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Private biotech M&A: Evaluating the seller’s market

With public market capital so readily available for even early-stage biotechs, few privately held companies need to rush into the embrace of a buyer. Already more biotechs have raised initial public offerings in 2018 than in all of 2017, including companies whose drug candidates or technologies have yet to be tested in humans, suggesting that the seller’s market is—for the moment—intensifying.

And so those biotechs that have been acquired have for the most part been acquired at high valuations. Between January 2017 and June 2018, at least 25 privately owned biotech companies were acquired in deals where at least some terms were disclosed (upfront deal value, total potential deal value, or both), representing just under half of all biotech acquisitions during that 18-month period. Twenty of these biotechs were located in North America (19 in the US, one in Canada), with five hailing from Europe. An analysis of the characteristics of these companies and the deals they were able to extract from biopharmaceutical acquirers yields information about what buyers want, and where venture investment may continue to flow.

Soaring valuations

During the 18-month timeframe the average upfront payment for the acquisition of a private biotech was nearly $239 million. That’s not a self-evidently gaudy sum, though incorporating potential earn-out payments attached to future clinical, regulatory, or commercial success, raises the average potential value of these deals to nearly $820 million.  Most importantly, it’s worth remembering that many of these acquisition targets are quite early stage and investors haven’t yet poured much time or money into their therapeutic candidates or discovery technologies. Investors’ return on investment can therefore be many multiples of their invested capital. And that return can arrive in a hurry.

Impact Biomedicines may be an outlier in terms of the size of its acquisition, but it’s illustrative of several larger points. In the lead-up to 2018’s JPMorgan Healthcare Conference in January, Celgene said it would acquire Impact for $1.1 billion upfront and total payments that could reach $7 billion if certain milestones are met. Impact was developing fedratinib, a small-molecule JAK2 kinase inhibitor with positive Phase 3 data in the blood cancer myelofibrosis. Impact was formed in only mid-2016, when fedratinib’s co-inventor secured venture backing to license the drug from its developer Sanofi (which had acquired the drug candidate through the 2010 acquisition of Targegen and back-burnered it due to safety concerns).

Up until its acquisition, Impact had pulled in only $22.5 million of a planned larger Series A financing, making the upfront deal payment alone worth 49x that initial investment (the multiple soars to an astronomical 311x based on the total potential deal value). Private financing details aren’t always announced or available, but of the 25 private biotech acquisitions during this time period, I was able to calculate acquisition multiples for 19. Across these deals, the upfront payment in a private biotech acquisition reflected a 7x return for investors (which is itself an average over what can be multiple financing rounds, so while a good proxy for investor return, specific investor returns will vary). When all possible milestone payments are incorporated, the average potential return reaches an extraordinary 26.7x.

Building value quickly

Like Impact, several biotechs acquired over the 18-month period were quite new to the scene. When the auto-immune disease focused Delinia was acquired by Celgene in January 2017 for $300 million upfront, it was only four months removed from announcing its Atlas Venture and Sofinnova funded Series A. Bristol-Myers Squibb acquired immune system specialists IFM for $300 million upfront in 2017 only a year after the biotech’s Series A and two years after foundation (figure 1). Though the average age of a private biotech at acquisition for this cohort is nearly nine years, the median age is six years (the oldest privately owned biotech acquired during the timeframe was Protein Sciences, a vaccine maker bought by Sanofi for $650 million upfront in July 2017).

Figure 1 

Private biotech MA Evaluating the sellers market - Figure 1 - Bio-europe


These relatively quick acquisitions reflected the rapid pace of biotech innovation—particularly in the oncology field. Five of the seven youngest acquisition targets were developing oncology therapies and were at most three years old. (Those five deals featured an average upfront of $378 million, or $198 million excluding the outlier Impact, reinforcing the idea that these companies were able to drive quick and lucrative returns on relatively little invested capital.)

Overall, private oncology companies proved to be key targets for acquirers, with seven deals (average valuations were goosed by the Celgene/Impact deal) (figure 2).

Figure 2

Private biotech MA Evaluating the sellers market - Figure 2 - Bio-europe

Unlike Impact, many of the acquired private biotechs remained in early-stage development. Eight private biotechs with assets that had only advanced to the preclinical stage were acquired during the period, as were two companies that were still in the discovery stage (figure 3).

Figure 3

Private biotech MA Evaluating the sellers market - Figure 3 - Bio-europe

Chris MorrisonChris Morrison has covered the biopharmaceutical industry for 18 years as a writer and editor for several industry publications. He is a former editor of In Vivo: The Business and Medicine Report and "The Pink Sheet" where he focused on trends in biopharmaceutical finance, business development, and research and development. Chris contributes to a variety of publications, including In Vivo, Datamonitor, Nature Biotechnology, and Nature Reviews Drug Discovery. He holds a bachelor’s degree in neurobiology and behavior from Cornell University and a master’s in science journalism from New York University.


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