Report: Biotech M&A activity jumps in 1H 2011

Even with a stingy IPO market for life sciences firms, there's still light at the end of the tunnel for biotech VCs. A new report from private equity group HBM Partners sheds light on the alive-and-well M&A market for venture-backed biotech companies, saying that deal activity during the first half of this year hit its highest mark since the second half of 2006.

With large drugmakers hungry for deals that build up their pipelines and product offerings, 18 biotech companies were sold during the first half of this year for total upfront values of $51.6 billion, according to the report. That figure positions deal activity this year to potentially surpass the $67 billion total for full-year 2010. Also, investors made out well with the sales of cancer drug developer Plexxikon to Daiichi Sankyo and Advanced Biohealing to Shire--deals that were estimated to provide 10x returns to VCs, HBM Partners reported. (Many of the deals from the first half of this year involve down payments from the buyers with promises of future cash based on certain milestones.)

"Although it's hard to think about in the midst of the 'Great August Rollercoaster' in the markets, the clear takeaway is that 1H2011 was actually pretty interesting for venture-backed biotech exits," Bruce Booth, a biotech-focused partner at Atlas Venture, wrote in a blog post today on Forbes' website, "with deals like Plexxikon-Daiichi, Advanced Biohealing-Shire, Biovex-Amgen, Calistoga-Gilead, and Prism-Baxter all with total deal values north of $200 [million]."

To be clear, the deal numbers for the first half of this year rose considerably with the $13.7 billion sale of private equity-backed Swiss drugmaker Nycomed to Takeda Pharmaceutical. Yet the HBM report suggests the stellar returns Nycomed's PE investors enjoyed in that deal might spur more private equity players to seek buyouts of biotechs.

Unfortunately, most buyouts aren't nearly as rich as the Nycomed deal. On average during the first 6 months of this year, venture investors saw 2.9x returns (as measured by the ratio of upfront proceeds to invested capital) from the sales of biotechs in their investment portfolios. That's better than 1.6x returns seen in 2010, but it's not nearly as lucrative as most venture firms (or their limited partners) would like to see. Still, returns on VCs' biotech investments--at least the ones noted in this report--seem to be moving in the right direction.

- get HBM Partners' report here
- read Booth's take on the M&A numbers