Beyond Borders: Global biotechnology report 2010

Financing
A higher bar
After a dismal performance in 2008,
biotech funding levels rebounded nicely
in 2009. In the US, Europe and Canada,
biotech companies raised US$23.2 billion,
a 42% increase relative to 2008. While
this was about 20% lower than the levels
achieved in the “easy money” era of
2006 and 2007, it is certainly impressive
in today’s more challenging financing
environment. But the real story — a tale of
“haves” that raised large sums and “havenots”
that must cross higher hurdles to
attain funding — lies in the details behind
the totals.
While venture capital totals largely held
steady in 2009 (as they had in 2008, even
amid the worst of the financial crisis), the
stories in the US and Europe could hardly
have been more different: the US had
its second-best venture funding year in
the decade, while Europe had its worst.
Across all geographies, new companies
seeking venture capital faced a higher bar
from investors.
On the other end of the spectrum, there
was plenty of capital available for
established public companies. Follow-on
funding from the public equity markets
increased more than 250% to US$6.6
billion — the second-highest total of the
decade. In Europe, follow-on funding
reached the highest level of the decade.
However, a few “haves” dominated the
picture, with a handful of very large
transactions accounting for the majority of
capital raised.
For companies looking to raise public
equity for the first time, the picture
remained somewhat murky. While a few
companies successfully tested the waters
in 2009, many others remain cautiously
hopeful and are waiting in the IPO queue.
The aftermarket performance of IPOs
remains mixed, however, which is a barrier
to more widespread investor enthusiasm
for new issues.
Recovery and the new normal
In last year’s Beyond borders, we
discussed in some detail the impact that
the global financial crisis was having on the
biotechnology industry. As the biotech industry
was swept up in the tsunami that struck the
financial markets, many investors — both
individual and institutional — sought the
safety of higher ground in investments that
were perceived to be safe. Others were
forced to liquidate because of margin calls
Capital raised in the US, Europe and Canada, 2000–09 (US$m)
64 Beyond borders Global biotechnology report 2010
as market capitalizations declined in all
sectors. As a result, small- and mid-cap
biotech companies in particular saw their
values decline and their access to capital
diminish, in many cases without regard to
their underlying fundamentals.
Companies took aggressive action to
reduce their burn rates and to cast a wide
net for financing to stay afloat. In early
2009, the conversation turned to industry
consolidation and speculation about how
the ranks of companies would shrink over
the coming year, either because they were
swallowed by acquirers or because they had
to cease operations.
As it turns out, despite a significant number
of company closings, the industry has been
more resilient than many expected. The
year started slowly on the fund-raising
front, with mature, profitable companies
accounting for the majority of funds raised
early in the year. By spring, however,
there were clear signs of renewed market
interest in the industry, catalyzed by several
upside clinical surprises in the US, including
Dendreon’s April release of positive clinical
data for its prostate cancer treatment,
Provenge. By the end of June, the market
caps of small- and mid-cap stocks had
increased by 8% and 12%, respectively.
2009 2008 2007 2006 2005 2004 2003 2002 2001 2000
IPOs 823 116 2,253 1,872 1,785 2,429 484 602 438 7,312
Follow-ons 6,579 1,840 3,345 6,303 4,600 3,380 4,046 1,070 2,431 15,832
Other 10,044 8,244 16,928 14,930 8,442 11,732 10,174 5,546 4,471 11,676
Venture 5,765 6,131 7,407 5,448 5,425 5,677 4,184 3,578 4,268 5,093
Total 23,211 16,332 29,932 28,553 20,252 23,218 18,889 10,795 11,609 39,913
Source: Ernst & Young, BioCentury, BioWorld and VentureSource
Numbers may appear inconsistent because of rounding.