Beyond borders 2015

Section heading

Biotechnology Industry Report 2015

Beyond borders Reaching new heights

Beyond borders Biotechnology Industry Report 2015

1

Section heading

To our clients and friends These are very good times for the biotechnology industry. For the second straight year, biotech companies have delivered strong, and sometimes unprecedented, results on almost every metric we track — revenues, profitability, financings, new drug approvals and more. Across the biotechnology industry, these achievements have been accompanied by optimism that the sector has entered a renewed age of innovation, buoyed by both high-profile product breakthroughs and scientific advancements. Investors have not simply recognized these efforts. They have rewarded them. Market valuations for biotechs reached new heights in both the US and Europe in 2014, and the window for initial public offerings remained open for eight consecutive quarters, a new record. As a result of the booming stock market, historic amounts of innovation capital are available to the smaller players in the industry, which remain the wellspring of future breakthroughs. In this, our 29th annual Beyond borders report, Reaching new heights, we celebrate the biotechnology industry’s recent achievements. In doing so, we take stock of not just where we have been, but the implications for the future. We firmly believe the biotechnology industry cannot afford to become complacent. In particular, the industry must continue to work with patients, payers, providers and governments around the globe to devise not just new products for unmet medical needs, but “beyond the pill” solutions that improve care delivery and health outcomes. Moreover, the industry has a vital role to play in helping devise new payment and financing schemes that enable access to the breakthrough innovations of the future. At EY, we aren’t becoming complacent either. Long-time readers will notice a change in the format of this year’s report. Recognizing that time is a precious commodity, we are moving away from issuing large, annual reports to the more frequent publication of insights via a new digital platform. Thus, we are “unbundling” in-depth perspective pieces from our industry trend data to enable readers to access our content when it is most needed: in real time. You can join the conversation and keep up to date with our latest perspectives at our new digital home, Vital Signs (ey.com/VitalSigns), and our Twitter feed (@EY_LifeSciences). As biotechnology companies strive to solve harder problems, EY’s global organization stands ready to help you reach even higher heights. 2


Glen T. Giovannetti Global Life Sciences Leader

Section heading

Contents 4 10

The year in review Life of a start-up CEO: priorities and preparation Katrine Bosley, Editas Medicine

12

The European biotech’s strategic decision: list in Europe or the US? Jörn Aldag, uniQure

14

Financial performance

15

The big picture

20

United States

28

Europe

31

Australia

32

Canada

33

Financing

34

The big picture

39

United States

47

Europe

54

Deals

55

The big picture

63

United States

65

Europe

68

Appendix

69

Acknowledgments

70

Data exhibit index

72

Contacts Beyond borders Biotechnology Industry Report 2015

3

The year in review

Beyond borders 2015

The year in review

4


The year in review

The view from the top

This was a year for the record books. On almost every measure we track — revenues, profitability, capital raised and more — the industry reached new heights in 2014, spurred by a confluence of positive trends. Sustained sales of high-profile products continued to boost investor sentiment. Examples include Biogen’s Tecfidera and Gilead Science’s hepatitis C medicines, Sovaldi and Harvoni, which quickly became two of the most successful product launches in the industry’s history.

It was also a landmark year for new product approvals, as a more supportive U.S. Food and Drug Administration (FDA) clarified the use of new expedited approval channels for breakthrough medicines. Against a backdrop of booming stock markets and expansionary monetary policies, these product successes helped propel the biotech industry’s market capitalization above the US$1 trillion threshold, a new high.

Financial performance The news-making product successes of 2014 had an outsized impact on the industry’s financial results. In particular, the rapid ramp-up of Gilead Science’s hepatitis C products significantly boosted the revenues and net income of the sector. Financial performance was also affected by the large number of initial public offerings (IPOs), which increased revenues and R&D while lowering net income. Across the four established biotech clusters that we track — the US, Europe, Australia and Canada — revenues grew 24% in 2014. Adjusting for the “Gilead effect,” revenue growth would have been 12%, still ahead of the 10% delivered in 2013.

Biotechnology at a glance across the four established clusters, 2014 (US$m)

Total

US

Europe

Australia

Canada

Public company data $123,096

$93,050

$23,992

$5,794

$260

R&D expense

$35,387

$28,831

$5,576

$681

$299

Net income (loss)

$14,852

$10,618

$3,255

$1,066

($87)

$1,063,415

$853,862

$162,149

$42,177

$5,227

183,610

110,090

58,770

13,370

1,380

714

403

196

52

63

Revenues

Market capitalization Number of employees Number of public companies

Numbers may appear inconsistent because of rounding. Source: EY.

Against a backdrop of booming stock markets and expansionary monetary policies, product successes help propel the biotech industry’s market capitalization above the US$1 trillion threshold.


5

The year in review

R&D spending increased by 20% — very impressive and substantially above the adjusted revenue growth amount. R&D growth rates were strong in both the US (22%) and Europe (14%). In both markets, noncommercial leaders expanded their R&D spending faster than the commercial leader cohort.

Net income skyrocketed 231% to US$14.9 billion, another historic high. Most of this increase (82%) came from Gilead. In the wake of the global financial crisis, the biotech sector had reached aggregate profitability for the first time as a result of sharp cuts in R&D spending across the industry. In 2014, on the other hand, the huge increase in profitability was for all the right reasons: strong sales of newly launched products resulted in even stronger increases in profits.

The US sector had one of its best showings ever. Revenue grew 29%, or 12% normalized for Gilead’s results. Adjusted for Gilead’s performance, the unusually large number of IPOs and the acquisition of Life Technologies by Thermo Fisher Scientific, US revenue growth would have been an impressive 18%. R&D spend grew by 22%, with nearly 70% of biotech companies increasing their spending, slightly above the historical average

FDA product approvals, 1996–2014 New molecular entities

Biologic license applications

60

50

Number of approvals

40

30

20

10

0

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

US product approvals are based only on approvals by FDA’s Center for Drug Evaluation and Research (CDER). Source: EY and FDA.

6


2009

2010

2011

2012

2013

2014

The year in review

While most of the growth came from US commercial leaders, led by Gilead, the rest of the industry more than held its own, particularly in revenue growth and R&D investments. The significant uptick in US biotech valuations drove a spike in the number of pre-commercial-stage companies with market capitalizations greater than US$1 billion. As of 31 December 2014, 26 US companies reached this threshold, up from just three in 2007. The European biotech sector also put in a very strong showing, although not quite as robust as that of its US counterpart. Revenue growth rebounded strongly, reaching 15% in 2014 compared to the modest 3% uptick of 2013. Adjusted for the large number of IPOs, European revenue growth would have been 14% instead of 15%. R&D spending increased by 14%, a strong turnaround relative to 2013, when R&D spending actually declined by 4%. Net income increased by a very healthy 199%, to US$3.3 billion. This percentage increase didn’t match the steep growth rate of 2013, when net income soared by 462%. Adjusted for the US$1.6 billion breakup fee Shire received when AbbVie called off the proposed merger between the two companies, net income growth still would have been an impressive 52%.

Since 2007, there has been a dramatic increase in the number of US pre‑commercial companies with market cap >US$1b 30

25 Number of companies

of about two-thirds of companies. Net income almost tripled, reaching a new high of US$10.6 billion.

20

15

10

5

0

2007

2008

2009

2010

2011

2012

2013

2014

Only therapeutics companies are included. Pre-commercial companies only have assets that are at the pre-approval stage. Based on market values as of 31 December of each year. Source: EY and Capital IQ.

Global R&D spending increased by 20% — very impressive and substantially above the adjusted revenue growth amount. In the US and Europe, noncommercial leaders expanded their R&D spending faster than the commercial leader cohort.


7

The year in review

Financing The biotech bull market drove an extraordinary surge in IPOs and follow-on financings. Capital raised via US and European IPOs rose a remarkable 93% to US$6.8 billion in 2014. This annual total was the second-highest in the industry’s history, second only to the US$7.8 billion raised during the genomics bubble of 2000. While the IPO class of 2014 may have netted less capital, the companies that listed during the most recent window were more mature than those that debuted in 2000. Eighty-one percent of the members of the 2013-14 class had lead candidates in Phase II or later, and the majority retained the rights to their products. Meanwhile, capital raised in follow-on offerings increased by 49% to US$13.8 billion, setting a new record.

Venture capital increased by 28% to US$7.6 billion — the second-highest total on record and considerably higher than the US$5.5 billion–US$5.9 billion raised annually between 2008 and 2013. In a positive sign for innovation, early rounds generated US$1.8 billion, a greater total than at any point in at least the last decade. At US$10 million, the median deal value recouped by early-stage firms was also the largest dollar amount since 2006. Debt financing also soared to a new record, reaching US$26.0 billion, or more than twice the 2003-13 average. This was driven, as in prior years, by the ability of large companies to raise funds at low interest rates to refinance existing debt, fund working capital and finance share repurchases. Five large companies closed six debt transactions of more than US$1 billion each.

For the second year in a row, the biotechnology industry enjoyed robust gains in “innovation capital,” which reached a new high of US$27.6 billion in 2014. 8


The year also brought good news for “innovation capital,” a metric we defined to track the funds raised by companies with revenues of less than US$500 million. As such, innovation capital is a key measure of the sustainability of a broad swath of biotech companies that depend on the capital markets to fund R&D. For the second year in a row, the biotechnology industry enjoyed robust gains in innovation capital, reaching US$18.6 billion in 2013 and a new high of US$27.6 billion in 2014. This represents a 120% increase from the annual average of US$12.5 billion achieved from 2009 to 2012. The US biotech sector set new records in total capital raised (US$45.1 billion) as well as funds raised through IPOs (US$4.9 billion) and debt (US$23.9 billion). Biotechs raised US$5.6 billion in venture financing (slightly behind the US$6.1 billion raised in 2007), while follow-on financings reached US$10.7 billion (second only to the almost US$13 billion raised in 2000). Increases in financing totals were equally strong in Europe, where the biotech sector racked up its strongest performance in the history of the industry and posted the second-strongest performance in each individual financing category. European companies raised US$9.2 billion, a year-over-year increase of 53%, and 97% more than the previous 10-year average. European biotechs raised US$1.9 billion through IPOs, US$2 billion in venture capital, US$2.2 billion in debt financing and US$3.1 billion in follow-on offerings.

The year in review

Deals This was a standout year for M&A and alliances involving biotech companies, as several trends made this a seller’s market. Booming stock market valuations gave biotech companies more financing options and, therefore, more power at the negotiating table. This bargaining power was further boosted by the fact that big pharma companies have been eager to acquire commercial-stage biotech companies to address revenue shortfalls that have arisen due to pricing pressures, slower growth in emerging markets and R&D challenges. In addition, big pharma companies face more competition for the best assets from specialty pharma firms and big biotechs. M&A activity reached a 10-year high in both deal number and value (after normalizing the numbers to exclude megadeals, which we define as transactions valued at US$5 billion or more). There were 68 biotechnology M&A deals with a total value of US$49 billion, a 46% increase over 2013. Adjusting for megadeals, pharma companies spent more on biotech acquisitions than at any time in the previous seven years.

On the alliance front, biotech companies entered 152 licensing deals worth US$46.8 billion in 2014, making it the most lucrative year for those seeking alliances. As was the case for mergers and acquisitions, in 2014 biotechs captured more of the total potential alliance value at a deal’s signing than at any time since the financial crisis. Indeed, as a percentage of total deal value, up-front payments reached 11%, while the total dollars paid up front for alliances soared 96% to US$5.1 billion.

In a sign of the increased bargaining power of biotech companies, acquirers paid significantly higher deal premiums.

Reasons to celebrate The biotechnology industry’s strong performance in 2014 across so many different metrics is a reason to celebrate. Inevitably, there will be declines in some of the measures we track as we cycle out of the current boom period. Having reached new heights, however, it is worth taking a moment to reflect on just how much the industry has matured. Indeed, the view from the top is pretty good.

In a sign of the increased bargaining power of biotech companies, acquirers paid significantly higher deal premiums. They also paid more up front. Only 33% of the M&A transactions signed in 2014 featured future earn-outs, down from 45% a year earlier.


9

The year in review

External perspective

Life of a start-up CEO: priorities and preparation

Katrine Bosley

CEO, Editas Medicine

Everyone has some idea of what biopharma CEOs do, based on what you can see as a team member within a company or as someone watching the industry from outside. In general, though, I find that these views usually see only part of the picture. I didn’t fully appreciate this until I first stepped into the CEO role. For every visible part of that role, there’s a lot that happens behind the scenes. It takes a while to figure out where to focus your time as a CEO, and there are areas that require much more time and energy than I had anticipated. Three of these areas are the board of directors, external engagement and capital strategy. I found that biotech CEOs can lean on three different groups for advice and perspective: their senior management team, their board of directors and their fellow CEOs. With my internal team, we discuss everything from the vision, strategy and values to organizational development, day-to-day management and operational issues that are central to building a biotech. I tap my CEO posse for advice and real-time, been-there-done-that perspectives. In many cases, these CEOs are shepherding companies that are two to three years ahead of mine in terms of their evolution. That means I get both critical outsider views from this group and

10

also advice on what steps to take now to create the right foundation to build my company longer term.

Board matters The board, in my mind, is first and foremost a resource. Like my peers, my board also provides an invaluable external perspective because the other directors have diverse experiences, and they have a bit of distance from the day-to-day details of the company. Intuitively, I expected my board would help me make important industry connections and supply me with hands-on knowledge on all the company’s strategic issues. What I didn’t fully grasp initially was what an important role they would play in pressure-testing my point of view and how vital that would be to finding the right balance between charging ahead toward a goal and changing course. I spend about 20% of my time preparing for or meeting with my board members, both formally and informally. That sounds like a lot of time. Still, given the complexity of building a biotech company, there’s never enough time to address each and every


issue in detail. To get the most out of my board meetings, I have found it helpful to write down two questions to be the focus of a board meeting and to open the meeting with those questions. Limiting it to just two questions really forces you to prioritize and helps to make sure the face-to-face board time is spent on the right issues.

External engagement I also spend a lot of time focused externally, whether it’s a media interview or at conferences or interacting with current or potential investors or recruiting. There are many different stakeholders you’re always communicating with and listening to: patients, scientists, physicians, regulators, employees, investors … They all pay attention, and all are crucial to building a company. While the actual time spent in external encounters may be short, the preparation time beforehand is considerable. CEOs need to plan out and practice how they want to communicate on a broad range of issues, from strategic to financial to scientific. To tell the story effectively,

The year in review

CEOs need to create a narrative that explains how the business will unfold over time and to adjust that narrative to be accessible to many different audiences. These worlds do often overlap. For example, specialist biotech investors attend most of the critical scientific conferences. Those research meetings are an important and different way to engage with the investor base as well as connect with the scientific community. They allow you to show investors how the story continues to advance, furthering relationships that can support future fundraising efforts before the company needs the money.

Capital strategy Of course, I spend a lot of time on fundraising. As the CEO of a biotech start-up, I’m always planning two or three financing steps ahead, identifying how to tap diverse pools of capital for my company’s needs. I find it helpful to think in a multi-year time frame to plan and to set goals. A big piece of that planning relates to the financial strategy. Even if the CEO thinks two or three steps ahead, the reality he or she responds to will be different from the plan. By thinking through multiple scenarios over several years, the CEO has a better grasp of how much capital will be required to reach the next value-creating milestone. Often a CEO has to decide whether it’s better to raise more money now or later. In flush times, raising money is tempting

because it’s easy. Still, the CEO must understand why she is raising the money. Will the capital allow the company to pursue productive activities at a faster pace, or is the additional money simply more runway? Both options are legitimate, but the CEO should be able to articulate why she is raising that specific amount of money and how it fits in with the company’s overall capital strategy, particularly alongside business development and grant activities. There is nothing about raising capital that happens with the snap of the fingers. There’s a long tail. At one of my previous companies, we raised a Series C financing in about four weeks, but that was only possible because we spent two years laying the groundwork to make it happen. I don’t fall into the camp that believes CEOs should automatically raise additional capital during boom times to secure

a longer financial runway. It is more nuanced. Let’s recognize that there is no such thing as non-dilutive capital. Business development is differently dilutive from equity, but it’s still dilutive. Therefore, if you take the wrong amount of capital — whether that is too much or too little — you potentially buy yourself a problem down the line. A CEO needs to think hard about the price at which he or she will raise the equity relative to the progress the company plans to make. When it comes to fundraising, having not one backup plan but multiple backup plans is essential. You can create your ideal plan, but then you need to find out if it is possible in the real world. The marketplace will tell you whether the environment favors equity raises or business development. With multiple contingency plans in place, you are able to adjust and continue to build the company’s value within the context of what the real world is interested in doing.

I’m always planning two or three financing steps ahead, identifying how to tap diverse pools of capital for my company’s needs.


11

The year in review

External perspective

The European biotech’s strategic decision: list in Europe or the US?

Jörn Aldag

CEO, uniQure

Last year, approximately 12 European companies listed on the NASDAQ, while 19 biotechs listed on European exchanges. That near parity suggests European companies now have broader access to the capital markets and are not limited to listing on their in-country exchanges. This is welcome news. But it also means European biotechs have an important strategic decision to make: should they pursue a US listing or are there more advantages to listing on an exchange closer to home? As both a board member and a CEO, I have faced this choice. Regardless of which option a European biotech company chooses, it must thoroughly prepare for the event. In the past, some European biotechs have underestimated their IPO readiness and the scrutiny that comes with being a public company. I believe it is possible for a European biotech to list in Europe and assemble a strong and loyal investor base that provides the liquidity necessary for future growth. Let me give you an example. I am a board member of Molecular Partners, a Zurich-based biotech that listed on the Swiss SIX exchange in December 2014. We were fortunate to have good-quality, long-term investors who want to be associated with Molecular Partners and dig deep into its story. Our listing was facilitated by what I call a “local

12

hero image.” Because investors looked at Molecular Partners and its DARPin technology as a home-grown product of Switzerland and its universities, there was traction and excitement about the listing. In the case of Molecular Partners, seeking a listing on the US markets wasn’t a strategic necessity. Depending on their specific scientific and clinical stories, other companies may find the US markets, and their more sophisticated investor base, a more suitable option. European biotechs that do choose to list in the US should not underestimate the effort required to build name recognition, however. Because they are not as wellknown as US private companies, the management teams of European biotechs must take pains to communicate their stories clearly. European platform biotech companies may also have a harder time telling their stories, since US investors tend to view product-centric business models as the path to value creation. Mastering the switch from platform to product, as Molecular Partners and my current


company uniQure have done, is therefore essential if you are a European biotech seeking a US listing. UniQure, which was founded in 1998 (originally operating as Amsterdam Molecular Therapeutics), is a gene therapy company. Our lead product is Glybera, approved in Europe for a rare genetic disorder in which fat builds up in the blood. We decided in the second half of 2013 that we wanted to list on the US market, partly because of the access it gave us to mature capital markets and the robust, specialist investor community. We completed our IPO in February 2014.

Forging ties To build awareness for uniQure, I spent seven weeks telling,― and refining, our story to US investors as part of the preIPO road show. In the process, we were able to take advantage of how interwoven the biotech and financial industries are in the US as compared to Europe. In the US, successful IPOs follow a well-established path. As ideas emerge from academia, companies are founded

The year in review

by highly regarded scientists on solid, innovative technologies. Venture capitalists bring in entrepreneurs who can lead the nascent firm through funding rounds, while building relationships with crossover investors.

The US is the epicenter of the capital markets. In order to access the wealth and knowledge that are in such abundance in the US, European biotechs will need to

educate themselves about the IPO process and its stakeholders, and about how they can best present their companies in order to succeed.

The collective goal is to bring the company to a particular value inflection point that enables a robust mezzanine round just prior to a public listing. By creating direct ties with crossover investors, the management team and its VCs lay the groundwork for a successful IPO, underpinned by a solid investor base. This emphasis on forging ties with crossover investors is less prevalent in Europe, where biotechs are generally more naïve about the work and timelines required for a successful IPO. When European companies seeking a US listing are focused on crossover investors, they may find that they are viewed as an unknown entity. Also, many European VCs believe that dilution is to be avoided at all costs. But in today’s environment, it is critical to have investment support from financiers that understand the business after the IPO. I don’t mean to suggest that my company has not benefited immeasurably from European VCs. In today’s world, however, companies may have to accept dilution in order to create a strong shareholder base. Those are the table stakes when preparing for an IPO. I have had the benefit of spending a lot of time in the US — I know people in the investor and pharma worlds, and I understand the process of going public.


13

Section heading Financial performance

Beyond borders 2015


14



Setting a new standard

The big picture For the second year in a row, the biotechnology industry celebrated a standout performance, posting revenue, R&D and net income results that strongly outpaced 2013. Results varied markedly by geography across the four established biotechnology centers we track —― the US, Europe, Canada and Australia. In contrast to 2013, when a select few US biotech bellwethers propelled the bulk of the industry’s advances, a wider spectrum of companies in both the US and Europe contributed to the healthy gains. In particular, a group of newly minted US commercial leaders, defined as biotech companies with revenues of at least US$500 million, illustrated that years of hard work in the laboratory and the clinic are being rewarded in the marketplace. Revenues in 2014 grew 24% year over year, eclipsing the robust 2013 performance when top-line growth expanded by 10%. Admittedly, much of the expansion was driven by Gilead Sciences, which generated US$24.9 billion of the total revenue as a result of strong sales of its two hepatitis C therapies, Sovaldi and Harvoni. Even after adjusting for the “Gilead effect,” however, the industry would have grown its top line in 2014 by 12%. Solid revenue numbers in 2014, coupled with the year’s unprecedented M&A and financing environments, fueled a return to innovation as the surest path to longterm value creation. This linkage between R&D and long-term value creation fueled strong R&D spending for the second year in a row — and one of the greatest annual increases in this metric since 2001. Recall that in the aftermath of the financial crisis, biotech companies were hesitant to invest in R&D. In 2008, for the first time in the industry’s history, R&D spending

Growth in established biotechnology centers, 2013–14 (US$b)

2014

2013

% change

Public company data Revenues

24%

123.1

99.0

R&D expense

35.4

29.4

20%

Net income

14.9

4.5

231%

Market capitalization

1,063.4

794.8

34%

Number of employees

183,610

168,010

9%

714

619

15%

Number of companies Public companies Numbers may appear inconsistent because of rounding. Source: EY, Capital IQ and company financial statement data.

actually declined as companies slashed costs and focused on surviving in a resource-constrained environment. While R&D growth inched upward from 2009 to 2012, it continued to trail top-line growth during those years. In 2013, the cycle reversed and growth in R&D spending actually exceeded revenue growth by a healthy four percentage points. In 2014, biotech companies spent US$35.4 billion on R&D. Although growth in R&D spending didn’t quite equal topline growth, that would have been a hard bar to clear given the unprecedented

annual increase in biotech revenues in 2014. Importantly, the 20% uptick in R&D spending substantially outpaced the 12% revenue growth associated with the industry after adjusting for Gilead’s historic product launches. R&D spending in 2014 increased in both the US (22%) and Europe (14%) and was driven by both the noncommercial leaders and the industry’s biggest players. Indeed, on both sides of the Atlantic, noncommercial leaders actually expanded their R&D spending faster than the commercial leader segment. This renewed


15


commitment to R&D was driven by the year’s unprecedented financing environment. (See accompanying “Financing, 2014” article.)

the aggregate net income in established markets into the black for the first time ever — not just in the US, but globally.

Profitability for all the right reasons We first developed a profitability forecast for the biotechnology industry in 2003, when we predicted that the US industry would reach aggregate profitability by 2008. That forecast was borne out when, in 2008, the US industry eked out a small profit of US$0.4 billion. Profitability arrived in a big way in 2009, but not for the reasons we anticipated. In the wake of the global financial crisis, biotech companies around the globe took extreme measures to reduce their cash burn by cutting headcount and R&D. That emphasis on fiscal discipline in an uncertain financing market moved

In 2014, net income reached a historic high, ballooning 231% to US$14.9 billion. Much of that net income increase (82%) came courtesy of Gilead. Adjusting for Gilead’s performance, global net income in 2014 doubled, with positive increases in three of the four biotechnology clusters: the US, Europe and Australia. In contrast to 2009-12, the uptick in aggregate net income in 2014 was for all the right reasons: strong sales of newly launched products resulted in even stronger increases in profits. Consistent with the healthier net income data are new figures from the EY Survival Index, which tracks the amount of cash biotech companies have on hand. In the US, the picture in 2014 largely remained the same as in the year prior. In Europe, however, the number of biotech

companies in each of the categories expanded, except those with less than one year of cash on the books, where there was an 11 percentage point drop. Those data suggest the healthier climate that has existed in the US may finally be spreading to companies domiciled in Europe. The number of public companies surged 15% in 2014, due to a record 94 IPOs, which offset the attrition resulting from acquisitions, delistings and other developments. The US and European totals grew by 58 and 32, respectively, while Canada added three companies and Australia added one. In 2014, the strengthening US dollar negatively affected global pharmaceutical companies. Interestingly, an analysis of the top 10 biotech companies by revenue in both the US and Europe suggests the impact of currency fluctuations was negligible, reducing US revenues by US$281 million (a loss of 0.3%) and

EY Survival Index, 2013–14 US

Europe

Canada

2014

2013

2014

2013

2014

2013

More than 5 years of cash

27%

26%

34%

32%

22%

24%

3–5 years of cash

12%

15%

11%

8%

8%

7%

2–3 years of cash

17%

12%

13%

10%

7%

5%

1–2 years of cash

22%

24%

16%

15%

25%

5%

Less than 1 year of cash

21%

23%

25%

36%

38%

59%

Chart shows percentage of biotech companies with each level of cash. Numbers may appear inconsistent because of rounding. Source: EY, Capital IQ and company financial statement data.

16



Revenues generated by US and European biotechnology commercial leaders fuel investor sentiment US commercial leaders

EU commercial leaders

Other US public companies

Other EU public companies

Number of commercial leaders

140

30

120

Revenues (US$b)

100 20 80 15 60 10 40 5

20

0

Number of commercial leaders

25

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0

Commercial leaders are companies with revenues of at least US$500 million. Source: EY and Capital IQ.

increasing the European top line by US$26 million. This lack of effect was most likely due to the fact that sales of biotechnology products were more heavily concentrated in the US. These robust results helped sustain investor sentiment throughout the year and increased year-over-year market capitalizations, fueling prolonged interest in new company listings and the creation of a burgeoning class of pre-commercial biotech companies valued north of US$1 billion. Indeed, for the first time ever, the global biotech industry eclipsed another important threshold: the industry’s total market cap exceeded US$1 trillion.

The uptick in aggregate net income in 2014 was for all the right reasons: strong sales of newly launched products resulted in even stronger increases in profits.


17


A maturing industry

Top 10 changes in US market capitalizations, 2009–14 (US$m)

Company Gilead Sciences

Market cap at end of 2014


US$ change

CAGR (2009–14)

$142,207

$38,940

$103,267

30%

Biogen

$80,163

$15,472

$64,691

39%

Amgen

$121,167

$57,257

$63,910

16%

Celgene

$89,343

$25,591

$63,752

28%

Regeneron Pharmaceuticals

$41,471

$1,946

$39,525

84%

Alexion Pharmaceuticals

$36,689

$4,324

$32,365

53%

Illumina

$26,210

$3,838

$22,373

47%

Vertex Pharmaceuticals

$28,574

$8,244

$20,330

28%

BioMarin Pharmaceutical

$13,331

$1,895

$11,436

48%

Incyte Corporation

$12,351

$1,080

$11,271

63%

CAGR: compound annual growth rate. Numbers may appear inconsistent due to rounding. Source: EY and Capital IQ.

Top 10 changes in European market capitalizations, 2009–14 (US$m)

Company Shire Jazz Pharmaceuticals Alkermes



US$ change

CAGR (2009–14)

$41,681

$10,581

$31,099

32%

$9,904

$244

$9,660

110%

$8,563

$892

$7,672

57%

Novozymes

$13,014

$6,448

$6,565

15%

Actelion

$12,915

$6,367

$6,549

15%

BTG

$4,720

$721

$3,999

46%

Eurofins Scientific

$3,876

$777

$3,099

38%

Genmab

$3,336

$709

$2,627

36%

Meda

$5,255

$2,726

$2,529

14%

Swedish Orphan Biovitrum

$2,704

$196

$2,508

69%

CAGR: compound annual growth rate. Numbers may appear inconsistent due to rounding. Source: EY and Capital IQ.

18


Since much of the year’s strong performance came on the back of a booming stock market and a surge in IPOs, we decided to measure just how much the industry has matured since the last big IPO bonanza of 2000: • Total revenues for US and European biotechs increased an impressive 610% over the past 14 years. • Adjusting for inflation, the revenues generated by the top 10 biotechs in 2014 were 4.6 times greater than the revenues generated by the top 10 in 2000. • Despite several notable acquisitions, the number of commercial leaders in the US expanded from seven in 2000 to 19 in 2014, with average revenue per commercial leader increasing from US$1.6 billion to US$4.3 billion. • The cohort of European commercial leaders increased from two in 2000 to nine in 2014, and the average revenue per commercial leader shot up US$1.2 billion to US$2.2 billion. A side-by-side comparison of the top 10 US and European biotechs by revenues in 2000 relative to 2014 is a good reminder of how much churn lies beneath the aggregate statistics in this industry: • Only three of the top 10 US-based biotechs of 2000 (Amgen, Bio-Rad and IDEXX) remain in 2014’s top 10.


• Of the seven that exited the US top 10 list, six were acquired in megadeals worth at least US$10 billion, while one shrank in revenue. • In Europe, four of the top 10 revenue generators from 2000 —― Shire, Eurofins, Qiagen and BTG —― still belong to the group in 2014. • Two of the remaining six European biotechs — Jazz Pharmaceuticals and Alkermes — are originally US-based companies that redomiciled to Ireland via acquisitions.

Biotech Index by 162 percentage points. Pharmacyclics’ market cap grew 126% to US$9.2 billion as a result of a full year of product sales for its leukemia product Imbruvica. In 2015, AbbVie acquired the biotech for US$21 billion. NPS has also been acquired: in January 2015, Shire acquired the rare disease drug developer for US$5.2 billion.

The strengthening public markets, coupled with increasing competition for commercial-stage assets, has made for a seller’s market. With big pharma companies on the hunt for future revenue growth, in 2014 they were forced to pay hefty acquisition premiums relative to what they would have paid just two years ago. (For more, see accompanying “Deals, 2014” article.)

A rising tide lifts all biotechs Both industry leaders and emerging companies earned phenomenal returns in recent years and the pool of companies with market valuations north of US$500 million swelled from 80 in 2009 to 144 in 2014. During this same period, the 20 US biotech companies with the biggest market cap increases saw their valuations surge by US$488 billion. Our analysis shows that since 2009, three of the fastest-growing companies have been newly minted commercial leaders: Pharmacyclics, NPS Pharmaceuticals and Regeneron Pharmaceuticals. Indeed, an analysis of the market cap data shows that US biotech companies with valuations in the US$2 billion-US$10 billion range grew the fastest in 2014, outstripping the EY


19



United States

US biotechnology at a glance, 2013–14 (US$b)

2014

2013

% change

Public company data 29%

Revenues

93.1

72.1

R&D expense

28.8

23.6

22%

Net income

10.6

2.7

293%

Market capitalization Number of employees

853.9

636.5

34%

110,090

99,850

10%

Financing 37.8

20.0

89%

Number of IPOs

63

41

54%

Capital raised by private companies

7.3

5.7

28% 17%

Capital raised by public companies

Number of companies 403

345

Private companies

Public companies

2,116

2,010

5%

Public and private companies

2,519

2,355

7%

Numbers may appear inconsistent because of rounding. Source: EY, Capital IQ and company financial statement data.

In 2014, the US biotech industry’s revenue growth skyrocketed 29%, one of the best showings since we began tracking the metric and far exceeding the 13% revenue growth of 2013. While 67% of the companies we track had revenue, the annual data were heavily influenced by the performance of just one, Gilead Sciences. As a result of strong sales of Sovaldi and Harvoni, Gilead’s 2014 revenues more than doubled. In all, sales of these two products accounted for 60% of 2014’s US$21.0 billion revenue increase. Adjusting for Gilead’s results, the US industry’s revenues would have increased by 12% instead of 29%. In addition, the 2014 IPO class contributed about one percentage point to revenue growth, meaning that the industry’s revenue growth would have been 11%

20


after adjusting for both Gilead and the unusually large number of IPOs. Conversely, Thermo Fisher Scientific’s acquisition of Life Technologies, which had revenues of US$3.8 billion in 2013, removed seven percentage points of revenue growth. The year-over-year revenue growth normalized for all three factors is therefore an impressive 18%. In addition to Gilead, three other biotech stalwarts delivered revenue increases greater than US$1 billion: Biogen (US$2.8 billion), Amgen (US$1.4 billion) and Celgene (US$1.2 billion). Tecfidera, Biogen’s oral agent to treat multiple sclerosis, reached blockbuster status in less than 12 months, helping propel Biogen’s yearly revenues up 40%. Regeneron, another biotech with notable 2014 revenue growth (34%), grew as a


result of both R&D collaborations and strong sales of Eylea, a next-generation anti-angiogenesis therapy for diseases that can cause blindness. Strong revenue and product stories helped power a 34% increase in market capitalization in 2014, and 58% of companies saw their valuations increase year over year. This healthy spike in market valuations didn’t quite equal the 74% increase observed in 2013. However, given how rapidly valuations climbed in 2013, a similar growth rate in 2014 was likely unrealistic. Normalizing for the year’s IPOs, market cap would have increased by 29% instead of 34%.

Investing in the future The increase in market capitalization drove a spike in the number of precommercial-stage companies with market valuations greater than US$1 billion. As of 31 December 2014, 26 companies reached this threshold, led by Alnylam Pharmaceuticals (US$7.5 billion), Puma Biotechnology (US$5.7 billion) and Juno Therapeutics (US$4.7 billion). Compare those data to 2007, when there were just three pre-commercial billion-dollar companies and Vertex Pharmaceuticals, Regeneron Pharmaceuticals and Human Genome Sciences were at the top of the leader board. In a sign of how much the improved financing climate has changed the US biotechnology industry, 60% of this subset of companies completed an IPO in either 2013 or 2014.

US pre‑commercial companies with market cap >US$1b Company

Market cap (US$m)

Lead product status

Therapeutic area

Alnylam Pharmaceuticals

$7,462

Phase III

Multiple

Puma Biotechnology

$5,706

Phase III

Cancer

Juno Therapeutics*

$4,722

Phase I/II

Cancer

Agios Pharmaceuticals*

$4,104

Phase II

Cancer

Receptos*

$3,793

Phase III

Multiple

Intercept Pharmaceuticals

$3,332

Phase III

Hepatic

Acadia Pharmaceuticals

$3,168

Phase III

Multiple

bluebird bio*

$2,876

Phase III

Genetic

Kite Pharma*

$2,413

Phase II

Cancer

Clovis Oncology

$1,904

Phase III

Cancer

FibroGen*

$1,582

Phase III

Multiple

Neurocine Biosciences

$1,698

Registration

Multiple

Ophthotech*

$1,510

Phase III

Ophthalmic

Chimerix*

$1,468

Phase III

Infection

Auspex Pharmaceuticals*

$1,448

Phase III

Neurology

Ultragenyx Pharmaceutical*

$1,400

Phase III

Multiple

Radius Health*

$1,281

Phase III

Musculoskeletal

Acceleron Pharma*

$1,257

Phase II/III

Cancer

Achillion Pharmaceuticals

$1,228

Phase II

Infection

Karyopharm Therapeutics*

$1,224

Phase II

Cancer

TetraPhase Pharmaceuticals*

$1,217

Phase III

Infection

Avalanche Biotechnologies*

$1,213

Phase II

Ophthalmic

Merrimack Pharmaceuticals

$1,196

Phase III

Cancer

NewLink Genetics

$1,111

Phase III

Cancer

OvaScience

$1,052

Development

Women’s Health

Sangamo BioSciences

$1,040

Phase II

Multiple

*Company had an IPO in 2013 or 2014. Market capitalizations as of 31 December 2014. Source: EY and Capital IQ.


21


As a result of stronger market valuations and material gains in revenue growth, US biotech companies were clearly optimistic about investing in future products, and overall R&D expenditures grew by 22% relative to 2013. Nearly 70% of US biotech companies increased their R&D spending in 2014 — slightly above the historical average of about two-thirds of companies. Overall, US commercial leaders increased their R&D spending by 18%, including Alexion Pharmaceuticals (62%) and Regeneron Pharmaceuticals (48%). In contrast, Amgen, which in 2014 had the largest R&D budget in the global biotechnology industry, increased its R&D spending by just 3%. Amgen’s more modest increase isn’t too surprising given the company has come under pressure from activist shareholders seeking higher returns from R&D.

Along with the uptick in R&D spending, a majority of US biotech companies were confident enough of their financial health to boost headcount in 2014. Employee numbers increased 10%, as 80% of US commercial leaders and other firms maintained or increased their payrolls compared to 2013. One notable exception was Amgen, which reduced headcount by 10.5% as part of a larger restructuring effort. Normalizing for the large number of IPOs in 2014, R&D growth would have been 15% instead of 22%. Note that this spend still outpaces the top-line growth after adjusting for Gilead’s revenues, albeit by a much smaller margin. Most significantly, net income would have grown at an even faster pace, by more than 360%.

Cubist Pharmaceuticals, which Merck & Co. announced it was acquiring in December 2014 (the transaction closed in January 2015), and Pharmacyclics and Salix Pharmaceuticals, which were sold in March 2015 to AbbVie and Valeant Pharmaceuticals, respectively. Roughly 70% of the US biotech sector’s total revenues came from the top five commercial leaders: Gilead Sciences, Amgen, Biogen, Celgene and Regeneron. As mentioned, Gilead’s strong performance in 2014 had a material effect on the overall financial performance of the US biotech sector. Gilead also passed the US$20 billion revenue mark for the first time and displaced Amgen as the sector’s top revenue generator.

Just as revenue growth was heavily influenced by Gilead, so too was net income, increasing nearly 300% from 2013 to 2014. Absent Gilead, the aggregate net loss of US public biotechs increased US$700 million. The higher losses were due primarily to greater R&D expenditures, including by newly public companies, offset in part by increased earnings by other commercial leaders.

Strong product sales helped push Pharmacyclics (Imbruvica), Medivation (Xtandi) and Incyte (Jakafi) into the realm of the US commercial leaders in 2014. The US commercial leaders remain a dynamic group of companies, primarily because several trends make acquisition targets of many of these high-performing biotechs. (See accompanying article, “Year in review.”)

In light of these findings, it isn’t surprising that the bulk of the industry’s growth went to the commercial leaders. The distribution was even more skewed this year, thanks to Gilead’s outsized results. However, noncommercial leaders fared well too, particularly after normalizing the results of the commercial leaders to control for the Gilead effect. Adjusting for Gilead’s results, the revenue growth of the noncommercial leaders would have outpaced the commercial leaders by two percentage points.

Indeed, because of the aforementioned increase in R&D expenditures, only 13% of the US biotechs recorded a positive bottom line. Another 183 publicly disclosed a drop in net income (or an increase in net loss) for the year.

Indeed, 2014 saw the loss of one commercial leader as a result of an acquisition when Life Technologies was scooped up by Thermo Fisher Scientific. Three other companies are poised to leave the group in 2015:

Similarly, the noncommercial leaders increased their R&D spending by 29%, while the commercial leaders augmented their research budgets by only 18%. To some extent, the latter phenomenon was driven by a slowdown in the growth

22

New commercial leaders



US commercial leaders, 2010–14 2010

2011

2012

2013

2014

Alexion

Alexion

Alexion

Alexion

Alexion

Amgen

Amgen

Amgen

Amgen

Amgen

Amylin

Amylin

Acquired by BMS

Biogen

Biogen

Biogen

Biogen

Biogen

Biomarin Pharmaceutical



Bio-Rad Laboratories




Celgene

Celgene

Celgene

Celgene

Celgene

Cephalon

Acquired by Teva Cubist

Cubist*

Organic growth Bio-Rad Laboratories

Cubist

Cubist

Cubist

Gen-Probe

Gen-Probe

Acquired by Hologic

Genzyme

Acquired by Sanofi

Gilead Sciences

Gilead Sciences

Gilead Sciences

Gilead Sciences

Gilead Sciences

IDEXX Laboratories

IDEXX Laboratories

IDEXX Laboratories

IDEXX Laboratories

IDEXX Laboratories

Illumina

Illumina

Illumina

Illumina

Illumina

Organic growth Life Technologies

Life Technologies

Life Technologies

Life Technologies Organic growth

Organic growth

Myriad Genetics Organic growth

Organic growth Organic growth

Salix Pharmaceuticals

Talecris Biotherapeutics

Acquired by Grifols

United Therapeutics

United Therapeutics

Organic growth

Incyte Corporation Acquired by Thermo Fisher Scientific Medivation Myriad Genetics Pharmacyclics







The Medicines Company



United Therapeutics

United Therapeutics

United Therapeutics



Organic growth



Organic growth

ViroPharma

Decline in sales

Commercial leaders are companies with revenues of at least US$500 million. *Merck & Co. announced the acquisition of Cubist in December 2014; the deal was finalized in January 2015. Source: EY, Capital IQ and company financial statement data.


23


of Amgen’s R&D spending. In addition, the noncommercial leaders in 2014 grew at a much faster pace; their increased confidence and flush coffers resulted in their renewed focus on R&D more generally.

Investors saw opportunities in US biotech companies regardless of their size, sending the market capitalizations of the commercial leaders up 36% and the noncommercial leaders 28%. These increases were much lower than the year prior, when the market capitalizations of the commercial leaders and the other companies increased 74% and 77%, respectively. Concerns related to drug pricing and already-high valuations were two reasons for the more modest uptick.

When it came to profitability, however, there was a stark divide between the commercial leaders and other companies. While the net income of commercial leaders rose 82%, the rest of the industry saw its net income decline 26% as the result of increased R&D spending and the cohort of new companies added via IPOs.

Newly public companies contributed US$32.3 billion to the market valuation increase associated with the

noncommercial leaders. Normalizing for the IPO class of 2014, the noncommercial leaders experienced an increase in market cap of just 9%. The IPO class also had an impact on other variables. Without the year’s IPOs, noncommercial leaders’ revenues would have increased by only 7%, while the annual growth in R&D expenditures would have been a much smaller 8%. The change in net loss for the noncommercial leaders would also have been much smaller — just US$200 million, an increase of 2% instead of 26%.

US commercial leaders and other companies, 2013–14 (US$b)

2014

2013

US$ change

% change

Commercial leaders Revenues

19.4

31%

81.3

61.8

R&D expense

17.2

14.6

2.6

18%

Net income (loss)

23.4

12.9

10.6

82%


644.5

473.3

171.2

36%

Number of employees

71,540

65,785

5,755

9%

Revenues

11.8

10.3

1.5

14%

R&D expense

11.6

9.0

2.6

29%

Other companies

Net income (loss)

(12.8)

(10.1)

(2.7)

-26%


209.4

163.3

46.1

28%

38,568

34,094

4,474

13%

Number of employees

Numbers may appear inconsistent because of rounding. Commercial leaders are companies with revenues of at least US$500 million. Source: EY, Capital IQ and company financial statement data.

24


Investors saw opportunities in US biotech companies regardless of their size.


Selected US public company financial highlights by geographic area, 2014 (US$m, % change over 2013)

Total assets

Cash and equivalents plus short-term investments

San Francisco Bay Area

80 19%

210,781 24%

32,610 95%

6,883 34%

9,477 4,335%

53,582 41%

20,238 100%

New England

75 29%

209,554 42%

16,517 27%

6,487 24%

75 -112%

36,129 27%

13,711 34%

San Diego

44 13%

60,027 31%

2,870 -53%

1,677 11%

(918) 107%

9,057 -40%

6,040 42%

New York State

34 17%

53,320 56%

3,706 31%

1,863 52%

(913) 780%

7,322 45%

2,659 42%

New Jersey

25 9%

100,907 27%

8,971 20%

2,973 10%

1,353 25%

21,534 31%

9,745 38%

Mid-Atlantic

20 5%

16,026 19%

2,277 32%

808 9%

(8) -91%

4,885 12%

2,111 14%

Southeast

19 6%

6,909 30%

335 26%

239 15%

(404) 17%

2,064 13%

644 29%

Los Angeles/Orange County

19 19%

134,530 45%

20,335 7%

4,965 6%

4,438 -3%

70,514 5%

28,170 41%

Pacific Northwest

16 33%

12,683 78%

537 -19%

858 62%

(852) 23%

2,061 53%

1,287 49%

Pennsylvania/Delaware Valley

12 20%

15,322 13%

899 -25%

575 15%

(520) 38%

2,448 -25%

1,059 -6%

North Carolina

13 18%

11,775 47%

1,247 31%

489 47%

(804) 397%

5,135 45%

1,377 -17%

12 0%

3,928 49%

67 -40%

193 -2%

(306) -28%

773 -3%

631 26%

Texas

9 29%

3,352 38%

254 -2%

237 36%

(299) 177%

1,257 71%

833 137%

Colorado

7 17%

2,809 -7%

62 -11%

226 51%

(311) 69%

1,043 24%

685 45%

Utah

4 0%

2,793 39%

778 27%

85 38%

151 24%

867 1%

228 -46%

Other

14 0%

9,145 16%

1,585 38%

273 34%

458 64%

3,425 42%

1,438 59%

Total

403 17%

853,862 34%

93,050 29%

28,831 22%

10,618 293%

222,095 17%

90,857 46%

Region

Number of public companies

Midwest


Revenue

R&D

Net income (loss)

Market capitalization as of 31 December 2014. Percent changes refer to change over December 2013. Numbers may appear inconsistent because of rounding. New England: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont; Mid-Atlantic: Maryland, Virginia, District of Columbia; Mid-West: Illinois, Michigan, Ohio, Wisconsin; Southeast: Alabama, Florida, Georgia, Kentucky, Louisiana, Tennessee, South Carolina; Pacific Northwest: Oregon, Washington Source: EY, Capital IQ and company financial statement data.


25


In both the US and Europe, biotech stocks outperformed the broader indices, led by mid-sized biotechs in the US and large firms in Europe. US market capitalization relative to leading indices EY US biotech industry +200%

Dow Jones Industrial Average

Pharma industry US

2013

Russell 3000

NASDAQ Composite

2014

EY US medtech industry 2015

+150%

+100%

+50%

0%

-50%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Chart includes companies that were active on 31 March 2015. Source: EY and Capital IQ.

US market capitalization by company size EY US biotech industry +400%

Large-cap (>US$10b)

Mid-cap (US$2b–US$10b)

2013

Small-cap (US$200m–US$2b) 2014

Micro-cap (US$10b)

Mid-cap (US$2b–US$10b)

2013

Small-cap (US$200m–US$2b)

2014

Micro-cap (US$5b) Number of deals

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

2007

2008

2009

2010

2011

2012

2013

2014

Number of deals

Pharma-biotech

Biotech-biotech megadeals (>US$5b)

companies enter faster-growing therapeutic battlegrounds such as oncology or hepatitis C, the increasing competition and pushback from payers threaten to decelerate big biotechs’ growth rates. This is particularly true for biologics developers, which, for the first time, face the prospect of biosimilar competition in the US marketplace.

0

Chart excludes transactions where deal terms were not publicly disclosed. Source: EY, BioCentury, Capital IQ and VentureSource.

Biotech buyers? Biotech buyers, meantime, signed 41 transactions in 2014, making them a presence at the deal table. However, in terms of the number of deals, that is the second-lowest volume of biotech-biotech transactions since 2007. (The lowest was in 2013, when there were 33 deals.) Biotech-biotech deal values also retreated, with the total dollars spent in 2014 dipping 51% year over year to one of the lowest levels in the past decade. Smaller biotechs, as opposed to the commercial leaders, accounted for most of the year’s

56

M&A activity. Like their pharma brethren, the data suggest the biotechs that were buying were most interested in acquiring products or platforms in their core therapeutic areas. That the biotech commercial leaders eschewed M&A in 2014 isn’t too surprising. As we noted in Firepower fireworks, EY’s 2015 Firepower Index and Growth Gap Report, strong product launches in recent years mean the bigger biotechs have not felt pressured to do deals to fill revenue growth gaps. That could change in 2015 and 2016 as big biotechs face their own headwinds. As more


In some ways, big biotechs are also victims of their own success. Thanks to robust pipelines, they have posted revenue growth numbers that are difficult, if not impossible, to sustain without resorting to inorganic means. The good news for the biotechnology commercial leaders is that they have an arsenal of “firepower” at their disposal when they are ready to consider strategic M&A. EY defines firepower as an acquirer’s capacity for deals based on its market valuation, its debt capacity and the strength of its balance sheet. According to the EY Firepower Index, which measures, in aggregate, the firepower of various biopharma buyers, big biotechs’ firepower grew 30% from 2013 to 2014. Compare that increase to the more modest uptick associated with big pharmas, which as a class, posted only a 13% increase in available firepower in the same year. In an era when big biotechs, big pharmas and specialty pharmas are often competing for the same assets, what matters most is relative firepower. As a class, big pharmas still command more firepower than their rivals; however, EY’s analysis shows big biotechs and specialty pharmas continue to make gains that, in

Deals

Big pharma continues to command the most firepower, even as its relative share of “total firepower” declines to an eight‑year low Big pharma

Specialty pharma

from a high of 12 to just three. After a three-year slump, 2014 marked another bonanza year for the billion dollar club, matching 2010 in terms of the number of deals that met this threshold.

Big biotech

100%

In 2014, pharmas weren’t just the most active acquirers; they were also the most active in-licensers. The potential deal values for pharma-biotech alliances grew 59% from 2013 to 2014. This is in contrast to 2013, when a slate of strong biotech buyers drove the year-over-year growth in alliance values. Indeed, while biotech in-licensers committed to spend US$10.5 billion on alliances in 2014, virtually the same amount as for 2013, average total deal values for dropped 13%.

Share of total firepower

80%

60%

40%

20%

0%

2007

2008

2009

2010

2011

2012

2013

2014

Data analyzed through 14 December 2014. “Total firepower” refers to the combined firepower of big pharma, specialty pharma and big biotech. Source: EY and Capital IQ.

the future, could make it more challenging for big pharmas that are relying on M&A for new product growth. These shifts in firepower are likely to influence deal trends in 2015 and beyond, including pushing certain acquirers into licensing situations as they look for more affordable strategies to access products.

A strong year for biotech alliances The 2014 alliance data also show it was clearly a biotechnology seller’s market. The number of strategic alliances rebounded sharply from 2013 to 2014, reaching a level not seen since 2010.

Although alliance volumes remained roughly 20% below the 2007 peak, average potential deal values in 2014 reached their highest level since the financial crisis. Indeed, biotechs that licensed products in 2014 garnered potential deals worth an average of US$279 million; that is a 17% increase over the previous highest average deal size of US$238 million, which was achieved in 2008. Another metric that demonstrated 2014’s warmer licensing climate was the number of alliances with potential deal values greater than US$1 billion. From 2010 to 2011, the number of alliances worth US$1 billion or more dropped sharply

Meanwhile, pharma in-licensers nearly doubled the amount they committed to alliances to US$36.3 billion. The average total value for a pharma-biotech alliance increased 21% from 2013 to 2014 to US$367 million, while the median total deal value for pharma-biotech alliances increased from US$143 million to US$148 million. These soaring amounts shouldn’t be surprising given the macro forces at work in the life sciences. The robust IPO and follow-on markets of 2014 meant biotechs were less dependent on transactions to finance themselves and could therefore focus on deals that furthered their strategic objectives. Moreover, as competition increased, biotechs found themselves in the welcome position of garnering top dollar for their assets, especially for late-stage, de-risked products.


57

Deals

Both pharma and biotech in-licensers contributed to the gains. Biotech in-licensers spent twice as much on up-front payments in 2014 as they did in 2013; pharma in-licensers, meantime, spent 88% more on up-front payments (US$3.4 billion) in the same time period. Indeed, in 2014, both biotech and pharma buyers paid more up front to access key technologies and products than at any other time since the financial crisis. Year over year, big pharma up-front fees increased, on average, 49% to US$53 million, while biotech up-front payments increased 44% to US$39 million. The uptick is even more striking when the year’s figures are compared to the averages associated with the prior three-year period. Pharma up-front payments spiked 85% in 2014 compared to 2011-13, while biotech up-front payments climbed 103%.

50

200

40

160

30

120

20

80

10

40

0

2007

2008

2009

2010

2011

2012

2013

2014

0

Chart shows potential value, including up-front and milestone payments, for alliances where deal terms are publicly disclosed. Source: EY, Medtrack and company news.

US and European strategic alliances based on up‑front payments, 2007–14 Pharma-biotech

Biotech-biotech

Up-fronts/biobucks

6

14% 12%

5

10%

4

8% 3 6% 2

4%

1

0

2%

2007

2008

2009

Source: EY, Medtrack and company news.

58

Number of deals

Number of deals

Biotech-biotech


2010

2011

2012

2013

2014

0%

Up-fronts as a share of biobucks

In 2014, biotech licensers saw year-on-year total up-front payments for alliances soar 96% (from US$2.6 billion to US$5.1 billion). As a percentage of total deal value, up-front payments reached 11%, a level not seen since before the financial crisis.

Pharma-biotech

Potential value (US$b)

As noted, in 2014 biotech licensers captured more value at a deal’s signing. From 2005 to 2007, biotech licensers realized, on average, 11% of an alliance’s value in the up-front payment. For the next six years, that value slowly declined, averaging 10% from 2008 to 2010 and just 8% for the 2011-13 time span.

US and European strategic alliances based on biobucks, 2007–14

Up-front value (US$b)

Capturing more value up front

Deals

A historic analysis of deal premiums paid for each of the top 10 acquisitions for the past six years shows the difference a year can make. In 2009, acquirers of the top 10 biotechs paid bid premiums that averaged 63%. Those average bid premiums declined over the next four years, reaching a nadir of 36% in 2013. In 2014, as biotechs’ options improved, bid premiums increased nine percentage points to 45%. Consistent with biotech’s stronger position at the bargaining table, only six of the largest deals of 2014 included contingent value rights (CVR). When pharma or biotechs felt compelled to acquire, the strategic priority was great enough that companies were willing to pay large sums up front without hedging their bets via contingency payments. In contrast to 2013, big pharmas in 2014 were much more visible at the acquisition table, signing six of the top 15 deals, including the year’s three biggest money-getters. Biotechs, meanwhile, were buyers in just two of the year’s top deals. Merck & Co. and Roche were the year’s top acquirers, spending, respectively, US$13.4 billion and US$10 billion on biotechs. Both pharmas signed megadeals during the year: Merck purchased Cubist Pharmaceuticals in a transaction worth US$8.4 billion in cash and another US$1.1 billion in assumed debt; Roche, meantime, spent US$8.3 billion to acquire InterMune and its lead drug pirfenidone, a potential blockbuster for idiopathic pulmonary fibrosis.

Bid premiums for top 10 M&As, 2009–14 Bid premium median (%)

Bid premium average (%) 70% 60% 50% Percentage

Notable biotech transactions

40% 30% 20% 10% 0%

2009

2010

2011

2012

2013

2014

Chart excludes transactions where bid premium was not publicly disclosed. Chart includes biotech deals only. Source: EY, Medtrack and company news.

Merck also purchased hepatitis C drug developer Idenix in 2014. The deal doublet exemplifies big pharma’s belief in the strategic importance of building marketleading commercial franchises. Having divested its consumer health business to Bayer HealthCare in October 2014, Merck used the proceeds to strengthen its pipeline of anti-infectives. Via Cubist, it has gained a suite of acute care hospital products that complement its existing portfolio of antibiotics. The Idenix transaction, meantime, has given the New Jersey-based pharma access to promising early-stage drug candidates in a lucrative therapeutic area. Roche’s acquisition of Seragon was also noteworthy. For starters, it wasn’t Roche, but its subsidiary Genentech, which brokered the deal. Historically, Genentech has not been an aggressive acquirer,

preferring to tap its highly productive internal R&D group for future products. The up-front cash associated with the deal also made it difficult to ignore. Genentech shelled out US$725 million up front for a Phase I asset and a back-up compound, and agreed to another US$1 billion in earn-outs. That Genentech was willing to pay so much for such early-stage compounds highlights both the scarcity of high-quality oncology assets and the belief that commercial success requires a “solution mentality” whereby companies develop therapeutic combinations to treat the full spectrum of a disease. In this instance, the Seragon acquisition gives Genentech access to two next-generation selective estrogen receptor degraders (SERDs) that could be combined with other molecules in the Roche/Genentech pipeline to treat estrogen-driven cancers.


59

Deals

Selected M&As, 2014 Acquiring company

Country

Acquired company

Country

Total potential value (US$m)

CVRs/milestones (US$m)

Merck & Co.

US

Cubist Pharmaceuticals

US

9,500

Roche

Switzerland

InterMune

US

8,300

— —

Merck & Co.

US

Idenix Pharmaceuticals

US

3,850

—

Otsuka Pharmaceutical

Japan

Avanir Pharmaceuticals

US

3,500

—

Meda

Sweden

Rottapharm

Italy

3,093

—

Forest Laboratories

US

Aptalis Pharma

Canada

2,900

—

Endo International

Ireland

Auxilium Pharmaceuticals

US

2,600

—

Johnson & Johnson

US

Alios BioPharma

US

1,750

—

Roche/Genentech

US

Seragon Pharmaceuticals

US

1,725

1,000

Baxter International

US

Chatham Therapeutics

US

1,410

1,340

Mallinckrodt

US

Cadence Pharmaceuticals

US

1,400

—

AMAG Pharmaceuticals

US

Lumara Health

US

1,025

350


US

AesRx

US

843

828

BioMarin Pharmaceutical

US

Prosensa

Netherlands

840

160

Teva Pharmaceuticals

Israel

Labrys Biologics

US

825

625

Bristol-Myers Squibb

US

iPierian

US

725

550

“Total potential value” includes up-front, milestone and other payments from publicly available sources. Source: EY, Capital IQ, Medtrack and company news.

Of the biotech-biotech deals, the most notable were Meda’s acquisition of Rottapharm and BioMarin Pharmaceutical’s acquisition of Prosensa. Not only was Meda’s acquisition of Rottapharm the largest European biotech acquisition, it was also indicative of 2014’s “eat or be eaten” dynamic, and one means Meda used to stave off its interested acquirers. In many ways, BioMarin’s Prosensa purchase represents a calculated risk for the California-based biotech. BioMarin announced the deal following news that Prosensa’s latestage treatment for Duchenne muscular dystrophy had failed to show a meaningful benefit in clinical trials.

60

In 2014, biotechs with differentiated, late-stage assets or novel platforms had the luxury of negotiation from a position of strength.


Deals

Notable biotech alliances In 2014, 13 alliance transactions cleared the US$100 million up-front threshold, a marked uptick from 2013 when only seven deals met this bar. In terms of total biobucks, 12 alliances garnered potential deal values of at least US$1 billion versus five the prior year. Access to promising new technologies and the potential for multi-target collaborations drove some of the biggest up-front payments. As was true in 2013, ModeRNA Therapeutics (messenger RNA therapeutics) and FORMA Therapeutics (drug discovery) were among the top 15 alliance getters of 2014. Alnylam Pharmaceuticals also signed a noteworthy deal with Sanofi’s Genzyme subsidiary for access to the biotech’s rare disease treatments. As part of the deal, Sanofi took a 12% equity stake in Alnylam and retains an option to buy as much as 30% of the biotech at some point in the future. The US$700 million down payment provides Alnylam with considerable financial optionality as it continues to develop its experimental treatment for transthyretin-familial amyloid polyneuropathy. With pharma buyers looking for near-term revenues, it’s hardly surprising that in 2014 late-stage products also garnered rich up-fronts. Celgene, which continued its aggressive alliance strategy, sought to deepen its pipeline of inflammation assets, acquiring rights to the first-in-class Phase III Crohn’s disease therapy from Nogra Pharma

Alliances with big up‑front payments, 2014 Up-front payments (US$m)

Company

Country

Partner

Country

Celgene

US

Nogra Pharma

Ireland

710

Sanofi/Genzyme

US

Alnylam Pharmaceuticals

US

700

Pfizer

US

OPKO Health

US

295

AbbVie

US

Infinity Pharmaceuticals

US

275

Celgene

US

Forma Therapeutics

US

225

Novartis

Switzerland

Ophthotech

US

200

Servier

France

Intarcia Therapeutics

US

171

Sanofi

France

MannKind

US

150

Roche/Genentech

US

NewLink Genetics

US

150

Alexion Pharmaceuticals

US

ModeRNA Therapeutics

US

125

Johnson & Johnson

US

MacroGenics

US

125

Daiichi Sankyo

Japan

Charleston Laboratories

US

100


US


US

100

Celgene

US

Sutro Biopharma

US

95

Pfizer

US

Cellectis

France

80


with the year’s largest up-front payment. OPKO Health, Infinity Pharmaceuticals, Ophthotech and Intarcia Therapeutics also signed rich deals for late-stage assets in the orphan disease, oncology, ophthalmology and diabetes arenas. Which companies were the most prominent in-licensers of 2014? As a group, Japanese pharmas were noticeable, participating in three of the

year’s largest alliances based on biobucks. Of the individual pharmas, Johnson & Johnson, Takeda Pharmaceuticals and Roche were the most active individual players, brokering alliances with publicly disclosed potential deal values totaling US$4.5 billion, US$2.2 billion and US$2.0 billion, respectively. For the second year in a row, Celgene was 2014’s top biotech in-licenser with five publicly disclosed deals worth US$4.5 billion.


61

Deals

Big biobucks alliances, 2014 Total potential value (US$m)

Up-front payments (US$m)

Company

Country

Partner

Country

Dainippon Sumitomo Pharma

Japan

Edison Pharmaceuticals

US

4,295

Pfizer

US

Cellectis

France

2,855

80

Celgene

US

Nogra Pharma

Ireland

2,575

710

Merck & Co.

US

Ablynx

Belgium

2,297

27

60

Takeda Pharmaceutical

Japan

MacroGenics

US

1,600

ND

Viking Therapeutics

US

Ligand Pharmaceuticals

US

1,538

ND

Bristol-Myers Squibb

US

CytomX Therapeutics

US

1,242

50

Astellas Pharma

Japan

Proteostasis Therapeutics

US

1,200

ND

Celgene

US

Sutro Biopharma

US

1,185

95

Roche

US

NewLink Genetics

US

1,150

150

Servier

France

Intarcia Therapeutics

US

1,051

171

Novartis

Switzerland

Ophthotech

US

1,030

200


US


US

970

100

Johnson & Johnson

US

Geron

US

935

35

Sanofi

France

MannKind

US

925

150

“Total potential value” includes up-front, milestone and other payments from publicly available sources. “ND” refers to deals where up-front amounts were not publicly disclosed. Source: EY, Medtrack and company news.

Realizing value In 2013, the story was one of promise. A warming financing climate and greater competition for deals created a more positive dealmaking climate; for smaller biotechs and their backers, there was renewed hope that as a class, biotechs would recognize more value for their efforts. In 2014, that promise became reality. The same market forces at work in

62

2013 strengthened in 2014, creating an unprecedented year for transactions. Biotechs with differentiated, late-stage assets or novel platforms had the luxury of negotiating from a position of strength, a welcome change from just a few years ago. While the shift is worth celebrating, some pressing issues could darken the optimistic skies of the life sciences sector. Ongoing questions about pricing and


access to truly breakthrough innovations continue to dog the industry. Payers around the globe are offering tough words about the value of late-stage or newly launched pharmaceuticals. In this new value-oriented world, biotech management teams must remain vigilant, making sure capital allocation strategies are aligned with their operational performance goals.

Deals

Pharma-biotech

United States

Biotech-biotech

Biotech-biotech megadeals (>US$5b)

Pharma-biotech megadeals (>US$5b) Number of deals 60

75

50


60

40 45 30 30 20 15

0

Number of deals

Deals

US M&As, 2007–14

10

2007

2008

2009

2010

2011

2012

2013

2014

0

Chart excludes transactions where deal terms were not publicly disclosed. Source: EY, Capital IQ, Medtrack and company news.

Excluding megadeals, 2014 was the strongest year since 2007 for biotech M&A in the United States. Including megadeals, potential deal values increased sharply over 2013 to US$42.9 billion. That is the third-highest annual deal total since 2007. All in, there were 51 transactions involving US biotechs, a new eight-year high in terms of deal volumes. Both pharma and biotechs were active in-licensers of US biotech products in 2014. In terms of total potential deal values, pharma-biotech alliances in 2014 generated US$25.5 billion, the largest

money total since 2007; US-focused biotech-biotech alliances, meanwhile, generated US$10.4 billion, equaling the dollar record set the year before. The total alliance value increased 73% year-over-year in 2014, as a result of pharma’s renewed interest in dealmaking. Although the number of alliances still lags the peak observed in 2006 (when the US biotech industry witnessed nearly 150 licensing deals), the 112 transactions signed in 2014 represent a 16% year-over-year increase and the volume is consistent with deal volumes


63

Deals

In 2014, biotech companies realized more value from their licensing efforts than in recent memory.

40

160

35

140

30

120

25

100

20

80

15

60

10

40

5

20

0

2007

2008

2009

2010

2011

2012

2013

2014

0


US strategic alliances based on up‑front payments, 2007–14 Pharma-biotech

Biotech-biotech

Up-fronts/biobucks

4.0

12%

3.0

9%

2.0

6%

1.0

3%

0.0

2007

2008

2009


64

Number of deals

Number of deals

Biotech-biotech


2010

2011

2012

2013

2014

0%


Pharma-biotech up-fronts reached US$3.0 billion in 2014, the highest level since 2006. Biotech-biotech up-fronts were a healthy US$774 million, the second highest since 2008’s US$801 million.

Pharma-biotech


Up-front payments in 2014 skyrocketed to US$3.8 billion, increasing 111% year-over-year to the highest level since before 2007. Perhaps more important, biotechs in 2014 realized more up-front value from their licensing efforts (11.8%) than in recent memory. That is about a five percentage point improvement from 2007, when buyers were willing to pay, on average, just 7% of a deal’s potential price tag at its signing.

US strategic alliances based on biobucks, 2007–14


seen over the last five years. More important, biotech partners are clearly in a stronger negotiating position than they were in years past. On average, US biotechs that licensed products in 2014 got commitments of nearly US$330 million, the highest dollar total since at least 2007.

Deals

European M&As, 2007–14 Pharma-biotech


Europe

Biotech-biotech

Pharma-biotech megadeals (>US$5b)

Number of deals

25

30

20

24

15

18

10

12

5

0

Number of deals

Deals

6

2007

2008

2009

2010

2011

2012

2013

2014

0

Chart excludes transactions where deal terms were not publicly disclosed. Source: EY, Capital IQ, Medtrack and company news.

For European biotechs, 2014 was the second robust M&A year in a row as median deal sizes reached a healthy US$51 million. Deal volume remained strong in 2014; the number of transactions involving a European biotech (27) increased 22% from 2013. Europe hasn’t seen that many biotech M&As since 2007, when 30 deals closed. Excluding megadeals, total deal proceeds for the year were the second highest observed since 2007. Similar to the US situation, pharmas were responsible for most of the acquisition activity, accounting for US$4.9 billion of the US$6.9 billion in acquisition dollars. As was also the case in 2013, when Shire purchased ViroPharma for US$4.2 billion, the 2014 annual deal total was heavily

influenced by a single deal: Meda’s acquisition of Rottapharm. Other notable transactions were Roche’s takeout of Santaris Pharma, worth US$250 million up front and another US$200 million in earn-outs, and ProStrakan Group’s purchase of Archimedes Pharma for US$379 million. In concert with the rebound in European M&A, it was an equally strong year for European alliances, as the average potential deal value reached US$227 million. Indeed, the potential value associated with European biotech alliances in 2014 was the greatest since 2007. Much of the year-over-year growth in deal values was driven by biotech licensing, which increased more than 300% to a new high of US$4.6 billion.


65

Deals

Pharma-biotech

Biotech-biotech

Number of deals

18

75

15

60

12 45 9 30 6 15

3

0

Number of deals

European up-front payments totaled more than US$1.2 billion in 2014, representing just 8% of the total European alliance value. The up-front to biobucks ratio is a sign that European biotechs still don’t have as much bargaining power as their US counterparts. That is not surprising given that the capital markets in Europe have lagged behind those in the US.

European strategic alliances based on biobucks, 2007–14


Deal values for pharma-biotech alliances grew a more modest 26% from 2013 to 2014; still, that represented the second-highest dollar total of the past eight years for such deal types. In addition, it was the pharmas that brokered some of the largest deals, including Pfizer’s alliance with Cellectis (potentially worth US$2.9 billion) and Merck & Co.’s partnership with next-generation antibody developer Ablynx (potentially worth US$2.4 billion).

2007

2008

2009

2010

2011

2012

2013

2014

0


66

Pharma-biotech

Biotech-biotech

Up-fronts/biobucks

1.5

15%

1.2

12%

0.9

9%

0.6

6%

0.3

3%

0.0

2007

2008

2009



2010

2011

2012

2013

2014

0%


The 2014 annual alliance numbers were heavily influenced by the Celgene/Nogra transaction. If this deal, which included a US$710 million up-front, is excluded from the annual total, then up-front payments to European biotechs actually declined below the level achieved in each of the last two years. Moreover, up-front payments as a percentage of the total alliance values declined to just 5%.

European strategic alliances based on up‑front payments, 2007–14


Indeed, such data are consistent with the continuing trend of EU companies choosing to tap the US public markets instead of exchanges closer to their home countries. As we note in the accompanying article, “The European biotech’s strategic decision: list in Europe or the US?” a certain cadre of European biotechs are trying to tap the more sophisticated investor base associated with the US market.

Deals

The biotechnology industry’s strong performance in 2014 across so many different metrics is a reason to celebrate. Indeed, the view from the top is pretty good.


67

Appendix

Beyond borders 2015

Appendix

68


Appendix

Acknowledgments

Project leadership

Data analysis

Design

Glen Giovannetti, EY Global Life Sciences Leader, provided the strategic vision for this report and brought his years of experience to the analysis of industry trends. He also brought a hands-on approach, editing articles and helping to compile and analyze data.

Lisa-Marie Schulte, Tanushree Jain, Eva-Maria Hilgarth, Richa Arun and Ashish Kumar conducted all of the research, collection and analysis of the report’s data.

This publication would not look the way it does without the creativity of Mike Fine, who was the lead designer for this project. This is the first Beyond borders report in which he has been involved.

Additional analysis of the Canadian financing data were provided by Yann Lavallée, Lara Iob and Mario Piccinin.

PR and marketing

Siegfried Bialojan, German Biotechnology Leader, and Jürg Zürcher, EMEIA Biotechnology Leader, provided guidance on the development of the European content. Siegfried also conducted the interview with Jörn Aldag. Ellen Licking and Gautam Jaggi, EY’s Life Sciences Lead Analysts, were the report’s lead authors and editors. Iain Scott contributed insights and helped draft the “Financing, 2014” article. As the project manager for Beyond borders, Jason Hillenbach had responsibility for the entire content and quality of this publication. He was also directly accountable for the primary data analysis and research throughout the report.

Kim Medland, Jason Hillenbach, Amit Nayak and Ellen Licking conducted fact-checking and quality review of the numbers presented in the publication.

Public relations and marketing efforts related to the report and its launch were led by Katie Costello, Peter Kelley and Sue Lavin Jones, with the help of Greg Kelley from our external PR firm, Feinstein Kean Healthcare.

Editing assistance Russell Colton brought his incomparable skills as a copy editor and proofreader to this publication. His patience, hard work and attention to detail were unparalleled. Russ was assisted by Sue Brown.


69

Appendix

Data exhibit index Biotechnology at a glance across the four established clusters, 2014 ............................... 5 FDA product approvals, 1996–2014 .............................................................................. 6 Since 2007, there has been a dramatic increase in the number of US pre-commercial companies with market cap >US$1b........................................... 7 Growth in established biotechnology centers, 2013–14 .................................................15 EY Survival Index, 2013–14 ......................................................................................... 16 Revenues generated by US and European biotechnology commercial leaders fuel investor sentiment ..............................................................17 Top 10 changes in US market capitalizations, 2009–14 .................................................18 Top 10 changes in European market capitalizations, 2009–14 .......................................18 US biotechnology at a glance, 2013–14 ........................................................................20 US pre-commercial companies with market cap >US$1b ................................................21 US commercial leaders, 2010–14 ................................................................................. 23 US commercial leaders and other companies, 2013–14 .................................................24 Selected US public company financial highlights by geographic area, 2014.....................25 US market capitalization relative to leading indices ........................................................26 US market capitalization by company size .....................................................................26 European market capitalization relative to leading indices ..............................................27 European market capitalization by company size ...........................................................27 European biotechnology at a glance, 2013–14 ..............................................................28 EU commercial leaders, 2010–14 .................................................................................30 European commercial leaders and other companies, 2013–14 .......................................30 Australian biotechnology at a glance, 2013–14 .............................................................31 Canadian biotechnology at a glance, 2013–14 ..............................................................32 Capital raised in the US and Europe, 2000–14 ...............................................................34 Innovation capital in the US and Europe, 2000–14.........................................................35 US and European early-stage venture investment, 2000–14 ..........................................36 US and European venture investment in early stage private companies holds steady .......37 US and European biotechnology IPO pricing, 2010–14 ..................................................38 US biotechnology financings, 2000–14 .........................................................................39 Quarterly breakdown of US biotechnology financings, 2014 ..........................................40 Innovation capital in the US, 2000–14 ..........................................................................40

70


Appendix

Innovation capital raised by leading US regions, 2014....................................................41 US biopharmaceutical venture capital rebounds to its highest levels since the financial crisis .......................................................................42 Top US venture financings, 2014.................................................................................. 43 US biotechnology IPOs, 2000–14 ................................................................................. 44 The anatomy of a US IPO window ................................................................................. 45 US biotechnology IPO pricing by quarter, 2013–14 ........................................................45 Top US IPOs, 2014 ...................................................................................................... 46 European biotechnology financings, 2000–14 ...............................................................47 Innovation capital in Europe, 2000–14 ..........................................................................48 Quarterly breakdown of European biotechnology financings, 2014 ................................48 Innovation capital raised by leading European countries, 2014.......................................49 The return of European venture capital .........................................................................49 Top European venture financings, 2014........................................................................50 European biotechnology IPOs, 2000–14 .......................................................................51 Top European IPOs, 2014 ............................................................................................ 52 Performance distribution of 2014 NASDAQ biotech IPOs (in %) ......................................53 US and European M&As, 2007–14 ................................................................................56 Big pharma continues to command the most firepower, even as its relative share of “total firepower” declines to an eight-year low ..................................57 US and European strategic alliances based on biobucks, 2007–14 ..................................58 US and European strategic alliances based on up-front payments, 2007–14 ...................58 Bid premiums for top 10 M&As, 2009–14 .....................................................................59 Selected M&As, 2014 .................................................................................................. 60 Alliances with big up-front payments, 2014 ..................................................................61 Big biobucks alliances, 2014 ........................................................................................ 62 US M&As, 2007–14 ..................................................................................................... 63 US strategic alliances based on biobucks, 2007–14 .......................................................64 US strategic alliances based on up-front payments, 2007–14 .........................................64 European M&As, 2007–14 ........................................................................................... 65 European strategic alliances based on biobucks, 2007–14 .............................................66 European strategic alliances based on up-front payments, 2007–14 ...............................66


71

Appendix

Global biotechnology contacts Global Life Sciences Leader

Glen Giovannetti

[email protected]

+1 617 374 6218

Global Life Sciences Assurance Leader

Scott Bruns

[email protected]

+1 317 681 7229

Global Life Sciences Advisory Leader

Kim Ramko

[email protected]

+1 615 252 8249

Global Life Sciences Tax Leader

Mitch Cohen

[email protected]

+1 203 674 3244

Jeff Greene

[email protected]

+1 212 773 6500

Brisbane

Winna Brown

[email protected]

+61 7 3011 3343

Melbourne

Denise Brotherton

[email protected]

+61 3 9288 8758

Sydney

Gamini Martinus

[email protected]

+61 2 9248 4702

Austria

Vienna

Erich Lehner

[email protected]

+43 1 21170 1152

Belgium

Brussels

Lucien De Busscher

[email protected]

+32 2 774 6441

Brazil

São Paulo

Frank de Meijer

[email protected]

+55 11 2573 3383

Canada

Montréal

Sylvain Boucher

[email protected]

+1 514 874 4393

Lara Iob

[email protected]

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Toronto

Mario Piccinin

[email protected]

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Vancouver

Nicole Poirier

[email protected]

+1 604 891 8342

Czech Republic

Prague

Petr Knap

[email protected]

+420 225 335 582

Denmark

Copenhagen

Christian Johansen

[email protected]

+45 5158 2548

Finland

Helsinki

Sakari Helminen

[email protected]

+358 405 454 683

France

Lyon

Philippe Grand

[email protected]

+33 4 78 17 57 32

Paris

Virginie Lefebvre-Dutilleul

[email protected] +33 1 55 61 10 62

Franck Sebag

[email protected]

Global Life Sciences Transaction Advisory Services Leader Australia

Germany Greater China

Düsseldorf

Gerd Stürz

[email protected]

+49 211 9352 18622

Mannheim

Siegfried Bialojan

[email protected]

+49 621 4208 11405

Shanghai

Titus Bongart

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+86 21 22282884

Felix Fei

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Hitesh Sharma

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V. Krishnakumar

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Mumbai

India

+33 1 46 93 73 74

Ireland

Dublin

Aidan Meagher

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+353 1221 1139

Israel

Tel Aviv

Eyal Ben-Yaakov

[email protected]

+972 3 623 2512

Italy

Japan

Milan

Gabriele Vanoli

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+39 02 8066 9840

Rome

Alessandro Buccella

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Antonio Irione

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+81 3 3503 2165

Yuji Anzai

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Tokyo

Patrick Flochel

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Korea

Seoul

Jeungwook Lee

[email protected]

+82 2 3787 4301

Netherlands

Amsterdam

Dick Hoogenberg

[email protected]

+31 88 40 71419

72


Appendix

New Zealand

Auckland

Jon Hooper

[email protected]

+64 9 300 8124

Norway

Trondheim/Oslo

Willy Eidissen

[email protected]

+47 918 63 845

Poland

Warsaw

Mariusz Witalis

[email protected]

+48 225 577950

Russia/CIS

Moscow

Dmitry Khalilov

[email protected]

+7 495 755 9757

Singapore

Singapore

Sabine Dettwiler

[email protected]

+65 9028 5228

Rick Fonte

[email protected]

+65 6309 8105

South Africa

Johannesburg

Warren Kinnear

[email protected]

+27 11 772 3576

Spain

Barcelona

Dr. Silvia Ondategui-Parra

[email protected]

+34 93 366 3740

Sweden

Uppsala

Staffan Folin

[email protected]

+46 8 5205 9359

Switzerland

Basel

Jürg Zürcher

[email protected]

+41 58 286 84 03

United Kingdom

Bristol

Matt Ward

[email protected]

+44 11 7981 2100

Cambridge

United States

Cathy Taylor

[email protected]

+44 12 2355 7090

Rachel Wilden

[email protected]

+44 12 2355 7096

Edinburgh

Mark Harvey

[email protected]

+44 13 1777 2294

Jonathan Lloyd-Hirst

[email protected]

+44 13 1777 2475

London/Reading

David MacMurchy

[email protected]

+44 20 7951 8947

Ian Oliver

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+44 11 8928 1197

Boston

Michael Donovan

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+1 617 585 1957

Chicago

Jerry DeVault

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+1 312 879 6518

Houston

Carole Faig

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+1 713 750 1535

Indianapolis

Andy Vrigian

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Los Angeles

Don Ferrera

[email protected]

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[email protected]

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David De Marco

[email protected]

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Kim Letch

[email protected]

+1 949 437 0244

Mark Montoya

[email protected]

+1 949 437 0388

Steve Simpson

[email protected]

+1 215 448 5309

Howard Brooks

[email protected]

+1 215 448 5115

Raleigh

Mark Baxter

[email protected]

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EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. How EY’s Global Life Sciences Sector can help your business Life sciences companies — from emerging to multinational — are facing challenging times as access to health care takes on new importance. Stakeholder expectations are shifting, the costs and risks of product development are increasing, alternative business models are manifesting, and collaborations are becoming more complex. At the same time, players from other sectors are entering the field, contributing to a new ecosystem for delivering health care. New measures of success are also emerging as the sector begins to focus on improving a patient’s “health outcome” and not just on units of a product sold. Our Global Life Sciences Sector brings together a worldwide network of more than 7,000 sector-focused assurance, tax, transaction and advisory professionals to anticipate trends, identify implications and develop points of view on how to respond to the critical sector issues. We can help you navigate your way forward and achieve success in the new health ecosystem. For more timely insights on the key business issues affecting life sciences companies, please go to ey.com/VitalSigns. You can also visit ey.com/lifesciences or email [email protected] for more information on our services. To connect with us on Twitter, follow @EY_LifeSciences. © 2015 EYGM Limited. All Rights Reserved. EYG No. FN0206 CSG no. 1411-1355695 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.

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