As the biopharmaceutical industry enters another year, a review of financing trends in the industry shows both positive and negative signs. On the plus side, overall financing (public and private) for life-science companies was up on a global level and in the United States. Venture-capital funding remained strong, but money raised from initial public offerings (IPOs) was down, and mergers & acquisitions (M&A) activity was also down on a value basis. 


 US life-sciences companies raised a record amount of capital in 2012 with a total of $71.1 billion in public and private financings, up from $57.4 billion in 2011, a 23.9% increase, according to a recent analysis by Burrill & Company. When the potential value of partnering transactions are included in the numbers, the total for 2012 was $91.7 billion, a 13.9% increase over the $80.4 billion raised through financings and partnering transactions in 2011.

Global life-sciences venture financings totaled more than $12.4 billion in 2012, an increase of nearly 23% compared with 2011, and US-based venture-capital funding increased nearly 22% to approximately $9.5 billion. Venture investors, however, are moving away from early-stage financings, according to the Burrill & Company analysis. Companies are relying more on alternative sources of financing, including accelerators, angel capital, corporate-venture sources, and private equity investment. Of the top 10 private financings in 2012, all but one had significant backing from private-equity firms or strategic investors, according to the Burrill & Company analysis. Although privately held therapeutics developers had the largest portion of funding with a total of $5.1 billion in 2012, digital health and life-sciences information technology deals showed the largest increase in activity, with a 58.5 % increase to $748 million.

A total of 16 life-sciences companies completed IPOs in the United States in 2012, the same numbers as in 2011. Although the numbers of IPOs were on par, the money earned from them fell by 16% in aggregate in 2012. In 2012, the 16 IPOs in the US raised nearly $1.1 billion, down from the nearly $1.4 billion raised in 2011. Global IPOs were also down in both number and value. In 2012, there were 37 IPOs that raised $2.1 billion compared with 45 IPOs in 2011 that raised $3.8 billion, according to the Burrill & Company analysis.

Global and US-based M&A also was down in 2012 compared with 2011. On a global basis, companies in 2012 announced a total of $109.2 billion in M&A transactions, down 31.2% in 2011, according to the Burrill & Company analysis. Big Pharma and Big Biotech continue to be the most active acquirers. Although generic drugs and consumer health were large areas of activity, the top deals involving innovative biopharmaceuticals in 2012 included Bristol-Myers Squibb’s $7-billion acquisition of Amylin Pharmaceuticals, GlaxoSmithKline’s $3-billion purchase of Human Genome Sciences, and Dainippon Sumitomo Pharma’s $2.6-acquisition of Boston Biomedical, which is developing drugs to target cancer stem cells.


For the life sciences in 2013, Burrill & Company expects that an improving world economy, tempered by economic instability in Europe, fiscal uncertainty in the US, and political unrest in the Middle East. On the life-sciences front, the firm expects the industry to raise $100 billion in capital, with financings heavily weighted to the large companies and to the use of debt. In private financing, it projects that traditional venture investors will become less relevant to start-ups as they continue to migrate not only toward later-stage deals, but public-company investments as well. Angel, corporate venture, disease advocacy groups, and philanthropic organizations will fill the growing gap. Marketability or evidence of market potential will continue to be an important criterion to secure funding. With growing wealth in emerging markets, Burrill projects that investors in these parts of the world will become more prominent and new cultures of entrepreneurship will give rise to a growing number of life-sciences startups outside the United States. Burrill projects that private financings to grow 20% in 2013.

Helped by increased public-market activity and jobs stimulation on a US federal level, Burrill expects the number of life sciences IPOs to increase to 25 in 2013. On the M&A front, the firm projects that M&S will increase by at least 20% with a pick-up in acquisitions of mid-cap life-sciences companies and at least one Big Pharma or major biotech merger in 2013. Deals targeting drug companies that reach into Latin America, the Middle East, and Southeast Asia, will also drive activity, according to the Burrill & Company analysis.

Articles

Biologics

Financing from initial public offerings and global mergers and acquisitions were down in 2012 and venture-capital funding stayed strong.

Venture-Capital Stays Strong in Biotech Financing

The year 2012 has been an important year for acquisitions in the bio/pharmaceutical CMC (chemistry, manufacturing, and controls) contract services industry. Some of the premier names in the industry have been involved in major deals, either as buyers or sellers. The pace and nature of these deals suggests that there are more to come in the next several years. 

 (JONATHAN EVANS/PHOTODISC/GETTY IMAGES) 

PharmSource has counted at least 20 acquisitions of CMC service providers in 2012 through the end of November 2012 (see 

). Some of the larger and more significant deals are listed in the accompanying table. There seem to be a wide variety of underlying drivers for the acquisition activity, but several really stand out. 

Arguably, the most important of these drivers has been the pursuit of large size. Company size and breadth of capabilities has clearly been a major criterion in the awarding of strategic sourcing relationships for clinical research services by global bio/pharmaceutical companies. Size reflects broad scope, financial strength, and the ability to achieve economies of scale. Although the strategic sourcing trend is still evolving in manufacturing, where CMOs are battling with in-house capacity, it has penetrated the clinical packaging and analytical services segments of CMC services, where large companies are clearly favored. 

Table I: Select mergers and acquisitions in the contract-services industry, 2012*  

Another advantage of size is that larger companies get the attention of the investor community, which provides investment capital for growth and the opportunity for current owners to realize the value of their investments. Whether the plan is to eventually sell equity to the public, or sell to another private equity firm, the size of a company is important to the investment community, which likes to put large amounts of capital to work in any given deal. Even if a CRO or CMO is a business unit of a larger, diversified company, size is likely to be critical to getting senior management attention and access to corporate capital for investment.  

Another driver of acquisition activity in 2012 has been the desire of companies to position themselves in segments of the market that promise more robust growth or better margins than more mundane services. Highly desirable opportunities have included services that support development and manufacture of biopharmaceuticals (both APIs and injectable drug products) and drug-delivery technologies that can be broadly applied such as softgels. Examples of deals driven by these considerations include the acquisitions of Banner PharmaCaps and Aenova, both of which are major players in the softgel business, and Sigma Aldrich's acquisition of BioReliance, a market leader in services for development of biologics.  

When the objective is to add important capabilities in critical markets, deals can be strategically important even if they are not large. So-called "bolt-on" acquisitions enable CMOs and CROs to add skills and facilities quickly and with immediate payback and are not disruptive to the acquirer's core operations. A recent example is the acquisition of the UK biosafety laboratory Vitrology by SGS Life Sciences, which extended SGS's offerings for the testing of biopharmaceuticals. 

A third rationale that has underlain several recent acquisitions has little to do with contract services. CMOs are being acquired to serve as platforms for building generic products businesses. DPT Laboratories, Confab, and Metrics have all been acquired by companies whose ultimate objective is to build a generic or specialty pharmaceutical business by pairing acquired manufacturing capacity with in-licensed or acquired products. Those companies, well-respected in their respective service areas (semisolids and liquids for DPT and Confab, solid dose and analytical for Metrics), will maintain their successful contract services businesses but also will take on more production of proprietary products. 

Despite, or even thanks to, the recent turmoil in the world economy, we expect to see more acquisitions of CMC service providers in the near future. Not only are there clear rationales for making acquisitions of CMC companies, but there also seems to be plenty of resources available to do them. Many private-equity firms are capable of financing these deals, and they especially like the opportunity to consolidate highly fragmented industries, such as CMC development and manufacturing services.  Banks in North America, even some European banks, are eager to help fund these deals in an environment where overall loan demand is depressed.  

The CMC services industry, especially contract manufacturing, will benefit from having a core of large global companies capable of serving global bio/pharmaceutical companies. Catalent, which was assembled through acquisitions, has already topped the $1 billion mark, and Patheon has gotten there with the Banner acquisition.  Aenova and Aesica, both based in Europe, have stated their intention of getting to the $1 billion mark, and Aenova is more than halfway there after its Temmler acquisition. 

Acquisitions will continue to reshape the CMC services industry, and they are a sign that the industry is reaching a new level of maturity. 

 is president of PharmSource Information Services, Inc., and publisher of 

, tel. 703.383.4903, Twitter@JimPharmSource, 

Outsourcing

The quest to build critical mass and broaden capabilities has been a key factor in dealmaking.

Acquisitions Reshape the Bio/Pharm Services Industry

As the pharmaceutical industry begins another year, an issue of central importance is on the pharmaceutical majors’ strategies for growth. Mergers and acquisitions (M&A) are a strategic remedy to deal with revenue declines or slowing revenue growth, but which companies are likely to take the plunge and which companies are in the best financial position to do so?

A recent analysis by the management-consulting firm Ernst & Young says that the widening growth gap faced by Big Pharma increases the likelihood on increased M&A activity, but that prospect is tempered by competition for attractive acquisition targets and diminished resources (1).

“While the dynamics of the pharma industry remain fluid, the deal environment in 2013 and beyond will be more complex and competitive,” said Glen Giovannetti, Ernst & Young’s global life sciences leader, in a recent Ernst & Young press release. “Life sciences companies that are positioned appropriately should benefit from increased competition and see higher premiums. However, the finite resources of many Big Pharma companies and the need to make prudent acquisitions to address the immediate growth gap mean they will likely be even more selective about the targets they pursue.”

With continued flat sales in mature markets Big Pharma, defined as the 16 largest US, European, and Japanese pharmaceutical companies measured by revenue, has increasingly looked to emerging markets to drive overall revenue growth. A slowdown in these markets as a result of various factors has widened the “growth gap” facing the industry, according to the Ernst & Young report. By comparing the gap between IMS Health’s forecast for the global drug market and industry analysts’ estimates of Big Pharma sales during the next three years, Ernst & Young estimates that this growth gap will reach approximately $100 billion by 2015. This situation means that Big Pharma will need an additional $100 billion in revenue in 2015 just to keep up with overall market growth, according to the Ernst & Young analysis.

Due to a flat outlook in developed markets—in part a result of stagnation in the euro zone—and a slowdown in emerging markets, sources of organic growth are under pressure, according to the Ernst & Young analysis. As a result, many Big Pharma companies are likely to accelerate their search for inorganic growth through M&A in 2013.  The financial capacity of Big Pharma to conduct such deals, however, has diminished in recent years due to less available operating cash resulting from slower revenue growth, attributable partly from continued pressure on drug pricing, and increased borrowing to fund higher dividends, stock repurchases, and previous transactions. According to Ernst & Young, the financial capacity or “firepower” of Big Pharma to conduct deals declined by 23% between 2006 and 2012.

Even as Big Pharma’s deal-making ability has shrunk, the firepower of Big Biotech and specialty pharmaceutical (including generic-drug) companies has increased. According to Ernst & Young’s Firepower Index, between 2006 and 2012, the “firepower” of Big Biotech increased by 61% while specialty pharma’s firepower was up 20%. As a result of these shifts, Big Pharma’s share of the combined acquisition capacity of these three segments fell from 85% in 2006 to 75% in 2012.

In addition to a more competitive and complex deal environment, the Ernst & Young report identifies several key trends for transactions in the coming months and years as follows:

. Only a handful of Big Pharma companies now have the firepower to pursue M&A targets above $60 billion. With Big Biotechs and specialty pharmaceutical companies having joined Big Pharma in their capacity to engage in smaller deals, more bolt-on acquisitions are anticipated.

. As pharmaceutical companies look to boost firepower and sharpen their strategic focus, it is likely they will consider more divestures of non-strategic assets. Both corporate investors and private equity are seen as likely acquirers.

More offshore deals and emerging markets deals

. The need to address the growth gap will drive pharmaceutical companies to look for attractive acquisitions everywhere. For US buyers, high tax rates in the United States may increase the attractiveness of using offshore cash reserves to buy non-US companies. With 2012 emerging-market sales growth rates for Big Pharma declining by about 50%, many companies will need to close this gap through more deals in emerging markets, according to the Ernst & Young analysis. 

“With fewer options for organic growth, pharma companies will need transactions and, more than ever, measures to build and conserve firepower are vital,” said Jeffrey Greene, Ernst & Young’s global life-sciences transaction advisory leader. “Pharma companies addressing the growth gap through M&A will seek to increase and preserve their firepower by improving working capital management, divesting non-strategic assets, conducting more careful strategic diligence to ensure targets are valued appropriately in the face of stiffer competition, and employing novel deal structures to mitigate risk.”

Ernst & Young, “Closing the Gap? Big Pharma’s Growth Challenge and Implications for Deals” Report, January 2013.

Global Feature

As a new year begins, what may be on the horizon for 2013 for the biopharmaceutical/pharmaceutical companies and their suppliers? A look ahead into what issues are shaping the industry.

2013: The Year Ahead

, through its Mental Health & Well-Being initiative, has supported innovative initiatives to address the mental-health needs of returning veterans since the program was launched in 2011. On Dec. 11, 2012, the foundation announced six additional grants totaling nearly $3 million.

 plans to donate $100,000 to the Diabetes Scholars Foundation scholarship fund. The contribution will support the foundation's mission to support young people with Type I diabetes. The foundation will use the donation to fund the Lilly Diabetes Tomorrow's Leaders Scholarships for students with Type I diabetes as well as conference scholarships for families to attend the 2013 children with Diabetes Friends for Life conference in Orlando.

On Dec. 4, 2012, experts gathered in Basel, Switzerland, to discuss "A Generation at Risk: Psychosocial Support for Africa's children" at the 2012 symposium of the 

Novartis Foundation for Sustainable Development

. The symposium was intended to provide healthcare experts the opportunity to assess psychosocial approaches and discuss various interventions that strive to ensure mental health and well-being for children in Africa. UNAIDS estimates that worldwide more than 16.6 million children have been orphaned by HIV and AIDS; 89% of these children live in sub-Saharan Africa. These children often face material hardship, socioeconomic disadvantage, social stigma, emotional isolation, and psychological trauma.

 have announced a follow-on collaboration to advance the development of malaria vaccines and new vaccine delivery technologies. The companies will test whether combining genetically engineered DNA with electroporation, a new vaccine delivery technology, can induce a suitable immune response in humans to protect against malaria parasite infection. Using controlled electrical impulses, electroporation creates temporary pores in a cell membrane that will allow for uptake of the synthetic DNA. The DNA instructions can then be used by the cell to produce proteins that mimic the presence of the malaria pathogen. Researchers hope the technology will induce an immune response that provides protection against malaria.

Tanzania has expanded its immunization program to include 

 Prevenar 13 for the prevention of pneumococcal disease. The availability of Prevenar 13 in Tanzania is made possible by the Advance Market Commitment (AMC), a funding mechanism that provides newer vaccines on a sustainable, affordable, and accelerated basis to the world's poorest countries. In the last two years, 20 countries, including Tanzania, have introduced Prevenar 13 into their immunization programs as part of the AMC. The vaccine is being offered to help protect an estimated 10.5 million infants and children in these developing countries from pneumococcal pneumonia and invasive disease caused by the serotypes in the vaccine.

CSR and Sustainability Forum

A roundup of developments in corporate social responsibility (CSR) and sustainability from the bio/pharmaceutical industry, its suppliers, and other public and private organizations.

CSR and Sustainability in the News

Technology plays an important role not in the development of drugs to treat diseases in the developing world but in building healthcare capacity, enhancing the supply chain in delivering drugs to remote areas, and in patient compliance and education. GlaxoSmithKline (GSK) recently partnered with the mobile communications giant Vodafone to use innovative mobile technology to help vaccinate more children against common infectious diseases in Africa. The recent partnership is part of GSK’s efforts to improve access to vaccination.

Despite major advances in the funding and availability of vaccines worldwide, it is estimated that up to one-fifth of children worldwide still do not receive basic vaccines, according to a recent GSK press release. The proliferation of mobile phones in Africa offers an opportunity to create innovative and cost-effective ways to address barriers to universal vaccination.

The initial focus of the new partnership will be a one-year pilot vaccination project in Mozambique, supported by Save the Children and to be run in collaboration with the Mozambique Ministry of Health. This project aims to use technology solutions to increase the proportion of children covered by vaccination in Mozambique by an additional 5–10% by helping to encourage mothers to take up vaccination services, support health workers, improve record-keeping, and enable better management of vaccine stock. If successful, the project can create a model that can be replicated throughout Mozambique and scaled across Africa, according to the GSK release. 

“Innovative technologies, whether mobile devices, medicines or vaccines, are helping to transform global health,” said GSK CEO Andrew Witty in the GSK release. Organizations, such as UNICEF and GAVI, have played a key role in making vaccines much more accessible in Africa, but barriers still exist that stop children from benefiting from basic immunization. This new partnership combines GSK’s expertise, knowledge and resources with those of Vodafone with the potential to deliver life-saving vaccines to tens of thousands more children in Mozambique. Our hope is that together we will create a sustainable and scalable model that could ultimately be replicated to help more children live healthy lives across developing countries.”

The pilot will use mobile technology to address barriers to increased take-up of vaccines in Mozambique in three key ways. First, mothers and caregivers will be registered on a Mozambique Ministry of Health database and alerted by short message service (SMS) to the availability and importance of vaccinations against common childhood diseases. Mothers will be able to schedule vaccination appointments by SMS and receive notifications of past and future vaccinations to ensure children complete the full schedule and become fully immunized.

Secondly, health workers will be provided with smartphones with software allowing them to contact mothers, view and record vaccination histories, schedule vaccinations and report on follow-up visits. Thirdly, healthcare facilities will be prompted to regularly report on crucial vaccination stock levels by SMS. These efforts will enable critical supply-chain management and the availability of vaccines when and where they are needed, particularly in rural areas, notes GSK in its release.

The pilot will include up to 100 clinics and will be independently tested to prove its impact, effectiveness, and cost benefits. To ensure open access, the platform will be available to caregivers across any mobile network and can be used to increase take-up of any selected vaccine.

GSK’s vaccines are included in immunization campaigns in 173 countries worldwide, and of the 1.1 billion vaccine doses delivered in 2011, 870 million doses (more than 80%), were shipped for use in developing countries. In 2010, GSK created the dedicated Developing Countries and Market Access operating unit, which is focused on expanding access to medicines for people in the developing countries. In least-developed countries, GSK focuses on increasing the volume of medicines supplied rather than revenue generated. It caps the prices of GSK patented medicines and vaccines at no more than 25% of developed-world prices and reinvests 20% of profits back into projects that strengthen healthcare infrastructure in these countries. Vodafone has experience in developing commercial mobile-health solutions in other African countries. Five thousand clinics across Tanzania currently use Vodafone’s mobile stock-management service to track malaria treatments, and more than 1800 remote community healthcare workers in South Africa are using a mobile solution to access and update patient records.

Since 2011, GSK has been involved in an initiative using mobile technology to help tackle the issue of counterfeit medicines in Africa, where 10–30% of all medicines sold are thought to be counterfeit, notes the GSK press release. In collaboration with the National Agency for Food and Drug Administration Control (NAFDAC) in Nigeria, GSK introduced packs of antibiotics that contain a scratch-off panel that reveals a unique code that can sent by text message to verify a product as genuine. Following this successful pilot, NAFDAC has mandated that a similar technology be applied to all antibiotics and antimalarials in Nigeria from next year. GSK is introducing similar programs in Kenya and Tanzania, with the hope to scale up such program across East Africa. In Rwanda, GSK has a partnership with the private enterprise One Family Health Foundation, Ecobank, and the Rwandan Ministry of Health to establish up to 250 health posts across Rwanda over the next three years. Funded through low-interest loans, community nurses set up their own clinics in areas of low healthcare infrastructure to deliver essential medicines and basic healthcare in remote locations. Nurses are provided with Internet-enabled mobile phones, thereby allowing them to access patient records and monitor stocks of medicines in real-time. This approach not only increases access to healthcare but also provides a sustainable income for the healthcare workers involved.

GlaxoSmithKline partners with the mobile telecommunications company Vodafone to tackle common infectious diseases in Africa.

PTSM: Pharmaceutical Technology Sourcing and Management-01-09-2013

Venture-Capital Stays Strong in Biotech Financing

Acquisitions Reshape the Bio/Pharm Services Industry

2013: The Year Ahead

CSR and Sustainability in the News

GlaxoSmithKline Uses Mobile Technology to Advance Vaccinations in the Developing World