Trade Sales of Pharma and Biotechnology Companies

Transcription

1 HBM Pharma/Biotech M&A Report Trade Sales of Pharma and Biotechnology Companies The HBM Pharma/Biotech M&A Report covers all completed trade sales of North American (US and Canada) and European biotechnology, specialty pharma, generics, OTC and traditional pharma companies since 05. While providing some top line results for public and private transactions, the analysis focuses mainly on trade sales of private venture- or private-equity-backed companies (called VC/PE-backed companies in this report). The survey does not cover diagnostics, medical technology or life sciences tools & services companies. Reverse mergers, minority investments and the purchase of assets or subsidiaries are not included in the survey. Acquisitions that were structured as mergers for tax or other reasons are included. Unless mentioned otherwise, transaction volume is defined in this report as the upfront consideration in cash and/or shares. The total transaction value can also include contingent ( biodollar ) payments linked to the achievement of certain milestones. Additional data such as investment by VCs, investment multiples, stage of lead product etc. were collected from various sources. Please note that such data may not have been available for each transaction. Also, the results presented in this report may deviate slightly from earlier reports due to subsequent reclassification or correction of data. Further information about the HBM Pharma/Biotech M&A Report, including a slide presentation and a list of transactions, can be found under The use of data and charts is permitted with reference to HBM Partners Pharma/Biotech M&A Report. Summary Results 11 was again a strong year for pharma/biotech M&A. Transaction volume from the sale of North American and European biopharma companies reached $64.1 billion ($66.9 billion in 10). Including contingent payments, deal volume in 11 reached $70.9 billion ($69.6 billion in 10). [Note: This does not include the $11.2 billion purchase of Pharmasset by Gilead, as the transaction was completed after year-end.] The number of M&A deals in 11 (71 transactions) was roughly in line with previous years, but down from last year when a record 79 deals took place. However, just counting deals with an upfront consideration of at least $100 million, 11 was a record year with 38 such transactions (compared to 29 such transactions in 10 and 28 in 09). Deal activity was particularly strong during the first half of 11 when a transaction volume of $53.1 billion was recorded. This included the $+ billion purchase of Genzyme by Sanofi and the $13.7 billion sale of Nycomed to Takeda, the largest private pharma transaction so far. Upfront deal volume for VC/PE-backed company trade sales in 11 reached a record $18.7 billion (up from $3.7 billion in 10 and from $2.7 billion in 09). Even if the Takeda/Nycomed deal is excluded, transaction volume was higher than in previous years ($5.0 billion upfront and $7.7 billion total deal value). The only year covered by our analysis showing similar deal values was 07 when an upfront transaction volume of $6.4 billion ($6.9 billion including biodollars) was reached by the sale of VCbacked biopharma companies. Average multiples to investors (based on upfront payments) from VC-backed company sales jumped to 2.8x (1.6x in 10). Including further contingent payments, the potential multiple reached 4.5x. So, 11 will be remembered as a good year by the venture capital community. HBM Pharma/Biotech M&A Report

2 Transaction Volume ($ billion) Trade Sales of Public and Private Pharma/Biotech Companies 1 in showed strong M&A activity in the North American and European pharma/biotech sectors with upfront transaction volumes reaching $64.1 billion (and total deal volume, including biodollars, reaching $70.9 billion). When comparing 11 with 10, one should consider that the deal volume in 10 includes the purchase of Novartis remaining stake in Alcon for $41 billion which accounted for over half of that year s transaction volume. Public & Private Pharma/Biotech Companies (US, Canada, Europe) (Upfront) Transaction Volumes of Pharma/Biotech Trade Sales $80.8 bn 35.0 Merck KGaA/Serono Bayer/Schering AG Public companies (> $10bn) Public companies Other private companies Private companies (>$10bn) VC/PE-backed private companies $49.2 bn 29.6 $52.7 bn 11.0 $177.1 bn $25.7 bn AstraZ./Medimmune 22.6 Schering P./Organon Comment: Trade sales of pharma/biotech companies US, Canada and Europe. The Alcon/Novartis transaction was recorded with $11 billion Source: in 08 HBM (minority Pharma/Biotech purchase) M&A Survey and with $41.1 billion in 10 (purchase of remaining shares, HBM approval Partners by Alcon shareholders 4 in Pfizer/Wyeth Merck/Schering P. Roche/Genentech $66.9 bn 41.2 Novartis/Alcon $64.1 bn.1 Sanofi/Genzyme , final completion of merger in 11). Takeda/ Nycomed In 11, US target companies accounted for almost two thirds of deal volume ($42.8 billion, 39 deals). The 28 European biopharma companies sold generated $21.2 billion of transaction volume. Even if one excludes the Nycomed/Takeda deal, transaction volume in Europe was at a similar level ($7.5 billion) as in 10 ($7.6 billion). Finally, 4 Canadian companies were sold in 11 for a total of $133 million. Most of the deal value was recorded in the first half of 11 ($53.1 billion vs. $11.0 billion in the second half). This was the case both in the US (H1 transaction volume $33.0 billion, H2 $9.7 billion) and in Europe (H1 $.0 billion, H2 $1.1 billion). In 10, it was the opposite when the second half of the year generated the bulk of the transaction volume. The slowdown in M&A activity during 11 can be attributed at least partially to the looming euro crisis and the associated uncertain economic outlook. Largest Transactions in 11 The largest deal in 11 was the purchase of Genzyme (NASDAQ GENZ) by Sanofi for $.1 billion plus contingent payments of approximately $2.8 billion. The sale of private-equity-backed specialty pharma Nycomed to Takeda for $13.7 billion marks the largest-ever trade sale of a private pharma company. The absolute amounts distributed to investors were substantial: Accounting for the $5.1 billion debt of Nycomed at the time of the sale, private equity investors should have received a record amount of $8.5 billion. Nordic Capital, the first and largest investor in Nycomed was reported to hold about 41% of the company at the time of exit. Investment multiples for this transaction were not disclosed. 1 This report covers only trade sales of pharma and biotech companies located in the US, Canada and Europe. HBM Pharma/Biotech M&A Report

3 Other notable transactions were the sale of Cephalon (NASDAQ CEPH) to Teva ($6.8 billion), the sale of King Pharmaceuticals (NYSE KG) to Pfizer ($3.6 billion), the sale of Talecris (NASDAQ TLCR) to Grifols ($3.4 billion) and the sale of Crucell (Euronext CXRL) to J&J ($2.3 billion). Largest Pharma/Biotech M&A Transactions in 11 (US, Canada, Europe) H1/H2 Target Public/ Private VE/PE- Backed Buyer Upfront Value ($ million) Total Deal Value ($ million) H1 1 Genzyme (US) public Sanofi (F) '100 23'900 H1 2 Nycomed (Switzerland) private PE Takeda (J) 13'680 13'680 H2 3 Cephalon (US) public Teva (Israel) 6'800 6'800 H1 4 King Pharmaceuticals (US) public Pfizer (US) 3'600 3'600 H1 5 Talecris Biotherapeutics (US) public Grifols S.A. (Spain) 3'400 3'400 H1 6 Crucell (NL) public Johnson & Johnson (US) 2'300 2'300 H1 7 Q-Med (Sweden) public Galderma Pharma (Switz.) 1'0 1'0 H1 8 Martek (US) public DSM (NL) 1'087 1'087 H1 9 Clinical Data (US) public Forest Laboratories (US) 929 1'114 H1 10 Plexxikon (US) private VC Daiichi Sankyo (J) H1 11 Advanced BioHealing (US) private VC Shire (UK) H1 12 Eurand (NL) public Aptalis (Canada) H1 13 Specifar (Greece) private Watson Pharma. (US) H2 14 Paddock Laboratories (US) private Perrigo (US) H2 15 Azur Pharma (Ireland) private Jazz Pharmaceuticals (US) H1 16 Pharmaswiss (Switzerland) private PE Valeant Pharma. (Canada) H1 17 Prostrakan (UK) public Kyowa Hakko Kirin (J) H2 18 Graceway Pharma. (US) private PE Medicis (US) H1 19 Inspire (US) public Merck & Co (US) H1 Biovex (US) private VC Amgen (US) 425 1'000 H2 21 Anchem Pharma. (US) private Par Pharmaceuticals (US) H1 22 Calistoga (US) private VC Gilead Sciences (US) H2 23 AB Sanitas (Lithuania) public Valeant Pharma. (Canada) H2 24 Amira Pharma (US) private VC Bristol-Myers Squibb (US) H2 25 Oceana Therapeutics (US) private Salix (US) H1 26 Antula (Sweden) private Meda (Sweden) H1 27 Cypress Bioscience (US) public Ramius/Royalty Ph. (US) H2 28 Anadys (US) public Roche (Switzerland) H1 29 Gemin X (US) private VC Cephalon (US) H2 30 Intellikine (US) private VC Takeda (J) H2 31 Adolor (US) public Cubist (US) H1 32 Caraco (US) public Sun Pharma (India) H1 33 Prism (US) private VC Baxter (US) H2 34 Novagali (F) public Santen Pharma. (J) H1 35 Synosia (Switzerland) private VC Biotie (Finland) H2 36 Victory Pharma (US) private VC Shionogi (J) H1 37 Astex (UK) private VC SuperGen (US) H1 38 Taligen (US) private VC Alexion (US) Comment: Grey shading = trade sales of PE-backed companies, green shading = trade sales of VC-backed companies. Martek, a producer of nutraceuticals, acquired in 11 by DSM, was included in the analysis. Number of Transactions The number of M&A transactions in 11 (71 deals) was a bit lower than in 10 when a record number of 79 transactions were completed. 24 public companies were sold in 11 (compared to in 10). The number of trade sales of VC/PE-backed companies also held up well (31 trade sales vs. 32 trade sales in 10), whereas the number of other private companies sold dropped from 27 in 10 to 16 in 11. HBM Pharma/Biotech M&A Report

4 # of Transactions # of Transactions Public & Private Pharma/Biotech Companies (US, Canada, Europe) Number of Pharma/Biotech Trade Sales Public companies >$100m Other private companies VC-backed private companies PE-backed private companies Public companies <$100m value (not in survey before 08) Comment: Trade sales of pharma/biotech companies US, Canada and Europe Source: HBM Pharma/Biotech M&A Survey HBM Partners 5 The number of pharma/biotech M&A deals has shown a substantial increase since H1 09 with a high number of deals in H2 10 and H1 11 (see semi-annual numbers below). The number of transactions dropped again in H2 11. Industry participants, especially the ones on the sell side, of course hope that this decrease in transaction numbers will be reversed in Public & Private Pharma/Biotech Companies (US, Canada, Europe) Number of Pharma/Biotech Trade Sales by Half Year 50 Public companies >$100m Other private companies VC-backed private companies PE-backed private companies Public companies <$100m value (not in survey before 08) H1 05 H2 05 H1 06 H2 06 H1 07 H2 07 H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 Comment: Trade sales of pharma/biotech companies US, Canada and Europe Source: HBM Pharma/Biotech M&A Survey HBM Partners 6 HBM Pharma/Biotech M&A Report

5 Transaction Volume ($ billion) Location of Buyers In 11, as in previous years (with the exception of 09), European buyers again significantly outspent their US peers on biopharma acquisitions. European buyers not only have been more active buyers in their home region, i.e. in Europe, they also put up more money for US acquisitions than US buyers: Since 05, European pharma firms have purchased US companies for a total of $192 billion whereas US pharma buyers only spent $170 billion (of which $109 billion was accounted for by the two megadeals Pfizer/Wyeth and Merck Inc./Schering Plough). Even if one excludes the two largest US acquisitions by European firms (Roche/Genentech $46.8 billion and Novartis/Alcon $52.1 billion 1 ), European buyers still disbursed close to $100 billion on other US acquisitions. Public & Private Pharma/Biotech Companies (US, Canada, Europe) Pharma/Biotech Trade Sales - Location of Buyers Asian buyers European buyers North American Buyers Comment: Trade sales of pharma/biotech companies US, Canada and Europe Source: HBM Pharma/Biotech M&A Survey Pfizer/Wyeth Merck/Schering P HBM Partners 10 Large Pharma as Buyers of US and European Biopharma Companies In every year covered by this report, large pharma companies have been clearly the most important buyers of US and European biopharma companies contributing 58% (05) up to 96% (09) of yearly transaction volume (see chart on next page). This percentage is of course strongly influenced by mega deals with big pharma firms on the buy side. But large pharma companies also dominate the smaller end of the M&A market (see second chart on next page): Their share of acquisition dollars spent to buy of VC-backed private companies has since 05 averaged roughly 50%. After an increase to 67% in 07, the share dropped to below 50% in 09 and then picked up again reaching 56% in 11. Big pharma s continued interest in innovative companies as demonstrated by the increase of their share of VC-backed companies bought in 10 and 11 - is encouraging. However, most industry observers would agree that large pharma companies have become very selective and if they are interested in buying a company try to offload some of the risk to the sellers of companies (i.e. offering staged deals). 1 The Alcon transaction was recorded under US transactions (main operations in the US, legal headquarter in Switzerland). HBM Pharma/Biotech M&A Report

6 % of (Upfront) Transaction Volume % of (Upfront) Transaction Volume Private VC/PE-Backed Pharma/Biotech Companies (US, Canda, Europe) Buyers of Private and Public Pharma/Biotech Companies (% Trans. Vol.) % of Upfront Transaction Volume 100% 80% 60% 23% 15% 21% 6% 15% 2% 9% 1% 3% 11% 6% 18% 2% Other Small biotech Small & mid-sized pharma Large biotech 40% 58% 72% 81% 81% 96% 82% 77% Large pharma % 0% Comment: Source: Trade HBM sales Pharma/Biotech of pharma/biotech M&A Survey companies US, Canada and Europe HBM Partners 11 Private VC/PE-Backed Pharma/Biotech Companies (US, Canda, Europe) Buyers of VC-Backed Private Pharma/Biotech Companies (% Trans. Vol.) % of Upfront Transaction Volume / VC-backed companies only. 100% 80% 60% 22% 23% 9% 5% 3% 14% 28% 13% 13% 37% 1% 44% 14% 11% 30% 8% 16% 19% Small biotech Small & mid-sized pharma 40% % 9% 46% 60% 67% 50% 15% 39% 45% 56% Large biotech Large pharma 0% Comment: Source: Trade HBM sales Pharma/Biotech of pharma/biotech M&A Survey companies US, Canada and Europe HBM Partners 18 HBM Pharma/Biotech M&A Report

7 List of Most Active Buyers The table below shows the most active buyers of US and European biopharma companies in the last three years (09 to 11). The most acquisitive company in the period was Sanofi, which did 9 deals from 09 to 11(after having only bought one company in the period 05-08). Pfizer, having done most acquisitions during 05-08, is still actively acquiring companies (5 acquisitions during 09-11, 3 in 11). Another very active acquirer during the last three years was specialty pharma company Valeant (5 acquisitions 09-11, 3 in 11). The list is followed by a mix of large pharma, large biotech and medium-sized specialty pharma companies. Merck & Co, Novartis, Gilead, Cephalon, Roche, Takeda, Bristol-Myers Squibb, Johnson & Johnson, Endo and Lundbeck all bought 3-4 companies during 09 to 11, including at least one VC/PE-backed biopharma company. Most Active Buyers of Pharma & Biotech Companies (Ranked by Number of Transactions) Buyer # of Companies Bought # of Companies Bought # of Companies Bought in 11 Total (Upfront) Deal Volume ($ million) # of VC/PE- Backed Companies Bought Sanofi '194 3 VC/PE-Backed Companies Bought BiPar, Fovea, TargeGen Pfizer '356 2 FoldRX, Exaliard Valeant Pharmaceuticals '265 2 Aton (PE), PharmaSwiss (PE) Merck & Co '560 1 SmartCells Novartis '5 2 Corthera, Oriel Gilead Sciences '1 3 Arresto, Calistoga, CGI Cephalon '1 3 BioAssets, Ception, GeminX Roche '317 1 Marcaria Takeda '945 2 Intellikine, Nycomed Bristol-Myers Squibb Johnson & Johnson Endo Pharmaceuticals '436 1 Amira '404 1 Respivert 1 3-1'714 1 Qualitest (PE) Lundbeck Ovation (PE) Teva '750 - GSK 6 2-3'357 - Celgene 1 2-3'240 1 Cloucester Shire '316 1 Advanced Biohealing Axcan Mpex Meda Cubist Calixa HBM Pharma/Biotech M&A Report

8 Transaction Volume ($ billion) # of Transactions Trade Sales of Private VC/PE-Backed Pharma and Biotech Companies After a very strong first half of the year which included the landmark sale of PE-backed Nycomed to Takeda, fewer venture- and private-equity-backed companies were sold during the second half of 11. The 12 transactions in H2 11 generated an upfront transaction volume of $1.3 billion ($1.9 billion including biodollars). These numbers are somewhat disappointing as industry participants and especially investors in private biopharma companies hoped that the great momentum seen during H1 11 would continue into H2 11. Private VC/PE-Backed Pharma/Biotech Companies (US, Canada, Europe) Trade Sales of VC/PE-Backed Private Pharma/Biotech Companies Upfront transaction value Total value + $13.7 bn Takeda/Nycomed H1 05 H2 H1 06 H2 H1 07 H2 H1 08 H2 H1 09 H2 H1 10 H2 H1 11 H2 0 Comment: Trade sales of VC/PE-backed pharma/biotech companies US, Canada and Europe Source: HBM Pharma/Biotech M&A Survey HBM Partners 13 Private M&A activity dropped strongly especially in Europe where in H2 11 only 4 VC-backed companies (Astex, Cellartis, DuoCort and Lectus) were sold, with only Astex and DuoCort yielding a significant upfront consideration. Nevertheless, H2 11 will be remembered at least by some VCs as a good period since four exits of VCbacked biopharma companies (all located in the US with the exception of DuoCort) generated investment multiples of 5x or more (just from upfront proceeds!): These are Vicept (sold to Allergan), Intellikine (sold to Takeda), Amira (sold to Bristol-Myers Squibb) and DuoCort (sold to ViroPharma). In H1 11, there were two VC exits that reached even higher multiples: Both Plexxikon (sold to Daiichi Sankyo) and Advanced Biohealing (sold to Shire) yielded a multiple to investors of over 10x from upfront proceeds. For the whole period of 05 to 11, there were only two other such ten baggers (both in the US and both closed in 10): Marcadia (sold to Roche) and AkaRx (sold to Eisai). Thus, at least some US VC investors will be happy with the results achieved in 11. On the private-equity side, the action was mostly in Europe. The sale of Nycomed (Switzerland), backed by Nordic Capital and some other investors, to Takeda was, of course, the main event (see also page 2). The multiple of this deal is unknown, but investors gains are in the billions of dollars. This hugely successful transaction could whet the appetite of larger buyout firms to enter the pharmaceutical space. Another notable deal was the sale of specialty pharma company PharmaSwiss to Valeant for about $475 million. The sale of PharmaSwiss, backed by HBM BioVentures and Enterprise Investors, was the second largest European exit of a VC- or PE-backed private pharma company during the last 5 years. HBM Pharma/Biotech M&A Report

9 In the US, private-equity backed company Graceway, a 06 buyout of 3M s pharma business, was sold from bankruptcy for $455 million to Medicis. Buyout firm GTCR Golder Rauner had originally acquired the business for $875 million and according to industry sources the bank lenders lost most money here, as GTCR was able recap the company not too long after the acquisition (and probably got the money back then). Trade Sales of VC/PE-Backed Pharma/Biotech Companies in 11 (Ranked by Upfront Deal Value) H1/H2 Upfront VC/PE- Backed Target Buyer Value ($ million) Total Deal Value ($ million) Estimated Inv. Capital ($ million) Estimated Investor Multiple H1 11 PE Nycomed (CH) Takeda (J) 13'680 13'680 n.a. n.a. H1 11 VC Plexxikon (US) Daiichi Sankyo (J) x H1 11 VC Advanced BioHealing (US) Shire (UK) x H1 11 PE Pharmaswiss (CH) Valeant (Canada) n.a. 1.8x H2 11 PE Graceway (US) Medicis (US) n.a. n.a. H1 11 VC Biovex (US) Amgen (US) 425 1' x H1 11 VC Calistoga (US) Gilead Sciences (US) x H2 11 VC Amira Pharma (US) Bristol-Myers Squibb (US) x H1 11 VC Gemin X (US) Cephalon (US) x H2 11 VC Intellikine (US) Takeda (J) x H1 11 VC Prism (US) Baxter (US) x H1 11 VC Synosia (CH) Biotie (Fin) x H2 11 VC Victory Pharma (US) Shionogi (J) x H1 11 VC Astex (UK) SuperGen (US) x H1 11 VC Taligen (US) Alexion (US) x H1 11 VC Cellerix (Spain) TiGenix (B) x H2 11 VC Vicept Therapeutics (US) Allergan (US) x H1 11 VC Mpex (US) Axcan (Canada) x H2 11 VC Abunda (US) Evolva (CH) n.a. n.a. H2 11 VC DuoCort Pharma (S) ViroPharma (US) x H1 11 VC CyDex (US) Ligand (US) x H2 11 VC Cellartis (S) Cellectis (S) n.a. H1 11 VC ZARS Pharma (US) Nuvo Research (Canada) x H1 11 VC Kinaxo (G) Evotec (G) 8 12 n.a. n.a. H2 11 VC Amorcyte (US) NeoStem (US) x H2 11 VC Artisan Pharma (US) Ashai Kasei (J) n.a. n.a. 70 n.a. H2 11 VC Excaliard (US) Pfizer (US) n.a. n.a. 25 n.a. H2 11 VC Lectus Therapeutics (UK) UCB (B) n.a. n.a. 23 n.a. H1 11 VC Aegera (Canada) Pharmascience (Canada) n.a. n.a. 58 n.a. H1 11 VC Biocontrol (UK) Targeted Genetics (US) n.a. n.a. n.a. n.a. H1 11 VC Syntarga (NL) Synthon (NL) n.a. n.a. n.a. n.a. Comment: Companies underlined = European companies, CH = Switzerland, n.a. = not available Average transaction values from trade sales of VC-backed biopharma companies (PE deals excluded) were high in 11 when compared to 10 values (see chart on next page). Average upfront proceeds notched above $0 million, a level not seen since 07. And average total deal value jumped to $333 million, the highest number for the period covered by the survey. It is interesting to note that the average total VC investment into companies that were sold remained pretty stable over the years, averaging $50 million to $70 million. In Europe, average transaction values and average investment amounts were significantly lower, confirming that US biopharma companies are significantly better capitalized, but can also command higher exit values. And, as we will later analyze in more detail, the resulting exit multiples in the US have been better in recent years. HBM Pharma/Biotech M&A Report

10 Multiple Average Values ($ million) Private VC-Backed Pharma/Biotech Companies (US, Canda, Europe) Average Investment, Average Upfront and Total Deal Values VC-backed companies only. PE-backed companies excluded Average Total Transaction Value Average Upfront Transaction Value Average Invested Capital Comment: Trade sales of VCE-backed pharma/biotech companies US, Canada and Europe Only for transactions where respective Source: HBM Pharma/Biotech M&A Survey information was available. Return to Venture Investors HBM Partners 19 Whenever available, HBM is collecting additional information about biopharma trade sales that allows an estimate of (venture) investors return in such transactions. As the IPO market has been less rewarding for emerging biopharma companies, trade sales have become the preferred exit route. A rough estimate of investor return is the ratio between upfront or total proceeds from a trade sale divided by invested capital. Furthermore, in some transactions, we estimated the step-up from the last or average valuation to the exit valuation (taking into account only the upfront consideration). VC-Backed Pharma/Biotech Companies (US, Canda, Europe) Return Estimates of Venture Investors from Private Biopharma Trade Sales VC-backed companies only. PE-backed companies excluded. 5x 5.1x 4.5x 4x 3x 3.5x 2.9x 3.1x 3.0x 2.3x 2.7x 2.8x 2.2x 2.1x 3.3x x Total transaction value / invested capital Upfront proceeds / invested capital 2x 1x x Estimated average multiple for investors (on upfront proceeds) 0x Comment: Trade sales of VC-backed pharma/biotech companies US, Canada and Europe Only for transactions where respective Source: HBM Pharma/Biotech M&A Survey information was available. HBM Partners HBM Pharma/Biotech M&A Report

11 Multiple It should be noted that the ratios mentioned above and the multiple estimates were only available for about 70% of the deals. Also, one or two good exits can significantly drive up these average values (as it was the case in 10 and 11). Median return multiples were substantially lower. The ratio of total value (including biodollars) to invested capital was about 3x until 07 and then increased substantially as contingent payments became more prevalent. The ratio of upfront proceeds to invested capital inched up to 2.8x between 05 and 07 and then dropped to a low of 1.6x in 10. In 11, this ratio jumped back to 2.8x. The gap between multiples from up front and the maximum multiple was especially wide in 09 due to a number of transactions with high headline values (over $500 million), but relatively modest upfronts. In 11, the biodollar portion of many deals was still high, but overall multiples clearly improved. The estimated return multiples, i.e. upfront proceeds to private valuations, show a similar development. The multiples were stable at around 2x until 09 and then increased in 10 and again in 11. We already mentioned the ten baggers in 10 and 11 which drove up these average values. The difference in 10 between the ratio of upfront proceeds to invested capital (1.6x) and the average return multiple (2.4x) stems from the fact that the average return multiple is not capital-weighted whereas the ratio proceeds/investments is, and in 10 there were a number of company exits where substantial amounts were invested and the outcome was negative (Solstice, Heidelberg Pharma, Develogen, Symphony Icon and Topigen). Overall, returns to VC investors clearly have been on the upswing since 09 (both in the US and in Europe, see below) and have reached record levels in 11. We do not know yet if this good performance of biopharma trade sales is strong enough to lift the overall performance of life sciences investments. Investor Return in the US vs. Europe The chart below shows the estimated return multiples for VC investors in US and European deals (where available). The dotted lines show the averages and VC-Backed Pharma/Biotech Companies (US, Canda, Europe) Estimated Investor Return Multiples US vs. European Trade Sales VC-backed companies only. PE-backed companies excluded. 5x 4x 3x 2x 1x Averages / x 3.0x 2.9x 2.8x 2.6x 2.4x 2.3x 2.4x 2.0x 1.8x 1.8x 1.7x 1.3x 0.8x Estimated multiples US Estimated multiples Europe 0x Comment: Source: Trade HBM sales Only for transactions where respective Pharma/Biotech of VC-backed M&A Survey pharma/biotech companies US and Europe information was available. HBM Partners 22 HBM Pharma/Biotech M&A Report

12 # of Transactions Estimated Multiple During the years 05 to 08, average multiples in the US and in Europe were similar. Since 09, US exits have produced multiples that are about 1x higher than European deals (all calculated on upfront proceeds). We should note that all these numbers are calculated in US$ and changes in currency exchange rates have not been taken into consideration. However, the clear lag in return multiples in Europe vs. US in recent years is of concern for young European biopharma companies and their investors. Raising life sciences venture funds has not been easy and if return multiples stay below US levels, it will become even harder to raise such funds in Europe. Therefore, it is no surprise that some European investors are turning their attention to growth companies with a lower risk profile. Trade Sales by Stage of Lead Product In our previous reports, we observed no systematic impact of company stage on return multiples. Generally speaking, however, high exit multiples were rarely achieved in exits of pre-clinical companies. The chart below shows the return characteristics of VC-backed biopharma companies sold in 10 and in 11, grouped by stage of the lead product. VC-Backed Pharma/Biotech Companies (US, Canda, Europe) Estimated Return Multiples by Product Stage (Deals 10 and 11) x VC-backed companies only. PE-backed companies excluded. 6.3x x Comment: Trade sales of VC/PE-backed pharma/biotech companies US, Canada and Europe Only for transactions where respective Source: HBM Pharma/Biotech M&A Survey information was available x Loss 1x-2x multiple 2x-3x multiple >3x multiple Av. Est. Multiple 3.7x Pre-clinical Phase I Phase II Phase III / NDA Marketed HBM Partners 23 During these two years, pre-clinical companies achieved the lowest exit multiples (as in previous years). The best average multiple was achieved by phase I companies (due to the successful exits of Amira, Intellikine and Marcadia). The exit performance of phase II companies was mixed, while companies with products in phase III, in registration or approved showed better results. While this analysis is based on a small number of deals, it illustrates the following points: x 5.0x 2.5x 0.0x Early-stage companies with unique platforms/pipelines (often focused on particular pathways or indications) can command attractive prices, sometimes translating into extraordinary multiples. However, buyers typically wait until initial human (safety) data are available (i.e. phase I). For phase II companies, there is a wide distribution of multiples, reflecting differences in the number of potential buyers and the value attributed to the available data. Depending on the indication, the daunting cost of phase III trials may still force investors to seek an exit, even for upfront payments near or below a company s last private valuation. HBM Pharma/Biotech M&A Report

13 Companies with lead products in phase III or with phase III results can usually attract multiple competing offers. Also, as an alternative to a sale, these companies (and their investors) often are able to take their lead products to approval. Thus improving their position towards potential buyers. Contingent Payments As already mentioned in earlier reports, buyers nowadays try to offload some of the remaining clinical and commercial risk of an acquired product to the sellers of the company. As a result, structured deals are today almost the norm. Thus, the total value of a deal is usually substantially higher than the upfront consideration, which can be quite modest. The level of staging is measured as the percentage of contingent payments in percent of upfront deal value. As the table below shows for trade sales of VC-backed biopharma companies, the contingent payments became substantial from 08 onwards. (All transaction values have been summed up for this purpose. So large staged deals can drive up this value for any given year.) For 11, in 55% of transactions, the portion of contingent payments was 50% or more of the upfront paid (i.e. more than one third of total deal value). Contingent Payments of Trade Sales of VC-Backed Biopharma Companies Year >> Total Contingent Payments in % of Upfront Payments* 5% 13% 8% 48% 136% 68% 64% % Deals with Over 50% Contingent Payments 12% 9% 11% 36% 50% 43% 55% Total # of Transactions Analyzed Comment: Trade sales of VC-backed pharma/biotech companies US, Canada and Europe * Calculated based on the sums of contingent and upfront deal values of all transactions where such information was available. In theory, we would expect contingent payments to be more important in earlier-stage companies (which bear the highest risk of failure). If we look at the 10 and 11 deals (see table below), pre-clinical deals (as expected) showed a very high percentage of deals (55%) with contingent payments of over 50%. Overall, total contingent payments for this group were higher (121%) than upfront payments received. Trade sales of phase I and phase II companies show similar characteristics: The majority of deals had a significant (>50%) biodollar portion. The overall biodollar amounts (in % of upfront payments) for phase II companies were even higher than for phase I companies. Also, companies sold with phase III or approved products had to accept significant contingent payments. Contingent Payments in Trade Sales of VC-Backed Biopharma Companies by Stage of Lead Product Phase III / Stage of Lead Product >> Pre-Clinical Phase I Phase II NDA Marketed Total Contingent Payments in % of Upfront Payments* 121% 50% 99% 67% 28% % Deals with Over 50% Contingent Payments 55% 60% 54% 38% 33% Total # of Transactions Analyzed Comment: Trade sales of VC-backed pharma/biotech companies US, Canada and Europe * Calculated based on the sums of contingent and upfront deal values of all transactions where such information was available. These findings match our (and other industry participants ) experience that buyers are not willing to fully payup until the main product of a company is FDA approved and has reached certain sales levels. HBM Pharma/Biotech M&A Report

14 Outlook Overall, 11 was a very strong year for biopharma M&A. The number of both larger and smaller transactions was high. Despite the slowdown of M&A activity in the second half of 11, the transactions announced at year-end or just after that, lead us to expect that 12 might be another good M&A year. Pharma and biotech deal making was only moderately affected by the financial crisis 08/09 and the current European debt crisis will in our view not substantially slow down M&A activity in the sector. There are plenty of companies looking for an exit and quite a number of cash-rich buyers (large and mid-sized pharma companies) seeking to expand their commercial and development portfolios or their geographic reach. In the US, where the IPO window has opened for high-quality biopharma companies, US sellers will be in a better position to demand prices that reward them for the risks they have taken. The overall slowdown in prescription drug sales in Western Europe and the US will accelerate the need for further consolidation. Furthermore, we expect that larger buyout funds will find the sector increasingly suitable to invest and will compete with industry buyers in acquiring small to medium-sized pharma companies. Please address questions and comments to the authors of this report: Dr Ulrich Geilinger, ulrich.geilinger@hbmpartners.com and Dr Chandra P. Leo, chandra.leo@hbmpartners.com HBM Partners AG, CH-6300 Zug, Switzerland, phone February 12 About HBM Partners HBM Partners is a globally active, healthcare-focused investment management group headquartered in Switzerland. HBM BioVentures and funds advised by HBM invest in private and public companies across North America, Europe, India and China. Since 01, HBM has generated more than 40 trade sales and IPOs of pharma/biotech, medtech and diagnostics companies. More information can be found at HBM Pharma/Biotech M&A Report