Inside biotech's big year: 2013's approvals, IPOs and sky-high valuations will be tough to top

Thanks to some risk-accepting venture capitalists, optimistic public investors and compromising regulators, 2013 was a banner year for the drug development business. But while much of the industry's optimism has rolled on into the new year, early signs suggest 2014 may struggle to keep the pace.

EvaluatePharma's EP Vantage released an expansive annual report that paints a rosy picture of the past year in biopharma. Nearly 45 biotechs went public for a net $3 billion in cash raised, and only 9 of 2013's entrants had decreased in value by year's end. Meanwhile, the average deal value soared to $708 million, nearly twice 2012's figure and the highest it's been since before the downturn, according to EP Vantage's numbers. And the benefits are industrywide, as the Nasdaq Biotechnology Index closed 2013 up 66%, far above its earlier peak in the midst of the genomics bubble in 2000.

On the regulatory side, while 2013's number of approved drugs fell short of 2012's record haul, the year is likely to more than make up for that disparity in the dollar column. According to EP Vantage, 2013's entrants are projected to bring in a combined $25.4 billion in 2018, adding up to 50% above 2012's class and making for the best 5-year-out sales figures ever. Eight of those drugs are expected to peak above $1 billion on their own.

But the confluence of factors that made 2013 such a barn-burner may be hard to sustain, and biotech could become a victim of its own success. Well-performing stocks and bullish public markets have helped pushed valuations ever higher for drug developers, creating something of a vicious cycle through which Big Pharma might get scared away from the high-dollar buyouts investors crave when they invest in biotechs to begin with. If the biopharma M&A market dries up over the next year, the IPO boom could be to blame.

Meanwhile, on the drug potential side, EP Vantage points out that 2014's class of likely launches features fewer potential blockbusters than any of the last four years. And the venture capital climate has increasingly been a story of haves and have-nots, with first-time financings continuing their decline. Last year, VC deals held firm at $4.5 billion, but that total was split among the fewest companies since 2006.

But the sky is hardly falling in biopharma. This year's early crop of IPOs have largely been success stories, all while a steady flow of deals on the VC side have kept startups rolling and some high-profile trial results have buoyed the sector's stock performance. No one's forecasting a repeat of 2013's good fortune, but, as Mann BioInvest's Andy Smith told EP Vantage, no one's predicting the end of days, either, and most investors are willing to wait out some turbulence.

"You don't want to be the first one to leave a party, but you want out before the cops arrive," Smith said. "And I can't hear any sirens yet."

- download EP Vantage's report

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