The Value of Proof-Of-Concept
Big Pharma's unprecedented spending levels in licensing continue. But some recent deals suggest the real linchpin of licensing value is proof-of-concept in humans.
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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.
Biotechs have always relied on four sources of financing: venture capital, public equity, M&A, and alliances. But of these four financing "legs", only one remains strong: alliances. There's no question that average potential deal values-a combination of up-front fees and pre-commercialization money-are increasing nicely. But while the mean value of early-stage deals has remained steady, deal values for both Phase II and Phase III /NDA-stage compounds have continued to climb.
In this issue, we present another installment of our quarterly review of pharmaceutical/biotechnology dealmaking-for April-June 2007. Our data come from Windhover's Strategic Transactions Database. Look for our quarterly review on the medical device, in vitro diagnostics, and research industries in upcoming issues.