Biotech financing

Biotech financing
Biotech’s financial
reservoirs are full
Biotech’s financing drop-off mirrored
the decline of the NASDAQ Biotech
Index, which fell 21% during the month
of January 2016. This current pause
in the equity markets provides a good
opportunity to examine the biotech
industry’s overall financial health,
as well as how future capital flows
might be affected by ongoing issues,
especially continued focus in the US on
biopharmaceutical pricing. The drops
in financing and valuations may be
equally precipitous, but that’s in large
part because each rise was historically
impressive. Moreover, the drivers of
biotech’s overall success remain intact.
They include a favorable regulatory
environment, public policy tailwinds
(such as support for biopharma-friendly
legislation like the 21st Century Cures
Act and development incentives like
priority review vouchers), exploding
scientific opportunities in key therapeutic
areas such as immuno-oncology, and
big pharma’s unquenchable desire to
acquire innovation.
Thanks in part to more than
US$32 billion in debt financing in 2015,
biotech commercial leaders are equipped
to compete for that innovation as well.
In September 2015, Gilead raised
US$10 billion to add to an already strong
balance sheet, which observers expect
will be put to use for M&A. Celgene
raised US$8 billion in August in part to
finance the US$7.2 billion acquisition
of Receptos, which will boost Celgene’s
prospects in autoimmune diseases such
as multiple sclerosis and ulcerative colitis.
Amgen and Biogen raised US$3.5 billion
and US$6 billion, respectively, and
both companies’ capital allocation
strategies certainly include a mix of
shareholder incentives and business
development priorities.
During a dynamic year of financial
success, follow-on public offerings stand
out not only because of their record total
of nearly US$22 billion, but because,
unlike debt financing, that largesse wasn’t
concentrated in the hands of a few already
well-financed commercial leaders. During
2015, at least 66 biotech companies
(total of 72 rounds) raised more than
US$100 million in follow-on rounds (58 in
the US and 8 in Europe), compared with
49 companies (55 rounds) the previous
year. There were 26 follow-on rounds
that raised more than US$200 million
(Intercept Therapeutics had two of those,
totaling about US$570 million). Highlights
included two January 2015 raises: a
US$912 million follow-on from BioMarin
Pharmaceutical, the largest biotech
follow-on offering in nine years; and
Alnylam Pharmaceuticals’ US$517 million
deal. Other notable offerings were
Bluebird Bio’s US$500 million deal
(June 2015) and Horizon Pharma’s
US$499 million deal, which was the
largest by a European company (Horizon
became Irish domiciled after its acquisition
of Vidara Therapeutics in 2014).
Overall, the vast majority of this capital
was raised by development-stage
biotechs, many of which are developing
cutting-edge science in areas such as
gene and cell therapy. Thus, despite
signals the bull market was losing
steam, for most of 2015, investors
were still willing to back commercially
unproven technologies.
The same scenario held true for the
buoyant IPO market, which noted a
record-setting 11 quarters of sustained
activity, which could set the standard
for both duration and total funds raised
(US$15.4 billion over 224 IPOs). In
2015, at least one company, gene
therapy specialist Spark Therapeutics,
pulled off both an IPO (US$185 million
in February, good for the second-largest
IPO in the US in 2015) and a follow-on
round (US$141 million in November).
The US$5.2 billion raised in debut
public financings ranked below 2014’s
US$6.9 billion and 2000’s nearly
US$7.8 billion (still the high-water mark
after nearly two decades). During the
fourth quarter of 2015, seven of the
eight biotechs that priced IPOs in the
US did so below their intended ranges,
suggesting declining interest — or at
least a sated investor appetite. In early
February, two biotechs — BeiGene and
Editas Medicine — both priced IPOs within
their announced ranges, suggesting
that companies with strong science
and expert management teams can
still enjoy investor interest even if the
broader market for new public listings
fizzles. The recent about-face in biotech
markets is due in part to the retreat of
generalist investors that had helped
fuel the previous years’ run-up. It’s also
a reminder that investors’ interest in
biotech companies can be affected by
macroeconomic factors that may spark
worry about, or stimulate interest in, the
sector regardless of its fundamentals.
The biotech and broader health care
markets do not exist in a vacuum.
6 Beyond borders 2016 — Biotech financing