Crossover Investors Supporting Private Placements

“In the past two years, we have seen the emergence of non-VC investors, particularly hedge funds, providing “top-up” financing to IPO-ready companies prior to entering the market,” Jonathan Norris, Kristina Peralta, “Trends in Healthcare Investments and Exits 2015”

“My estimate, based on discussions with a few bankers who track crossover activity, and an appreciation of Corporate Venture Capital (CVC) contributions, is that only around 50% of the $6B invested in private biotech’s came from “conventional” venture investors (meaning independent venture firms backed by groups of LPs)”

VC-Backed Biotech Funding - 10 Year View
VC-Backed Biotech Funding – 10 Year View

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Private Placements: Where is the Money Going?

Novel Drug Targets

Total Venture Funding of Drug R&A, 2004-2013
Total Venture Funding of Drug R&A, 2004-2013

“Over the past decade, nearly 80% of venture capital for therapeutics went toward “novel drug R&D” rather than improvements on existing drugs. This trend is in contrast to the rise of “low technical risk” spec pharma investment model of the 2001-2007 period.”

Series A Funding By Drug R&A Type
Series A Funding By Drug R&A Type

“Initial rounds of funding (Series A’s) for novel drug R&D reached their highest levels in a decade in 2013. the importance of “high innovation quotient” investment thesis to gather initial venture funding is clearly on the rise.”

Early Stage

Series A Venture Funding By Stage of Lead Asset
Series A Venture Funding By Stage of Lead Asset

“Most of the Series A funding of new startups has gone toward early-stage assets (drug discovery, preclinical, and Phase 1), and this has increased over the past five years. Further, the majority of the early-stage financings went to discovery/preclinical (~75%) vs. Phase 1.”

“On the early stage side, nearly one-third of all Series A funding comes from corporate venture capital (CVC) – and this has been increasing over time.”

Sources: Bruce Booth, “Where Does All That Biotech Venture Capital Go,” Forbes, 2/9/15 – Data Source: HBM; “Venture-Backed Biotech Today, Reflections on Exits, Funding, and Startup Formation,” 1/22/15

Active Corporate Venture Capitalists

  • LillyVentures
  • SR-One
  • Novartis Venture Funds
  • Pfizer Venture Investments

Source Alternative Investors via Financial Technology (FinTECH)

  • Business development, private investing, and M&A are moving “online” – while alternative finance started off as seed stage endeavor, more recently platforms have begun to emerge at different stages in the funding cycle, disrupting traditional institutions
  • Online global investing reached $16.4B in 2014 – over 1,250 crowdfunding platforms worldwide
  • Alternative finance is drawing more established issuers – Originally seen as a solution to the long-standing funding gap for early stage companies that appeared in the wake of the 2008 financial crisis, the ability for issuers to raise capital more quickly and at a lower cost than would otherwise be possible at traditional institutions
  • Alternative finance is removing information barriers and information inefficiencies that exist in the private market, opening funding conduits an channeling global liquidity

FinTech Read More

Strategic Advisory Services

 

vinn-diagrams-saBuy-side M&A Engagements

  1. Identify M&A Targets
  • Leverage Technology Platforms (“Big Data”) – SJA has access to over 700+ “Active” (~seeking to transact) emerging growth companies sourced via online portals, HealthiosXchange (U.S. and Europe) and Capbridge (Asia-Pacific)
  • Company Breadth– Identify companies by market sector (46), financing stage (seed-to-exit), and stage of development (Pre/Clinical – Marketed)
  • Notifications (“First Mover Advantage”)– “Follow” companies and receive catalysts updates in real-time meaningful to company evaluation/due diligence

 

Sell-side M&A Engagements

  1. Identify Strategic Buyers
  • “Rolodex”– SJA and investment banking partner, Healthios, have an extensive network of C-level suite executives at leading biopharma, medical device, medtech and healthcare services companies
  • Events– SJA connects companies and strategic buyers via online (webinars) and offline events (one-on-one’s, Healthios conferences ~JP Morgan)
  • Online Data Room – SJA provides valued tools for strategic buyers to efficiently conduct due diligence on companies of interest via online data rooms

 

Increase shareholder value by hiring SJA’s “virtual” investment banking team to identify and execute strategic acquisitions (M&A) leading to liquidity pathways (OTC.BB, IPO).

SJA Capabilities BrochureView our Strategic Advisory Services brochure.

“Virtual” Investment Banking Team – Acquisitions Fueling Revenue Growth/Stock Price

“Horizon’s breakthrough in 2014 wasn’t in the lab or a pharmacy; it was in finance.” – Mark Guarino
— “The Pain Pill That Saved Horizon Pharma,” Chicago Crains, 1/15

Investment Banking Team Leadership (Hired From JMP Securities)

  • 10 Person Business Development Organization
  • Analysis: Intellectual Property, Clinical, Commercial
  • Evaluating 40-50 Transactions Different Simultaneously
  • Emphasis on “Orphan” Drugs – More Durable Long-Term Asset
    • Less Competition
    • More Pricing Flexibility
  • Focused on acquiring drugs with <$200M in revenues and aggressively promoting to increase sales
  • Models: NPV, Accretion/Dilution, IRR, Payback

Virtual-Investment-Banking-Team

 

Assess on behalf of shareholders:

  • Risk/Return Profiles – Sharing downstream upside with a partner via milestones vs. “Going – Long” in public markets
  • Time to Liquidity – M&A typically offers realized returns today, whereas IPOs can take years to exit
  • Dilution –  Taking a company public implies selling a piece of the company to others; typical dilution can be 20-40% for an IPO.

IPO vs M&A: Cost-of-Capital Adjusted Equivalent Return Curves
IPO vs M&A: Cost-of-Capital Adjusted Equivalent Return Curves

Source: Bruce Booth, “Tradeoffs and Timing: IPO vs. M&A; A Decision-Making In Biotech,” Forbes, 4/2/15

 

Below: Assess on Behalf of Shareholders: IPO or M&A

The IPO (Initial Public Offerings) markets hit post-millennium highs in many key metrics, and the performance of the market has proven broad and resilient. The strong IPO markets continued to include a number of small-medium sized deals, and for the second year in a row, and the second time ever, the majority of venture-backed IPOs were in the biotechnology/pharmaceutical industry. (Source: Jonathan Norris, Kristina Peralta, “Trends in Healthcare Investments and Exits 2015,” Silicon Valley Bank)

fig-x1

Below: Assess on Behalf of Shareholders: IPO or M&A

“The share of big exits vs. all exits contributed by either path has converged over time. In the last 7 years, roughly identical percentages exits in the two charts above, suggesting that the relative contributions of IPOs and M&As at big and small valuations are similar.” Bruce Booth, “Acquisitions As the Silent Partner in Biotech Liquidity: IPO Vs. M&A Exit Paths,” Forbes, 10/27/1014

fig-x2

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The IPO Window is Open!

IPOs

“The number of IPOs at least doubled in each sector and rebounded big exit M&A soared 50%. This environment led to record high potential distributions in 2014, topping $20 billion”

VC-Backed IPOs and Big Market M&A (2005-2014)
VC-Backed IPOs and Big Market M&A (2005-2014)

“This environment led to record high potential distributions in 2014, topping $20 billion. This is the largest return on investment measured since SVB began tracking the information a decade ago”

Potential Distributions From VC-Backed IPOs and Big Exit M&A
Potential Distributions From VC-Backed IPOs and Big Exit M&A

Source: Jonathan Norris, Kristina Peralta, “Trends in Healthcare Investments and Exits 2015,” SVB

See SJA M&A/IPO Advisory Services

M&As – Significant Exit Route

M&A Driven Events

“By the 2006-2010 period, almost all of the exits, upwards of 75% – regardless of size – were M&A driven events. The recent IPO window (2013/14) pushes the data a bit, but not enough to eliminate the dominance of M&A exits: More than 60% of the big >250M exits in our space in the last few years have been M&A.”

VC-Backed Biotech Exit routes: Percentage of "Exits" of any size from M&A vs IPO
VC-Backed Biotech Exit routes: Percentage of “Exits” of any size from M&A vs IPO
  • “IPOs used to be the only real game in town. Driving 67% of the exits and over 82% of the >250M exits in the late 1990s.”
  • “The share of big exits vs. all exits contributed by either path has converged over time. In the last 7 years, roughly identical percentages exits in the two charts above, suggesting that the relative contributions of IPOs and M&As at big and small valuations are similar.”

Source: Bruce Booth, “Acquisitions As the Silent Partner in Biotech Liquidity: IPO Vs. M&A Exit Paths,” Forbes, 10/27/1014

Two Recent Spectacular Wins!

Alios acquisition by J&J for $1.75B

SJA-MandA-fig-2

Seragon’s purchase by Roche/Genentech for $725M upfront and $1B in earn outs

SJA-MandA-fig-3
Bruce Booth, “Acquisitions As the Silent Partner in Biotech Liquidity: IPO Vs. M&A Exit Paths,” Forbes, 10/27/1014, NVCA

See SJA M&A/IPO Advisory Services

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