A Surge in IPOs Revitalize Investments for the Global Pharma and Biotech

The intensified private equity and venture capital (PEVC) deal activity in the global healthcare industry during the recession years, 2008–2010, witnessed a waning post-2010. However, the decline in deals was not uniform among the constituent sectors, with the biotechnology, pharmaceutical, and healthcare equipment sectors experiencing a much sharper decline in investor interest than the healthcare technology and provider segments. Investors began to gamble on providers based with the conviction they can provide faster and safer returns than the pharmaceutical and biotechnology space, which is ridden with regulatory challenges and patent expiries.

A new market analysis from Frost & Sullivan’s (Mountain, View, CA, USA), an international growth consultancy firm, revealed the total number of PEVC transactions in the pharmaceutical and biotechnology industry decreased from 1063 in 2010 to 480 in 2013. Although the returns from the pharmaceutical and biotechnology industry have been declining, they are better compared to the performance of other industries.

“PE deals in the pharmaceutical sector have been relatively stable over the post-recession period whereas activity in the biotechnology segment began to decrease after reaching its peak in 2010, due to the uncertainty caused by healthcare reform in the US, long incubation periods, and delayed approvals,” said Frost & Sullivan financial analyst Dr. E. Saneesh. “VC deals across both these sectors also started to plummet from 2011 due to risks associated with regulatory uncertainty, long gestation periods, and increased cost of production.”

However, the strong rebirth of initial public offerings (IPOs) in 2013 indicates a positive outlook for investment in the pharmaceutical and biotechnology industry. The number of IPOs in the global biotechnology sector surged by 100% between 2012 and 2013, primarily on account of the 26 IPOs that took place in the United States. IPOs in the pharmaceutical industry also climbed with 11 deals in 2013, after the volume of IPOs declined to nearly one-sixth of the sector’s value between 2011 and 2012.

As a result of the surge in IPOs, exit opportunities are expected to increase for investors. The trend will be further fuelled by the anticipated growth of corporate investor-backed IPOs. “PEVC investors in the global pharmaceutical and biotechnology industry have demonstrated maximum interest in oncology drugs, followed by anti-infective drugs and pharmaceutical contract laboratories,” stated Dr. Saneesh. “They have also concluded the maximum pharmaceutical- and biotechnology-related PEVC deals in the US and are expected to continue to do so in the forthcoming years. Industry players most aligned with these trends will be well positioned to obtain financial support from PEVC investors.”

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