Specialty pharma dominates 2013 M&A: Specialty pharma companies, with far less firepower individually and as a group than traditional big pharma, have been more resourceful in using M&A to drive growth while simultaneously enhancing shareholder value. In 2013, nine companies collectively added US$100b of market valuation with shareholder returns up 82% for the year. Specialty pharma acquirers accounted for roughly 40% of all 2013 M&A by value, with no fewer than seven offshore deals totaling over US$35b. All of these deals resulted in increased 2014 guidance, driven in part by lower projected tax rates. Notably, this subset of specialty pharma companies, which entered 2014 with headquarters outside the US (mostly in Ireland), enjoyed shareholder returns averaging 130%.
But the real story going into 2014 is strategic. Specialty pharma has bulked up to unprecedented levels that will allow this most acquisitive group to pursue larger deals – the recent announcement that Actavis is acquiring Forest Laboratories for US$25b as an example – that would have been inconceivable just a few years ago. Consider this: during the last Winter Olympic Games four years ago, there was only one specialty pharma company with market capitalization over US$30b and just two over US$10b. As they lit the torch in Sochi, five specialty pharma companies are standing on the US$30b+ market value podium, with 10 over US$10b. So why is this relevant now?
By now, you’ve probably heard that the pharmaceutical industry is going through a revolution. The rise and fall of one-size-fits-all medicine has left pharma reevaluating pipelines and searching for new ways to develop drugs that are safe and effective for patients.
Simultaneously, we have discovered the genetic underpinnings of some diseases and have used these discoveries to develop higher-efficacy treatments for targeted populations — treatments for particular patients, not just for particular diseases. This approach, called precision medicine (PM), uses diagnostics to identify and segment patients into targeted populations for specific drugs. PM allows pharma to develop drugs that link to better outcomes while cutting development time and cost. Pharma companies are collecting these targeted products into formidable and sustainable portfolios.
But PM requires a significant scientific and business model shift. To successfully develop patient solutions that include access to both drug and diagnostic, pharma companies must proactively seek out partnerships with a whole host of other entities. They need access to diagnostic testing, life science tools, reference labs and global distribution networks (to name a few). Continue reading →
Drawing on the breadth of EY’s biotechnology database, my colleagues and I have created the infographic to the left (click to expand) to tell the story of the 2013 US biotech IPO class in 10 charts. As detailed in my recent post on this topic, the US$3.6 billion raised in 2013 represents the second-highest total in the industry’s history — second only to the genomics bubble of 2000.
Of the 47 companies that debuted in 2013, 37 were therapeutics companies, 6 were diagnostics firms and the balance were companies focused on animal health, synthetic biology, medical food and research supplies.
Taking a deeper dive into the therapeutics companies, approximately one-third of the class of 2013 had a lead product focused in oncology, and the vast majority had a lead product in Phase II development, with only two companies having a marketed product and only one company with a lead asset in the pre-clinical stage. Fifteen companies had licensed their lead asset (some retaining US marketing rights) to a larger company, while many of those that retained full rights disclosed their intent to seek collaboration partners in the future to either help fund later-stage trials, marketing and distribution, or both.
As biotech leaders head to the annual JP Morgan Healthcare Conference in San Francisco next week, the question on many people’s minds is whether the strong 2013 IPO market will be sustained in the new year. EY’s annual biotechnology reports — through which we have been collecting and analyzing data since the industry’s earliest days — provide useful historical context to understand past IPO cycles and the possible outlook for 2014.
Since the inception of the modern biotech industry, public equity markets have seen numerous boom-and-bust cycles — IPO “windows” that have opened and closed driven by both industry-specific and broader market factors. As shown in the accompanying chart, there were many such cycles in the 1990s, a period in which investor sentiment toward biotech waxed and waned. However, the US$3.6 billion raised through IPOs in 2013 surpasses the totals raised in any of the bullish windows of the 1990s — in fact, it is the second-highest annual total in the US industry’s history (second only to the “genomics bubble” of 2000).