US biotech pendulum swings towards M&A

Although US biotechs managed to raise a healthy US$6.2 billion in capital in the first quarter of 2005, the tide has turned against IPOs, and mergers and acquisitions and partnering are gaining popularity as alternative financing methods, according to analysis by San Francisco's Burrill & Company.

"After posting several excellent quarters of positive stock market results, biotech came down to earth with a solid bump in the first quarter of 2005," said Steven Burrill, Burrill & Co's chief executive. "A string of product disappointments, lower earnings projections, and heightened concerns over drug safety compounded biotech's woes."

During the quarter, the Burrill large-cap biotech index was down 6.2 per cent and the Burrill small-cap biotech index fell 28 per cent. Only six companies made it through a closing IPO window, mostly at steep discounts, and two chose to exit from the IPO runway. "The pendulum is swinging away from IPOs more to M&As and partnering," said Burrill.

He said partnering deals worth US$3.6 billion had taken place in the fourth quarter of last year and that transactions did not show any signs of slowing.

"Pharma's appetite for what biotech has to offer will continue to remain healthy throughout the rest of the year," he said, citing the alliance between Shire and New River Pharmaceuticals to strengthen Shire's ADHD pipeline as a typical example. Private venture financing deals raised US$781 million during the quarter -- about half the amount raised in the same quarter last year.