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Report: Biopharma And Medical Device Companies Beat Historic Investment Returns

Stocks in this article: SIVB

SANTA CLARA, Calif., July 30, 2014 /PRNewswire/ -- Silicon Valley Bank, the bank of the global innovation economy, released a study today that examines the merger, acquisition and IPO activity of private, venture-backed biopharma and medical device companies.  According to the annual report based on 2013 data, venture investment in healthcare saw the biggest potential returns since SVB started tracking the data in 2005.

Silicon Valley Bank logo.

"2013 was the year of the IPO.  Built on solid healthcare M&A activity over the last few years, the venture industry continued to see momentum and a burst of IPO activity that provided spectacular potential returns for investors," said Jonathan Norris, Managing Director with SVB and author of the report. "We predict healthy access to capital in 2014 and into 2015.  While IPO activity is cooling in these sectors, we expect to see an increase in big exit M&A activity in the second half of this year."

Silicon Valley Bank works with 50 percent of healthcare-focused venture capital firms and venture-backed companies nationwide and specializes in biopharma, medical device and healthcare services.

In 2013, a year in which the number of healthcare IPOs tripled, public market enthusiasm helped stabilize venture investment and fundraising overall. Last year also saw increased valuations of mergers and acquisitions in the sector.  As the study notes, the climate for healthcare-related IPOs is slowing; however, the current and balanced financing ecosystem is continuing to prime the innovation pump and encourage smooth capital flow to keep the industry humming.

Based on an analysis of IPOs and private merger or acquisition transactions of venture capital-backed companies between 2005 and 2013, Silicon Valley Bank finds

  • Healthcare IPOs tripled in 2013, leading to a record potential IPO/big exit return of $12.5 billion — a nine-year high
  • Healthcare venture fundraising exceeded $3.5 billion in each of the past three years, a healthy level for innovation
  • Large biopharma companies are essentially outsourcing early-stage R&D by investing heavily in young venture-backed companies and as significant investors into Healthcare Venture Funds
  • Among big exit M&A (defined as private, venture-backed M&A with upfront payments of $75 million or higher for biopharma deals and $50 million or higher for device deals):
    • The average total deal value for biopharma big exit M&A was $549 million in 2013, the highest level since SVB started tracking the data in 2005, and it represents a 10 percent increase over 2012.
    • Device big exit M&A activity declined, but the average total deal value was $231 million in 2013, a three-year high, which represents a 42 percent increase over 2012.
  • Bucking convention in the device sector, FDA approval was not necessary for big exits
  • Healthcare venture will continue to see strong returns

The study also reveals the growing interest by corporate venture groups in healthcare.  Corporate venture was part of the investor syndicate in 35% of all biotech Series A equity financings in 2013, up from 30% in 2012.  Additionally, there are positive signs of corporate interest in early-stage medical device companies. 

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