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Biotech Sector Breaks Its Own Record
Imagine that. For the last decade, we’ve predicted that companies in the biotech and specialty pharma sector would never again be able to raise as much cold hard cash as they did during the heady genomics-crazed days of 2000.
And yet, they’ve done just that: In 2010, these firms (both public and private, based in the U.S. or elsewhere) amassed an astounding $32.7 billion in fresh funds from all sources (excluding revenues and payments from corporate partners). This easily breaks the record of $31.4 billion raised in 2000.
More importantly, perhaps, we also see that companies were able to raise more money in 2010 than they had in 2009, signifying a continuing recovery from the global financial crisis of 2008. In fact, the sector’s overall fiscal health has improved steadily since then: Companies raised $10.8 billion in 2008, $22.3 billion in 2009 and $32.7 billion in 2010.
But the total annual sums – impressive as they are – don’t tell the whole story. Indeed, there are significant differences in the underlying sources of those funds for any one year – as we’ll demonstrate by comparing 2010 first with 2009 and then with 2000.
All told, biotech and specialty pharma firms raised about $32.7 billion in 2010 – 46 percent more than the $22.3 billion they raised in 2009. The bulk of the difference, as the graph below clearly demonstrates, comes in the form of “other offerings by public companies.” This is somewhat of a catchall category, and includes private placements, registered direct offerings, rights offerings, exercise of warrants, and – most importantly – convertible debt offerings.
In 2010, these “other offerings,” totaling $20.9 billion, constituted a full 64 percent of all the money raised during the year. And of that $20.9 billion, nearly $16.9 billion – or 81 percent – was raised by a surprisingly small number of companies (15 to be exact, although a few tapped their sources more than once) through convertible debt offerings.
In 2009, by comparison, the “other offerings” not only totaled less – about $10.4 billion – but also represented a smaller chunk – 47 percent -- of all the money raised that year. But convertible debt offerings still played a major role: 11 firms raised $6.4 billion in debt, a full 61 percent of the cash encompassed by “other offerings.”
According to the graph above, public offerings (initial and follow-on) raised $6.1 billion in 2010, about 10 percent less than the $6.8 billion they garnered in 2009. But though the totals may not be so different, the underlying facts are – especially when it comes to IPOs.
Remember that in 2008, only five biotech and specialty pharma companies managed to go public – and four of those occurred overseas. In 2009 the situation improved somewhat, and investors backed eight IPOs in all (which together raised $0.9 billion). Once again, however, four of those took place overseas. 2010 proved a much better year: 30 companies priced their IPOs over the course of the year – 18 of them in the U.S. Together they garnered $2.8 billion in new funds.
As usual, investors proved far more comfortable putting their cash into already-public firms than IPO-hopefuls: In 2009, 57 companies raised more than $5.9 billion in follow-on stock offerings; in 2010, 67 companies raised greater than $3.3 billion. (Even in the lean year of 2008, 12 firms managed to amass about $1.2 billion in new funds through public follow-on stock offerings.)
While convertible debt offerings attracted the bulk of new investment dollars in 2010, underwritten public offerings took the prize in 2000. All together, initial and follow-on public offerings raised $18.4 billion over the course of the year – and this time, it was the IPOs that stole the spotlight. That was the year when scientists declared that they had sequenced the human genome – or at least had assembled a working draft – and enthralled investors found biotech stocks irresistible.
All told, 86 companies priced IPOs in 2000, 68 of them in the U.S. – raising $7.7 billion in the process. And 57 already-public firms raised an additional $10.8 billion through follow-on offerings. Together, then, public offerings accounted for 59 percent of all the money raised by the biotech and specialty pharma sector in 2000.
Debt financings played a role, too – and in the early months of 2000 well-established (and genomics-focused) companies like Human Genome Sciences Inc., Millennium Pharmaceuticals Inc., and Incyte Pharmaceuticals Inc. (to name but a few) were able to tap into this particular investor base. Over the course of the year, 15 companies raised money through convertible debt offerings (some more than once) totaling close to $4.6 billion. That represented a mere 15 percent of the total raised by all companies from all sources in 2000 – but still constituted nearly half (48 percent, to be precise) of the money raised by already-public companies through “other offerings.”
Thus, the biotech and specialty pharma sector can now boast of not one, but two years in which it raised more than $30 billion in new funds. But although the total amounts are not so different ($32.7 billion vs. $31.4 billion), the underlying dynamics are strikingly dissimilar. In 2000, investors put almost 60 percent of their money into biotech stock offerings – especially IPOs. In 2010, on the other hand, convertible debt offerings attracted more than half the cash raised during the year.
Since 2010 ended on a positive note, and investors seem to be gaining more confidence in the markets, 2011 could be a solid year for the biotech sector.
 | By Jennifer Van Brunt
Editor Emeritus
Signals Magazine |
originally published 01/18/2011 |