge from one of its biggest investors -- Elliott Advisors, took the offensive by nominating the former CEO of GSK, Jean-Pierre Garnier as deputy chairman to the board. They also nominated Robert Bertolini a long-time finance expert in the pharma industry.

In doing so, they hope to blunt or completely rebuff the effort of Elliott Advisors to put forth its own slate of 7 replacement board candidates for election at the May 5th shareholders meeting.  Most observers agree that the two Actelion candidates far outshine the Elliott nominees.  This late stage effort may be enough to do the trick to blunt criticism of Actelion management for being too dependent on Tracleer as a one-trick pony, and misuse of a large R&D budget being applied to too many areas.

In a statement, Mr. Garnier said, "I'm very impressed with the company's track record and where it stands today...I believe Actelion's record in translating superior drug discovery into meaningful therapeutic solutions is very exciting. I look forward to contributing to guiding the company through the next phase of growth."

Take that Elliott!  Time to phone home for next counter response. See FT.com.

 

 

Posted by Bruce Lehr April 7th 2011.  

A Biotech is Born! East meets West and $100 M

A seasoned GSK drug developer and a China money man have pooled resources to for a new biotech company with $100 M in venture funding. The new company, Ascletis, will have sites in Research Triangle Park, NC and Hangzhou, China.  The company will focus its development efforts on infectious diseases and everyone's new favorite - cancers.

Ascletis will pursue a two-pronged model in order to provide greater revenues for investors at an earlier stage - that being in-licensing of drugs that can be offered in the China market and development of its own pipeline from proof-of-concept through phase II before partnering, out-licensing or selling the property developed.

The company is curently starting to spend cash on building its scientific staff with plans of adding up to 50 this year and possibly reaching 100 by the end of next year.  The bulk of the staff will be situated in China to take advantage of a highly-trained work force at a more economical cost.  Maybe 10-20% of the staff will reside in RTP.  The founders say the strategy is formed in the US and the execution will occur in China. See Fierce Biotech.

Posted by Bruce Lehr April 6th 2011.

 

 

 

Shoot the Messenger: Do NOT Blame Big Pharma for Weak Biotech VCs

In response to Kevin Kinsella's charge last month that Big Pharma was engaging in "predatory" business tactics to a degree unseen in the last five years, Sofinnova Partner's Antoine Papiernik says don't jump to that conclusion just yet.

As Kinsella Affair Goes Global, Sofinnovas Papiernik Says Do not Blame Big Pharma for Weak Biotech Ventures.

In his view, Big Pharma, which has many of its own Big Problems, is merely taking advantage of a current state of affairs where VC funding for biotech is fairly weak.  Papiernik sees this as a temporary situtation in an environment that ebbs and flows. The "predatory" deals come about for a variety of factors and many are not the "fault" of Big Pharma per se he says. These include:

• VC funds under extreme cash pressure and inclined to accept any deal offered
• Lack of competition in some deals which implies the biotech property for sale in that case isn't that valuable and doesn't command a big upfront
• Syndicates behind VC backed companies that are weak and the principals need to get out are inclined to take worse deals

Papiernik says that biotechs should be proud that they've shown the ability to innovate and discover new drugs.  They've shown they are better at this with biologicals than Big Pharma R&D.  In situations when there are multiple suitors for a biotech property, the upfronts are higher, the earnouts good and biotech is able to negotiate what it wants. 

He believes the macro sector is in the favor of biotechs now, more than ever, For companies with value, good deals are there. And for those that can't show this?  Well they will for now have to take less upfront and higher back ends until the funding options change -- just wait they will change.

 
Posted by Bruce Lehr March 30th 2011.

Analysis of 2010 Biotech M&A's

Life Sci VC published excerpts of an analysis by HBM Partners of the 2010 Biotech M&A Survey. The post goes on to cite several observations from the survey/analysis:

• Acquisitions of VC-backed biotech companies were up in 2010 back to pre-crash 2007 levels.  The expectation is for M&A activity to accelerate in 2011
• ROI-capital multiples were good with several nice upfronts
• But...the average upfront payments were down to only 1.5-2x (3-4x for overall deal) which only represents 7-10% IRR.  This is not sustainable for most VC firms looking for 20+% IRR
• Small to mid-size PHARMA drove 60% of M&A activity - not big pharma or big biotech

In general, the environment seems to be improving but the greater unwillingness to pay large upfronts may ultimately result in a capital crunch - but this is unlikely to be the case in 2011.

Posted by Bruce Lehr March 27th 2011.

Elliott Nominates Its Own Slate for Actelion Board

Elliott Advisers, a US hedge fund that holds 6% of Actelion's stock, today nominated its own slate of candidates for Actelion's board.  Elliot has been pushing current Actelion management for some time to put the company up for sale and to entertain offers.  This move has been expected as Elliott attempts to apply more pressure.  Its 6 candidates if elected would constitute a majority of the 11-person board.

Analysts have said that Elliot's candidates would have to be a very impressive lot in order to pull this off.  After the announcment, several seemed underwhelmed.  Some of the following quotes were issued by analysts looking at the slate:

"A lot will depend on the candidates. If they get really big names, that will be a help.  But if it's mainly people who've been squeezed out, it will look less convincing."

"The track record of some of the recommended board members is hardly exemplary...We are underwhelmed by Elliot Adviser's attack on the members of the board in terms of quality"

Elliott characterized the slate as "independent members" should they be elected. And, further stated its nominees had proven their value with leading pharmaceutical companies in the world. Actelion said it had no immediate comment and is spending its time on a roadshow with investors.

The annual shareholder meeting is scheduled for May 5th. See Financial Times. 

 

Posted by Bruce Lehr March 19th 2011.

Is Big Pharma Strangling Biotech Startups in Their Cradles?

I commented on this story last week when it appeared in Xconomy-San Diego. 

PharmaGossip: Is Big Pharma Strangling Biotech Startups in Their Cradles? - The Atlantic.

I will stick with my gut reaction.  This is a fairly rational and expected response by Big Pharma companies suffering through their own trials and tibulations caused by expiring dugs patents and pipeline failures, i.e. they are laying off risk until a project looks more like a "sure thing" - though there never is such a thing.

I will take Kinsella at his word that the environment is getting even tougher out there and it is likely that this will reduce the amount of VC activity (also a rational response) and make biotech more dependent on more one-sided Big Pharma deals.  This implies Big Pharma as the new investment banks -- and also acting as the new Sheriff in town.

The only alternative might be more government investment in the area if they want to bolster the R&D efforts outside dependency on Big Pharma dollars.  Extension of R&D tax credits and grants anyone?

Posted by Bruce Lehr Feb 25th 2011.