Private Life Science M&A Analysis: More Structured deals and quicker exits in Biotech

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Having worked with life science companies for many years, we recognized that the M&A data that was available in the market was too inclusive. We started looking at the data ourselves, in a slightly different way and discovered some really interesting findings that surprised us. We looked at the big deals – the winners – to learn from their common characteristics. Our study examines the merger and acquisition behavior of private, venture capital-backed biotech and medical device companies (60 biotech and 58 medical device) since 2005. We included private life science M&A activity in excess of $50 million for device companies and $100 million for biotech companies.

This research shows that many of the basic assumptions upon which life science investors base their decisions do not hold true in the current market. We were definitely surprised by the results and think this report will have an impact on some firms' life science investment philosophies as well.

Key Findings 

Device and Biotech private M&A results surprising 

• Biotech: quicker exits, lower multiples
• Medical Device: longer exits, higher multiples
• Simple gross IRR calculation shows Biotech IRR on Big Exits at about 34 percent and Device at about 28 percent

Early-stage investors rewarded in Biotech 

• Early-stage biotech investing yields solid exits: Companies that receive Series A venture investments at the pre-clinical stage make up the majority of Biotech Big Exits over last six years
• Fifty-five percent of Biotech Big Exits were pre-clinical or Phase I assets at the time of exit

Structured deals in Biotech increasing  

• In 2009, there was a substantial increase in the amount of structured Biotech Big Exits
• Structured Biotech deals still provide substantial value: Trend toward structured deals in Biotech does not mean that overall returns are significantly hampered

Device activity and deal size on the rise 

• M&A value increasing: Both total acquisition and all-in/upfront amounts are on the rise in Device
• Trend toward supersized Device Big Exits over $300 million: the number of >$300 million+ exits far outstrip smaller returners in Device in 2009 - 2010

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M&A Report in the News 

• Venture-Backed Biotech Generates Quicker Exits but Lower Multiples than Medical Device