Therefore, the challenges that managers of drug-focused biotechs must address today are radically different than those they
previously encountered. With the complex market for IPOs, biotech companies that are hungry for cash have faced some interesting
decisions. Should they ride out a tough capital market environment and wait for conditions to improve, or sell out to Big
Pharma, which has shown that it is just as willing to acquire biotech companies as it is to enter partnerships with them?
Based on statistics from the past three years, the answer seems to be that when Big Pharma comes calling, biotech management
are very happy to accommodate their overtures, regardless of whether Big Pharma is offering an acquisition or a partnership.
Table 1. Financial performance ($ billion)
In parallel with this evolving environment, the world of biotech itself has changed to reveal global challenges, dramatically
increasing drug development costs, and contentious safety and regulatory issues. Success in this new environment requires
substantial financial and human resources, and therefore the industry is witnessing a huge upswing in partnering, and in mergers
and acquisitions (M&A). As in the year before, 2006 saw M&A and partnering transactions continue at a torrid pace. In fact,
partnering deals in the US in 2006 set a new high mark in biotech's comparatively short history—more proof that the industry
is entering a new phase.
Table 2. Top 10 biotech companies by market capitalization
BIOTECH'S UMBILICAL CORD—CAPITAL
The biotech story is always about its capital market progress—a great year, a good year, or a lousy year—and good capital
markets are the key to biotech's success.
Biotech's performance in the capital markets waxed and waned throughout 2006, at the mercy of prevailing macroeconomic forces,
concern for Iraq, elections and politics, and healthcare cost increases. Overall, the general markets widely outperformed
the Burrill Biotech Select Index, in stark contrast to biotech's stellar performance in 2005 and the years before. For biotech
financings, 2006 set records as public and private companies garnered over $27 billion—a whopping 55% more than the industry
raised in 2005.
Figure 1. Biotech's five cycles
Although the US capital markets are still the major sustenance for biotech companies, changes in the global financial markets
have created additional opportunities for companies to look outside their borders for financing. Public markets, such as the
alternative investment market (AIM), which is the London Stock Exchange's international market for smaller growing companies;
Euronext, Europe's cross-border exchange; "Mothers," the section for high growth start-up companies in Tokyo; and the Swiss
stock exchange (SWX)—were all robust in 2006, not just for foreign-based companies, but for US-based firms as well.
Although all forms of financing found willing takers at levels comparable to the past five years, the outliers in 2006 were
a small number of exceptionally large debt deals, mainly completed in the first quarter of 2006, which brought the total amount
of debt raised to an incredible $14 billion (comparable to the 2004 and 2005 total debt financings combined).
Snapshot of the Biotech industry