Full article reprinted from Start-Up January 20, 2009
With Big Pharma content to sit on the sidelines and wait as biotech company valuations continue their fall, the M&A activity that does take place is likely to place a premium on hedging risk. And, say venture investors, that means structured acquisitions of biotech firms are likely to increase as pharmaceutical acquirers gain more leverage over cash-strapped firms in deal negotiations. Read on now...
Full article reprinted from Start-Up January 20, 2009
With Big Pharma content to sit on the sidelines and wait as biotech company valuations continue their fall, the M&A activity that does take place is likely to place a premium on hedging risk. And, say venture investors, that means structured acquisitions of biotech firms are likely to increase as pharmaceutical acquirers gain more leverage over cash-strapped firms in deal negotiations.
Venture Prepares for Structured Acquisitions
With Big Pharma content to sit on the sidelines and wait as biotech company valuations continue their fall, the M&A activity that does take place is likely to place a premium on hedging risk. And, say venture investors, that means structured acquisitions of biotech firms are likely to increase as pharmaceutical acquirers gain more leverage over cash-strapped firms in deal negotiations. If true, VCs eager to cash out of portfolio companies will get saddled with more risk and face difficulties in disbursing funds to limited partners buffeted by the ongoing financial crisis.
According to data from FDC-Windhover's Strategic Transactions, the expected uptick in earn-outs will be a sharp turnaround from the trend of the past few years. There have been only eight acquisitions of private biotech firms so far in 2008 where earn-outs have featured, including Wyeth's acquisition of the obesity-focused UK biotech Thiakis Ltd. for $30 million plus a potential $120 million in earn-outs, announced as START-UP went to press in mid-December. [2008TK] Of the others, only Novartis AG's acquisition of Protez Pharmaceuticals, the Philadelphia-based antibiotic play, can also be considered heavily weighted toward downstream payments. In June Novartis plunked down $100 million up-front to buy Protez, a sum dwarfed by the potential further $300 million in milestones tied to the clinical, regulatory, and sales success of the Phase II injectible carbapenem antibiotic PZ601.
Other earn-out deals in 2008 included The Medicines Co.'s August acquisition of Curacyte AG's Curacyte Discovery division (€14.5 million up-front plus €10.5 million in potential earn-outs), Clinical Data Inc.'s August acquisition of Adenosine Therapeutics ($36.2 million in up-front cash and promissory notes plus a further $30 million in earn-outs), and Roche's April acquisition of PIramed for $160 million, which included a $15 million relatively easy earn-out should the biotech's lead project make it to Phase II.
Christopher Morrison
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Companies mentioned
Clinical Data Inc.
Curacyte AG
Novartis AG
Roche
The Medicines Co.
Thiakis Ltd.
Wyeth
