INVESTMENT TRENDS - A Rise in IPOs Revive Investments for the Global Pharma & Biotech Industry

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

New analysis from Frost & Sullivan’s Private Equity and Venture Capital Investment in the Global Pharmaceutical and Biotechnology Industry reveals the total number of PEVC deals in the pharmaceutical and biotechnology industry decreased from 1063 in 2010 to 480 in 2013. Though the returns from the pharmaceutical and biotechnology industry have been dwindling, 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. 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 comeback of initial public offerings (IPOs) in 2013 signals 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 US. IPOs in the pharmaceutical industry also rose with 11 deals in 2013, after the volume of IPOs declined to almost one-sixth of the sector’s value between 2011 and 2012.

As a result of the rise in IPOs, exit opportunities are expected to increase for investors. The trend will be further fueled 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. They have also concluded the maximum pharmaceutical- and biotechnology-related PEVC deals in the US 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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Dr. E. Saneesh is a healthcare research analyst with Frost & Sullivan’s global Business and Financial Services practice. He has combined experience in clinical practices, research and consulting across specialties areas, such as pharmaceutical, healthcare delivery, and medical devices. His functional expertise is supported by his involvement with financial modeling, financial feasibility, business model development, and acquisition strategies. For more information about Frost & Sullivan’s global Business and Financial Services, email Jennifer Carson, Corporate Communications at Jennifer.Carson@frost.com.