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Private Biotech M&A Review: Has the Market Lost Steam?

This article was originally published in Start Up

Executive Summary

In a still-frozen IPO market, acquisition has become the go-to exit for biotech VCs, but an analysis of the past four years' deals suggests the market may have peaked. Of more than 180 private biotech acquisitions since 2005, fewer than half in each year resulted in a reliable exit for investors, and those numbers are trending downward. Although the most active acquirers amounted to a list of the usual suspects, the bulk of acquisitions were conducted by a diverse set of smaller public and still-private firms. We also review the characteristics of those companies that have had success in terms of good exits for investors.

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Biotech Backers Learn To Live With Exit-By-Earn-Out

Even as both public investors and pharma companies more vigorously sniff out biopharma opportunities, exits for venture-backed firms remain scarce. Can risk-sharing acquisitions save the day?

Biotech Backers Learn To Live With Exit-By-Earn-Out

Even as both public investors and pharma companies more vigorously sniff out biopharma opportunities, exits for venture-backed firms remain scarce. Can risk-sharing acquisitions save the day?

Biotech Backers Are Learning to Live with Exit-by-Earn-out

Despite a few bright spots, the fundraising environment remains difficult for many venture investors. Biotechs that went public during the 2005-2007 window have largely underperformed, despite hitting the stock exchanges with what plenty of CEOs and VCs felt were artificially low prices negotiated by an oligarchy of biotech IPO buyers. Moreover, pharmaceutical companies have been buying fewer, not more, biotechs - even as more companies are seemingly created with acquisition, not IPO, in mind. Meanwhile, the M&A deals that do occur are increasingly risk-sharing affairs that resemble alliances, replete with earn-out payments triggered by development, regulatory, or commercial milestones. In short: good venture exits have been extremely hard to come by. And data from Elsevier's Strategic Transactions analyzed by START-UP suggest that although these risk-sharing deal structures may be a by-product of a miserable economy, they are likely to stick around regardless of any economic turnaround.

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