The biotechnology industry experienced healthy growth in venture financing and valuations in the first half of 2013, but licensing deals — a prime source of biotech revenue — were flat during the period, pointing to limits on the industry’s growth potential. This accounting of biotech industry financial activity is described in a report from Evaluate Ltd., a London-based market intelligence company.
By most indicators, says the Evaluate report, the first half of 2013 was clearly a good one for the biotechnology industry. Initial public offerings (IPOs) among biotech companies soared between January and June, with 20 companies raising $1.3 billion in IPOs filed during that period, compared to 16 IPOs for all of 2012. Mergers and acquisitions also jumped, with a total $29 billion in deals for the first half of the year. Evaluate says 2013 should be the best year for biotech acquisitions since 2010.
Venture financing started off slow in 2013, with 60 deals raising some $600 million in the first quarter of the year. But venture deals took off in the second quarter, raising $1.4 billion in 76 deals, totaling $2 billion raised in the first half of the year. Of five venture rounds collecting $50 million or more during this period, four of those rounds occurred in the second quarter.
Valuations of biotechnology companies showed solid gains as well. The NASDAQ Biotechnology Index rose 27 percent in the first half of the year, compared to gains of 17 percent for the S&P Pharmaceuticals index in this period and 14 percent for Dow-Jones Industrials overall. But the rise in valuations may have a down side, says the Evaluate report, as reflected in fewer product licensing deals, a key source of income for biotech firms.
For the first half of the year, Evaluate registers 416 licensing deals, below the rate needed to match the 912 deals in 2012, and the 1,000 or more deals in each of the previous three years. In those 416 deals, biotech companies collected some $1.6 million in upfront payments from pharmas; licensing deals are generally back-loaded, with most payments to biotechs connected to future developmental or regulatory milestones.
Evaluate points to the expiration of patent cliffs in 2011 and 2012 for several pharma companies — where patents expired on lucrative compounds, ending the companies’ market dominance — that reduced the sense of urgency felt in previous years, as well as rising valuations of biotech companies, which may be putting the price of potential biotech assets out of reach.
The U.S. Food and Drug Administration helped the pharmaceutical and biotechnology industries in the first half of 2013, according to Evaluate. FDA approved 17 new drugs or biologics in the first half of 2013, which when combined with another 21 products believed to be in the queue at the agency, should come close to matching the record 43 approvals in 2012. “New developments like the breakthrough therapy designation,” says the Evaluate report, “and a more open stance taken by FDA officials have given executives new reason to smile.”
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