Q1 2012 Life Science Sector Review - Johnston Blakely & Company

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Dec 3, 2012 (4 years and 20 days ago)

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© 201
2

Johnston Blakely &

Company, LLC. All rights reserved.



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Q
1

2012

Life Science Sector Review



I find the harder I work, the more luck I seem to have.



-


Thomas Jefferson


The market advance that

marked the end of 2011 accelerated in the first quarter of the New
Year with all market indices exhibiting gains not seen in
quite some time
.

Not only was the
Dow Jones Industrial Average up more than 8%, the technology hea
vy Nasdaq market
advanced an in
credible

18
% for the quarter
,
an achievement diminished upon the realization
that
the gain was largely driven by a few select companies, most notably Apple Computer
.
T
he Nasdaq Biotechnology Index
, despite the absence of an Apple
-
esque story,

did not lag

far
behind, advancing 18.1% for the period.

While central bank intervention
also added to the
considerable strength
, improving fundamentals
(perceived or otherwise)
certainly contributed
to the
run up
. Likely the market got a bit in front of itself
durin
g the quarter, though
market
momentum generated from a
n imminent

Facebook IPO may extend its

upward trajectory
.


Increased investor optimism was also apparently reflected in t
he quarter’s IPO activity with
41 new issues coming public, 20 new issues in Marc
h alone. While still somewhat
restrained
when compared to IPO activity prior to the 2008 financial crisis, annualized new issue volume
is considerably better than last year and continues to trend higher, a positive indicator that
perhaps the market’s upwa
rd momentum will be sustained. Among those issues to debut in
the first quarter were five life science related issues


Verastem, Cempro, Chemocentryx,
Ceres
and Merrimack Pharmaceuticals. That all of these issues, save for Merrimack, priced
within their

indicated range and then proceeded to trade up is an
other

encouraging sign for the
sector and contrasts sharply with the performance of many IPOs over the last few years.


V
enture f
unding

for the first quarter displayed continued strength

as well
, with m
ore than 70
announced deals raising nearly $1.4 billion. Interestingly, when compared to both the prior
q
uarter and the year
-
prior period we note a
consistent
l
evel

of activity as measured both
in
terms of dollars raised and number of completed financings
.

We have not seen evidence of a

mass exodus or pullback from the sector.
In fact, despite some degree of fluctuation

between
periods
,
annual
venture capital
funding
for

the life sciences has remained fairly co
nsistent for
more than a d
ecad
e. We did note
in our MassBio State of the Industry presentation,

Biotechnology 2012: The New Normal?
” t
hat over the same time period the allocation of
capital has become increasingly skewed towards later
-
stage funding rounds. Whether this
trend reflect
s a lasting shift in investor se
ntiment or is indicative of a
challenging financing
environment remains unclear.
In keeping with this trend, Conformis and Sientra, device
companies with significantly diminished regulatory exposure, completed two of the la
rger
venture financings of the quarter.

Device (including diagnostic) deals outpaced biopharma
deals 2 to 1.

.


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Q
1 2012

Life Science
Sector Review


© 20
12

Johnston Blakely & Company, LLC. All rights reserved.

As measured by number of announced transactions, M&A activity for the quarter remained
fairly consistent
with the prior quarter.
In terms of dollar volume, we recorded $10.7 billion
in announced deals including Asahi Kasai’s $2.2 billion acquisition of Zoll Medical, Amgen’s
$1.2 billion purchase of Micromet and Bristol Myer
-
Squibb’s $2.5 billion offer for Inhibitex
and its Hep
atitis

C program.
While dollar volume declined quarter to quarter
,
a single deal
accounted for the majority of the prior quarter’s total
-

Gilead’s $11 billion acquisition
offer
for
Pharmasset.

Compared to year
-
prior levels, however, deal volume declined both in

terms
of number of completed transactions and dollar volume, suggesting a moderate pullback in
activity. As sector dynamics seem favorable to continued M&A strength, we believe this
decline a temporary diversion.


Should you wish to discuss this report o
r any of the information contained in this report,
or
the M&A advisory or private equity placement services of Johnston Blakely & Company,
please contact Benjamin Conway, Managing Director,
by email at
ben@joh
nstonblakely.com

or by phone
at

(617) 834
-
8482.


_______________________________


Johnston Blakely & Company, LLC is a Boston
-
based investment bank offering private equity
placement and merger & acquisition
-
related financial advisory services exclusively t
o
companies in the life science sector. The firm incorporates the venture capital tradition of
comprehensive company involvement into investment

banking engagements to deliver

superior results for its clients.

Member FINRA/SIPC.


More than investment
banking...in
Venture
banking™


www.johnstonblakely.com