Biotech financing

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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
Venture financing accelerates While the public markets may be pausing to digest the last three years’ worth of new biotech offerings, venture activity continues apace. In 2015, venture financing reached a record US$11.8 billion, topping the previous record of US$8.2 billion set in 2014 and more than double the previous 15-year average of US$5.6 billion. Again, the bulk of that activity was based in the US, with 79% of venture dollars deployed stateside. Across both continents, biotech companies raised an unprecedented US$3.5 billion over 235 early-stage financing rounds (seed and Series A). Despite the pullback in the public markets, there’s reason to believe continued venture support for biotech remains sustainable. For starters, that’s because of the extraordinary scientific progress underpinning much of the ongoing company creation — see, for example, enabling tools like CRISPR in gene editing and new insights into immunooncology. But the recent renaissance also has its roots in the extended downturn of 2008–12. That lull fueled a burst of business model and financing creativity from existing biotech VCs, including asset-centric and tax-efficient LLC umbrella structures. It also expanded and cemented the importance of corporate venture capital as a permanent fixture in biotech financing, whether strategics invested directly or acted as limited partners in traditional venture funds. In fact, the National Venture Capital Association cites biopharma corporate venture support to the tune of US$1.2 billion across 133 deals in 2015. Meanwhile, as a result of hot IPO and M&A climates, venture investors of all stripes have enjoyed atypical successes and, importantly, liquidity. This has helped to pull other non-traditional VC investors into biotech deals (for example, the Alaska Permanent Fund, an investor in neurodegeneration-focused Denali Therapeutics’ May 2015 US$217 million Series A and the exosome platform biotech Codiak Biosciences, which raised US$92 million over its first two funding rounds in late 2015 and early 2016), including crossover investors. However long the current lull in public-market biotech financing, the industry is better equipped for the biotech winter than during past downturns in biotech’s funding cycle. Overall, the vast majority of follow-on capital was raised by developmentstage biotechs, many of which are developing cutting-edge science in areas such as gene and cell therapy. Beyond borders 2016 — Biotech financing 7
Page 1 and 2: Beyond borders 2016: Biotech financ
Page 3 and 4: Contents Financing Slowdown ahead?
Page 5: Slowdown ahead? Since the US garner
Page 9 and 10: Biotechs in the US and Europe raise
Page 11 and 12: US and European biotechnology IPOs
Page 13 and 14: Innovation capital in the US by yea
Page 15 and 16: Innovation capital raised by leadin
Page 17 and 18: US biotechnology IPOs by year Capit
Page 19 and 20: Biotech financing: Europe Europe Eu
Page 21 and 22: Innovation capital raised by leadin
Page 23 and 24: Top European venture financing, 201
Page 25 and 26: Top European biotech IPOs, 2015 Com
Page 27 and 28: Italy Rome Antonio Irione antonio.i
Page 29: Data exhibit index Page 8 9 10 10 1
Page 32: EY | Assurance | Tax | Transactions

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