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Funding On Track For Record Year
After a relatively slow start this year, financing in the biotech and specialty pharma sector gathered momentum in the spring and early summer – effectively erasing the first quarter’s slump and putting the sector on track for another superb year. Whereas total financings during the first three months of 2007 lagged those of the year-ago period by a full 33 percent, by the end of June they had leaped ahead, besting last year’s take by 13 percent. Importantly, we saw an increase in all financing categories in the first half of 2007. Public offerings were up by 19 percent from the year-ago period, private financings of public companies (such as private placements, rights issues, and debt offerings, among others) increased by 7 percent, and venture funding rose by 32 percent.
All told, then, companies raised nearly $18.6 billion in new financing (excluding any revenues and payments coming from corporate partners) in the first six months of 2007. With numbers like those, we could be set to break all previous financing records this year. However, when we examine the data we find that a mere handful of massive debt financings, totaling $5.1 billion, accounted for 27 percent of the entire amount raised by all companies in the first half of 2007.
It’s even more impressive when you consider the fact that this $5.1 billion was raised by just two companies: At the beginning of May, specialty pharma Shire plc raised $1.1 billion through the sale of seven-year convertible bonds, which it intends to use, at least in part, to repay the cash it borrowed to acquire New River Pharmaceuticals Inc. in April.
And (if you haven’t guessed by now) the remaining $4 billion was raised by Amgen Inc., primarily for repurchasing about $3 billion of its stock. Amgen’s senior notes, sold in late May, consisted of three different batches: $1.1 billion in principal amount due 2017, $900 million in principal amount due 2037, and $2 billion in 18 month floating rate notes.
Setting the $5.1 billion aside for the moment, we see that companies in the biotech and specialty pharma sector garnered about $13.5 billion in the first six months of 2007 – but this is still a fortune. In the first six months of 2006, for instance, companies raised nearly $16.5 billion from all sources (except corporate partners) – but here, again, a few enormous debt financings accounted for a big chunk of it. Subtracting the $7.45 billion raised by Amgen, Gilead Sciences Inc. and MedImmune Inc. in debt offerings, we see that the total haul for the first half of 2006 was slightly more than $9 billion (which still beat the amount of money raised in the first halves of 2001, 2002, 2003 and 2005).
So, whichever way you cut it, the conclusion is the same: Biotech and specialty pharma companies raised more money in the first half of 2007 than ever before (with the exception of 2000, of course). And the performance in 2007 so far leads us to believe that this year will be a record-breaker.
Investors are still not lavishing all their money on biotech-related public stock offerings, but at least they’re paying the sector more attention these days than they have in a while. In the first half of 2007, 23 companies completed initial public offerings (IPOs), 16 of these on U.S. markets and the remainder abroad. Together, they attracted nearly $1.5 billion in cash. This puts us on track for a reasonably good crop of IPOs in 2007. (By contrast, 14 companies completed IPOs during the first six months of 2006 [two of these on foreign exchanges], raising a total of $670 million in new funds.)
A few IPOs in the second quarter of 2007 were keenly anticipated – including those for Jazz Pharmaceuticals Inc. and Eurand N.V. Even so, they struggled to keep up once they hit the market.
Jazz, a specialty pharma company that focuses on improving the efficacy of known neurological and psychiatric drugs, raised $108 million in its IPO in late May, but the stock traded down its first day on the market and continues to trade below its IPO price (15 percent lower on July 12). Eurand is a specialty pharma, also, and is developing an enzyme replacement product for treating exocrine pancreatic insufficiency (among others). This firm has the added distinction of being spun out of American Home Products (now Wyeth) in 1999. It raised $112 million in its IPO in mid-May, but the stock lost traction its first day out and continues to under-perform (the stock traded six percent below its IPO price on July 12).
The ex-U.S. IPOs were conducted by Amsterdam Molecular Therapeutics Holding N.V., Evogene Ltd. and Addex Pharmaceuticals SA. Amsterdam Molecular, which develops gene-based therapies for inherited diseases, debuted on Euronext Amsterdam in June. Israeli firm Evogene, which specializes in agbiotech and the production of biofuels, came public in mid-June on the Tel Aviv Stock Exchange. And Addex Pharmaceuticals, a Swiss firm that is developing therapies for CNS disorders, debuted on the Swiss stock exchange in mid-May.
Follow-on stock offerings, as usual, drew considerable interest from investors: In the first six months of 2007, 25 companies raised about $2 billion by selling stock in the public market. This activity is on par with 2006, when 25 firms raised about $2.2 billion in follow-on offerings during the first half of the year.
Now, as then, a handful of follow-on offerings were extremely rich: In June, Onyx Pharmaceuticals Inc. raised an impressive $184.8 million from investors, obviously excited about the fact that the biotech and its partner Bayer Healthcare Pharmaceuticals Inc. had just filed for the approval of Nexavar as a therapy for liver cancer. In May, Advanced Magnetics Inc., which is developing a drug for anemia and a molecular imaging agent, attracted $162.9 million in new funds. That same month, Pharmion Corp., which is seeking regulatory approval for its platinum-based drug Satraplatin as a therapy for prostate cancer, garnered $138 million in its follow-on offering. And in April, CNS drug developer Acadia Pharmaceuticals Inc. won the prize, raising $102.5 million in a public offering. (For details on 2007’s U.S.-based public offerings, both initial and follow-on, please refer to the Signals article, “The Class Of 2007.”)
Publicly held companies have a number of other ways to raise cash, including private placements with institutional investors, rights offerings, and debt financings. As we mentioned earlier, debt offerings continue to provide qualifying companies with enormous amounts of cash – and they play a critical role in the financial health of the biotech and specialty pharma sector. In both 2003 and 2004, debt financings raised a total of $6.8 billion; in 2005, they contributed $5.1 billion to companies’ coffers; and in 2006 they attracted a cool $9.9 billion. With $7.9 billion already in the bank, 2007’s debt offerings could easily top them all.
Selected Debt Financings In 1H 2007
|
Company
|
Money Raised
(including overallotment, if applicable)
(Date)
|
Term
|
Conversion Price/Share
|
Annual Interest Rate
|
|
Amgen
|
a. $1.1B
b. $0.9B
c. $2.0B
(5/07)
|
a. 10 years
b. 30 years
c. 18 months
|
a. NA
b. NA
c. NA
|
a. 5.85%
b. 6.375%
c. Floating rate
|
|
Amylin Pharmaceuticals
|
$575M
(6/07)
|
7 years
|
$61.07
|
3.00%
|
|
BioMarin Pharmaceutical
|
$324.9M
(4/07)
|
10 years
|
$20.36
|
1.875%
|
|
Dendreon
|
$75M
(6/07)
|
7 years
|
$10.28
|
4.75%
|
|
Diversa
|
$120M
(3/07)
|
20 years
|
$8.16
|
5.50%
|
|
Illumina
|
$400M
(2/07)
|
7 years
|
$43.66
|
0.625%
|
|
Isis Pharmaceuticals
|
$162.5M
(1/07)
|
20 years
|
$14.63
|
2.625%
|
|
Quest Diagnostics
|
a. $375M
b. $425M
(6/07)
|
a. 10 years
b. 30 years
|
a. NA
b. NA
|
a. 6.40%
b. 6.95%
|
|
Neurochem
|
a. $40M
b. $40M
(5/07)
|
a. 20 years
b. 5 years
|
a. $12.68
b. $12.68
|
a. 6.00%
b. 5.00%
|
|
Oscient Pharmaceuticals
|
$60M
(4/07)
|
4 years
|
$13.50
|
3.50%
|
|
Shire
|
$1.1B
(5/07)
|
7 years
|
$33.59
|
2.75%
|
|
ViroPharma
|
$250M
(3/07)
|
10 years
|
$18.87
|
2.00%
|
Privately held biotech and specialty pharma companies have also had a great year so far: Not only have they been able to attract record amounts of venture capital, but also they have access to new sources of funding, including venture debt. (For a detailed discussion of venture debt, see the Signals article, “Financial Wizards Concoct New Potions.”)
In the first six months of 2007, private firms attracted nearly $3.4 billion in new financing, a 32 percent improvement over last year’s haul. Here again, while most venture rounds were relatively modest, a handful of young companies raised tremendous amounts of cash.
For instance, Ception Therapeutics Inc. completed its Series C round in late May, adding $14.7 million to the $63 million it raised in January 2007 for a grand total of $77.7 million. According to the company, which is developing a thermodynamics-based rational drug design platform, its Series C is 2007’s second largest venture round.
Portola Pharmaceuticals Inc. isn’t far behind, though: The cardiovascular drug specialist reaped $70 million in a Series C round in early May, giving it the funds to advance the development of its two clinical-stage drug candidates (a factor Xa inhibitor and an ADP receptor antagonist).
Other large venture financings in the second quarter of 2007 include oncology drug maker AVEO Pharmaceuticals Inc.’s $53 million Series D, which closed in May, and women’s health company Radius Health Inc.’s $57.5 million Series C, the first tranche of which closed in April. (For a discussion of the high-flyers in the first quarter of 2007, see the Signals article, “Rough Waters Ahead?”)
These huge infusions of cash are intended to provide the lucky recipients with sufficient funds to see them through drug development’s inevitable rough spots – and as the year progresses, we are likely to see even more big-ticket financings, continuing a trend that started several years ago.
originally published 07/13/2007 |