EY - Beyond borders: unlocking value

Beyond borders: unlocking value


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A biotech bounce

The big picture

A year, it turns out, is a long time in biotechnology. In the last issue of Beyond borders, we described “the same old new normal,” and a financial picture that was stable overall except for a large reduction in debt funding. The downward dip in capital raised in 2012 sharply reversed course in 2013, resulting in the biotech industry’s second-highest total capital raised — US$31.6 billion — since 2003.

Importantly for the overall health of the sector, all sources of financing (other than debt) contributed to this turnaround. Indeed, a historic bull market fed investors’ appetite for both initial public offerings and follow-on offerings, while on the private side, venture investment held steady. It’s a new normal biotech companies and their investors could easily get used to.

Multiple trends coalesced in 2013 to bring the biotech market back in favor in the US. Despite the botched rollout of the Affordable Care Act, the greater certainty around the implementation of health care reforms has been seen as neutral or a net positive for biopharma companies.

New product launches and creative deal making from biotech stalwarts in 2013 further reinforced investors’ enthusiasm. As investors’ confidence in biotech flourished, so did their willingness to commit capital to the sector.

The upshot? In 2013, enthusiasm for biotech equities didn’t just trickle down to new offerings, it gushed. For the first time since 2008, the public markets were wide open for biotech IPOs. Forty-one biotechs debuted on the US public markets this past year, raising US$3.5 billion. That’s a 300% increase from 2012 and the highest one-year total since 2000, when 49 companies floated to raise US$4.3 billion.

Largely due to the strength of the US IPO market, 2013 marked a significant increase — 36% — in the amount of innovation capital raised. Interestingly, capital raised by commercial leaders, defined as entities with revenues greater than US$500 million, fell by 14% toUS$12.8 billion during the year, making 2013 the first year since 2010 in which innovation capital was the largest contributor to the financing total.