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HBM Pharma/Biotech M&A Report 2012

Summary Results

In 2012, trade sales of North American and European pharma and biotech companies generated an upfront Total 2012 deal value lower than in transaction volume of $43.5 billion. This was lower than 2011 and 2010. the deal volumes reported in 2011 and 2010 ($63.5 billion and $66.9 billion). However, the number of transactions in Fewer public takeovers, but high 2012 (72) was in line with previous years (69 in 2011 and number of private transactions. 78 in 2010). If one excludes transactions over $10 billion (1 in 2012, 2 in 2011 and 1 in 2010), then 2012 looks quite strong with $32.3 billion of transaction volume (vs. less than $30 billion in 2011 and in 2010). The number of public takeovers during 2012 dropped to 12 (vs. 20 or more in the years before), whereas the number of private deals reached 60 transactions. These private transactions generated an upfront deal volume of $14.6 billion (only surpassed by the $20.8 billion upfront in 2011). M&A activity in the US remained strong with 48 deals generating an upfront transaction volume of $32.5 billion (vs. $42.7 billion in 2011 from 39 deals). Europe reported significantly lower transaction volume in 2012 ($10.4 billion) as compared to the year before when M&A deal volume reached $20.6 billion (which included the $13.7 billion buyout of Nycomed by Takeda).

M&A activity strong in the US, weaker in Europe. US buyers dominate. Specialty pharma buyers very active. Valeant (Canada) buys 5 companies.

North American large pharma and biotech firms as well as specialty pharmas were clearly the dominant buyers during 2012, shelling out two thirds of the transaction dollars in more than 40 deals. Valeant bought 5 biopharma companies in 2012, followed by Amgen (3) and Takeda (3). While the number of exits for VC-backed companies (28) was in line with past years, significantly more private equity-backed companies were sold in 2012 (10 vs. 3 such transactions each in 2011 and in 2010). 6 of these exits were in the US, 4 in Europe. Total deal value here reached $10.5 billion. US VC-backed biopharma companies continued to attract more interest from buyers then their European counter-parts (22 US deals vs. 5 European deals1). Overall upfront paid for VC-backed companies was $3.4 billion. Private equity funds sold 10 pharma Total transaction volume including contingent payments companies. reached a new high of $8.3 billion (two transactions had a biodollar value of $1 billion or more each). The returns from VC-backed trade sales during 2012 were stronger than ever driven by the excellent performance of some US exits. The average multiple to investors from upfront payments alone (for the 15 transactions where such a multiple could be estimated) reached 5.7x (the median was 3.5x).

High deal volume (incl. contingent payments) for VC-backed companies. Strong returns for US VC investors.

1 Plus one Canadian VC-backed company sold in 2012 (Enobia) 1

HBM Pharma/Biotech M&A Report 2012

Trade Sales of Public and Private Biopharma Companies in 2012


In 2012, the sale of 73 North American and European biopharma companies generated an upfront transaction volume of $43.5 billion, or $49.3 billion if one includes contingent payments. Compared to previous years, the overall deal volume was thus lower mainly due to the smaller number of public take-overs (12 vs. over 20 in the years before) and the absence of a mega deal.
Public & Private Pharma/Biotech Companies (US, Canada, Europe)

(Upfront) Transaction Volumes of Pharma/Biotech Trade Sales Biopharma M&A Upfront Transaction Volume (US, Canada, Europe)
$177.1 bn
Public companies (> $10bn) Public companies Other private companies Private companies (>$10bn) VC/PE-backed private companies

Upfront Transaction Volume ($ billion)

100
80 60
$80.8 bn
Merck KGaA/Serono Bayer/Schering AG Pfizer/Wyeth Merck/Schering P. Roche/Genentech

$66.9 bn

155.4
$52.7 bn

$63.5 bn

35.0

$49.2 bn

20.1
Novartis/Alcon (minority/option) Sanofi/Genzyme

Takeda/ Nycomed

40
$25.7 bn

29.6 41.5
AstraZ./Medimmune Schering P./Organon

11.0

41.2 22.6 2.1 13.7 4.0

$43.5 bn

Novartis/Alcon

11.2 17.7 0.7

Gilead/ Pharmasset

20 0

11.4 10.4 4.0

39.3

0.7 3.6

11.3 1.9

11.4 7.5 2.5

15.2 6.9

6.4

0.3 2.4

5.0

13.9

2005

2006

2007

2008

2009

2010

2011

2012
4

Source: HBM Pharma/Biotech M&A Report


The Alcon/Novartis transaction was recorded with $11 billion in 2008 (minority purchase) and with $41.1 billion in 2010.

HBM Partners

The HBM Pharma/Biotech M&A Report covers all completed trade sales of US, Canadian and European biotechnology and pharma (incl. generics and OTC) companies since 2005 to the end 2012. 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 report also includes acquisitions of biopharma companies by PE- or buyout investors. 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 includes contingent (biodollar) payments linked to reaching certain milestones. Additional data such as investment by VCs, exit multiples, stage of lead product etc. were collected from various sources. Please note that such data may be based on estimates and may not have been available for all transactions. Also, the results presented in this report may deviate from earlier reports due to subsequent reclassification or correction of data. Further information about the HBM Pharma/Biotech M&A Report including a list of all transactions can be found under www.hbmpartners.com/report. The use of data and charts is permitted with reference to HBM Partners Pharma/Biotech M&A Report.

HBM Pharma/Biotech M&A Report 2012


While transaction volume in 2012 was relatively low, the overall number of biopharma M&A transactions was in line with previous years, driven by a high number of private transactions (including a record number of & Private equity-backed Pharma/Biotech Companies (US, Canada, Europe) trade sales Public of private pharma companies, mainly former buyouts). Number of Pharma/Biotech Trade Sales by Year Number of Biopharma M&A Deals (US, Canada, Europe)
Public companies >$100m Other private companies

PE-backed private companies

Public companies <$100m value (not in survey before 2008)

80 70

VC-backed private companies

# of Transactions

60 50 40

13 24 3 32

19

11 27 2 31

9 25 13 27

6 13 6 17 26 15 3 29 3 28

1 11 22 10 28

14 12
18 1 19 2009

24 1 29

30 20
10 0

2005

2006

2007

2008

2010

2011

2012
6

Source: HBM Pharma/Biotech M&A Report

HBM Partners

Significant Transactions in 2012


The number of transactions with an upfront of at least $100 million was again very high in 2012. The number of $100+ million private deals significantly increased in 2012 due to the 10 PE-backed company exits1 (with a median deal value of over $500 million).
Public & Private Pharma/Biotech Companies (US, Canada, Europe)

Number of Biopharma M&A Deals With an Upfront of at Least $100 Million (US, Canada, Europe)
Public companies

Number of Pharma/Biotech Trade Sales >=$100m Upfront Transaction Volume

40

Other private companies PE-backed private companies VC-backed private companies

# of Transactions

30
11 13 19 7 2 1 12 2007 9 2008 25

17

11 3

20
4 3 10 0 2005

12
6 1 9 2009

13
5 3 10 2010 5 3 12 2011

10

10

3 1
8 2006

12 2012
10

Source: HBM Pharma/Biotech M&A Report

HBM Partners

While no transaction values for the secondary buyout of Aenova by BC Partners from Bridgepoint were disclosed, it can be assumed that this transaction was valued clearly above $100 million. 3

HBM Pharma/Biotech M&A Report 2012


In 2012, there were 9 deals with an upfront transaction volume of over $1 billion each. The largest deal was the purchase of NASDAQ-listed Pharmasset by Gilead Sciences for $11.2 billion. Pharmasset has several clinical programs in hepatitis C with the most advanced product in phase III. Two private trade sales, both companies backed by private equity, also reached values over $1 billion: Generics company Actavis (Switzerland) was sold to Watson for $5.6 billion and dermatology company Fougera, a spin-off from Nycomed (sold in 2011 for over $13 billion), was picked up by Sandoz/Novartis for $1.5 billion.

Largest Biopharma M&A Transactions in 2012 (US, Canada, Europe)


Target 1 Pharmasset (US) 2 Actavis (CH) 3 Amylin (US) 4 Human Genome Science (US) 5 Medicis Pharmaceutical (US) 6 Inhibitex (US) 7 Fougera (US) 8 Ardea Biosciences (US) 9 Micromet (Germany) 10 URL Pharma (US) 11 Mercury Pharma (UK) 12 EUSA Pharma (UK) 13 Enobia (Canada) 14 Amdipharm (Ireland) 15 Azur Pharma (Ireland) 16 Ista Pharmaecuticals (US) 17 deCode Genetics (Iceland) 18 Avila Therapeutics (US) 19 SkinMedica (US) 20 Proximagen (UK) 21 Kai Pharmaceuticals (US) 22 Orapharma (US) 23 NextWave (US) 24 Dusa Pharmaceuticals (US) 25 Allos Therapeutics (US) 26 Boston Biomedical (US) 27 JHP Pharmaceuticals (US) 28 Airborne (US) 29 EKR Therapeutics (US) 30 Elevation Pharmac. (US) 31 FerroKin (US) 32 CorImmun (Germany) 33 CNS Therapeutics (US) Public Private Public Public Public Public Private Public Public Private Private Private Private Private Private Public Private Private Private Public Private Private Private Public Public Private Private Private Private Private Private Private Private VC PE PE VC VC VC VC VC VC PE VC VC VC PE PE PE PE VC PE PE VC/PEBuyer Backed Gilead Sciences (US) Watson Pharmaceuticals (US) Bristol-Myers Squibb (UK) GlaxoSmithKline (UK) Valeant (Canada) Bristol-Myers Squibb (US) Novartis (CH) AstraZeneca (UK) Amgen (US) Takeda (J) Cinven (UK) Jazz Pharmaceuticals (US) Alexion (US) Cinven (UK) Jazz Pharmaceuticals (US) Bausch & Lomb (US) Amgen (US) Celgene (US) Allergan (US) Upsher-Smith (US) Amgen (US) Valeant (Canada) Pfizer (US) Sun Pharmaceuticals (India) Spectrum Pharmaceuticals (US) Dainippon Sumitomo (Japan) Warburg Pincus (US) Schiff Nutrition (US) Cornerstone Therapeutics (US) Dainippon Sumitomo (J) Shire (Ireland) Johnson & Johnson (US) Mallinckrodt (US) Upfront Value ($ million) 11'200 5'600 5'300 3'600 2'600 2'500 1'525 1'260 1'160 800 732 650 610 590 580 500 415 350 350 347 325 312 255 230 206 200 195 150 125 100 100 100 100 Total Value ($ million) 11'200 5'920 5'300 3'600 2'600 2'500 1'525 1'260 1'160 800 732 700 1'080 590 580 500 415 545 375 553 325 426 680 230 206 2'630 195 150 150 400 325 200 100

Comment: CH = Switzerland. Green shading = trade sales of VC-backed companies. Grey shading = trade sales of PE-backed companies.

Also see list of all transactions: www.hbmpartners.com/report. In 2012 there were also quite a number of larger exits of VC-backed biopharma companies. This list ranked by upfront consideration is topped by Canadian orphan disease company Enobia sold to Alexion in a transaction that could reach $1 billion if all milestones are met. Second was derma company SkinMedica which was picked up by Allergan for $350 million. The sale of Boston Biomedical to Dainippon Sumitomo reached the highest-ever biodollar value ($2.63 billion) of a VC-backed company.

HBM Pharma/Biotech M&A Report 2012

Premiums Paid for Takeovers of Public Biopharma Companies


The premiums paid for public biopharma companies since 2009 have increased to over 50% (premium of takeover price as compared to the last stock price before the deal announcement). As the chart below shows, there is a high degree of variance in these premiums. Any general conclusion from the data therefore should be interpreted with caution. Nevertheless, a few interesting observations can be made: The 10 public biotechs sold that had significant biologics assets (antibodies etc.) were able to command on average a premium of 67% (vs. the 47% average for all 50 public takeouts in this analysis). The 10 pre-commercial companies (phase II and III) also were rewarded with a higher premium (over 70% on average). Premiums paid for US public companies (38 deals) were on average 10% higher than the premiums paid for European firms (12 deals). The only therapeutic category that yielded significantly higher premiums was anti-infectives: The average premiums paid for the 5 companies in that field were over 100%. No correlation between size of transaction (i.e. size of company) and premiums was observed.

Premiums Paid for Public Biopharma Companies 2008 2012


Premiums Paid for Public Biopharma Companies 2009 2012 (Takeover Value >=$100 million)
100.0 46.8 66.7 42.0 Deal value $ bn Premium in % 160 10.0 6.8 2.6 1.4 1.0 0.4 0.4 90 2.6 2.2 4.0 3.3 1.9 0.9 0.6 84 2.9 3.6 2.3 1.1 1.2 0.6 0.30.3 74 0.1 3.4 2.5 1.31.2 99 20.1 163 11.2 5.3 3.6

200

150
2.6

Deal Value $ billion

1.0

0.9
0.5 0.4 0.2 58

100

0.5 0.3 0.3 67 64 0.1 60

0.4

89 0.5 80 0.2 0.2 71 0.1 54 39 33 10

0.3 0.2 0.2

0.1

45

33%
26 25 16 0.0 6

44 25 32

49 34

55

56%
48 40 41 26

53

52%

47%
28 15 17 19

50
39 38 27 10 16

35
18 9

22

Premium of purchase price compared to the stock price before the deal announcement

Zentiva Indevus Genentech CV Therapeutics Cougar Noven Medarex Sepracor Wyeth Schering Plough Goldshield Group Chattem BioForm Medical Facet Biotech Javelin OSI Pharma Valeant ZymoGenetics Movetis Abraxis Penwest Biocompatibles Cypress Martek Eurand Q-Med Crucell King Genzyme Prostrakan Clinical Data Inspire Caraco Talecris AB Sanitas Cephalon Anadys Adolor Novagali Inhibitex Pharmasset Ardea Biosciences Micromet Ista Human Genome Amylin Proximagen Allos Therapeutics Medicis Dusa

2009

2010

2011

2012

Comment: Public takeovers of US, Canadian and European biopharma companies with an upfront transaction value of at least $100 million. Premium of takeover price as compared to the last stock price before the announcement of the deal.

Source: HBM Pharma/Biotech M&A Report

HBM Partners

% Premium Paid

13

HBM Pharma/Biotech M&A Report 2012 Location of Buyers / Type of Buyers


In contrast to previous periods, M&A deal making in 2012 was clearly dominated by North American (mostly Private Pharma/Biotech Companies (US,of Canada, Europe) US) buyers Public who&generated over two thirds transaction volume. Pharma/Biotech Trade Sales - Location of Buyers Location of Buyers

180
Upfront Transaction Volume ($ billion)

3.2 Asian / ROW buyers European buyers North American Buyers 56.9

160 140 120 100

80
60 40 20 0

0.7

Pfizer/Wyeth Merck/Schering P.

108.7
61.8 0.9 14.7 10.2 18.3 4.9 23.8 20.5 10.1 30.5 12.4

4.4 15.6 50.5 12.3 1.4 13.3 28.8

34.3
13.6

8.1

2005

2006

2007

2008

2009

2010

2011

2012
11

Comment: Trade sales of Pharma/Biotech public and private pharma/biotech companies US, Canada and Europe Source: HBM M&A Report

HBM Partners

Also, large pharmas share of deal volume declined significantly in 2012 for several reasons: There were no mega transactions as in the years before. The largest deal in 2012 was consummated by Gilead (classified as Large Biotech) and Amgen, the worlds largest biotech, also bought 3 companies in 2012. In addition, smaller and medium-sized pharma companies were again very active buyers in 2012 with 30 acquisitions and Private & Public Pharma/Biotech Companies (US, Canada, Europe) a record deal volume of $12.5 billion. Buyers of VC-Backed Private Pharma/Biotech Companies (% Trans. Vol.) Share of M&A Upfront Transaction Volume by Type of Buyer

100%

6% 5% 17% 15%

2% 14% 13% 15% 2%

% of (Upfront) Transaction Volume

7% 3% 9%

2% 1%

1% 11% 6%

2% 1%

4% 1% 27%
Other

18%
2%

80%

Small biotech

60%

96%
40%

30% 82% 78%

Small & mid-sized pharma

72% 58%

81%

81%

Large biotech

20%

38%

Large pharma

0% 2005 2006 2007 2008 2009 2010 2011 2012


HBM Partners
12
Source: HBM Pharma/Biotech M&A Report Comment: Trade sales of public and private pharma/biotech companies US, Canada and Europe

HBM Pharma/Biotech M&A Report 2012


The table below shows that small and medium-sized pharma companies, which have been active buyers of other biopharma companies for the years covered by our report, have become very important as a buyer group. Number of M&A Transactions by Type of Buyer (Transactions with >=$100 Million Upfront)
Buyer Group Large Pharma VC-Backed PE-Backed & Other Private Public Total

Large Biotech VC-Backed PE-Backed & Other Private Public Total Small & Mid-Sized Pharma VC-Backed PE-Backed & Other Private Public Total Small Biotech Private Public Total

2005-08 25 3 32 60 0 0 6 2 7 15 0 0 6 15 21 42 0 0 2 6 8

2009 5 4 8 17 1 0 1 2 3 3 2 8 0 0 0

2010 6 1 7 14 3 1 1 5 1 5 5 11 1 0 1

2011 5 1 6 12 3 0 0 3 3 7 9 19 1 0 1

2012 4 3 5 12 2 1 2 5 4 5 3 12 0 1 1

2009-12 20 9 26 55 0 0 9 2 4 15 0 0 11 20 19 50 0 0 2 1 3

Comment: Trade sales of public and private pharma/biotech companies US, Canada and Europe >=$100 million upfront

Trade Sales of Private Biopharma Companies


60 private biopharma companies were sold in 2012, on par with the 60 transactions in 2007. Deal volume was also high driven by the $5.6 billion acquisition of Actavis by Watson and other significant exits for PEbacked companies. Upfronts paid for the 28 VC-backed companies were down slightly from 2011. The 23 other private (mostly family-owned) pharma companies sold generated a low overall deal volume in 2012. Pharma/Biotech Companies (US, Canada, Europe) However, Private it should be mentioned that terms for some of these trade sales are not disclosed. Trade Sales of Private Pharma/Biotech Companies Trade Sales of Private Biopharma Companies (US, Canada, Europe)

VC-backed co's

PE-backed co's

Other private co's

25

70

59
Transaction Volume ($ billion)

60
54 40

58
2.1

61
60

20 15

46

50
0.7 40 30
# of Transactions
14

38
14.6
incl. $13.7 bn Nycomed/Takeda

10
5 0

10.4 0.7 0.6 3.1 2006 1.9 2.4

7.5 0.3
2.4 2008 0.6 1.9 2009

6.9 1.7 2.3 2010

10.5

incl. $5.6 bn Actavis/Watson

20 10

1.4 2.6 2005

4.0
2007

4.1 2011

3.4 2012

Source: HBM Pharma/Biotech M&A Report

HBM Partners

HBM Pharma/Biotech M&A Report 2012


Private VC/PE-Backed Pharma/Biotech Companies (US, Canada, Europe)

Trade Sales of Private PE-Backed Biopharma Companies (US, Canada, Europe)

Trade Sales of PE-Backed Private Pharma/Biotech Companies

15

15

Transaction Volume ($ billion)

incl. $13.7 bn Nycomed/Takeda

10
Upfront transaction value

10

10
# of Transactions
16

14.6 10.5 5

5 3 2 1 0 2.4 2007 2008 1 0.6 2009

3 1.7
2010

3
incl. $5.6 bn Actavis/Watson

1.4
2005

0.6 2006

0 2011 2012

Source: HBM Pharma/Biotech M&A Report

HBM Partners

More details on the exits of PE-backed biopharma companies in 2012 can be found on the next page. Within the Other Private Company segment, the only significant transaction reported in 2012 was the acquisition of UK generics company Amdipharm by UK buyout house Cinven for $590 million. All other transactions were below $100 million.
Private VC/PE-Backed Pharma/Biotech Companies (US, Canada, Europe)

Trade Sales of Other Private (Not VC/PE-Backed) Biopharma Companies (US, Canada, Europe)

Trade Sales of Other Private Pharma/Biotech Companies

15 24
Transaction Volume ($ billion)

27 24

30 26

22
10
incl. $8.3 bn Hexal/Novartis

18
Upfront transaction value

20 15
# of Transactions
17

13

10.4

incl. $3.3 bn Stiefel/GSK

7.5 0.7 0 2005 2006 2007 2008 2009

incl. $5.0 bn Ratiopharm/Teva

10

6.9 2.1 2010 2011 0.7 0 2012

1.9

0.3

Source: HBM Pharma/Biotech M&A Report

HBM Partners

HBM Pharma/Biotech M&A Report 2012

Trade Sales of Private Equity-Backed Pharma Companies During 2012


(ranked by transaction value) In 2012, private generics company Actavis was acquired by Watson for $5.6 billion plus contingent payments of approx. $300 million. The deal closed in July 2012. This transaction creates the #3 global generics company. Actavis, headquartered in Switzerland, was acquired in 2007 by Novator, the investment vehicle of Thor Bjorgolfsson, an Icelandic billionaire with substantial leverage provided by Deutsche Bank which is reported to have taken control of the company in 2010. It is rumored that Deutsche Bank lost over $1 billion in this transaction (and equity investors probably lost most or all of their investment). Fougera, a leading US dermatology generics company, was acquired in May 2012 by Sandoz/Novartis for $1.5 billion in cash. Fougera, formerly a division of Nycomed, was spun off in 2011 when Nycomed was sold to Takeda for over $13 billion. Sales of Fougera were reported as $429 million. The main investors in Fougera (and Nycomed) were Nordic Capital, DLJ Credit Suisse and Avista Capital. No return figures are available from the Fougera transaction, but the overall Nycomed deal should have generated great returns for investors, most of all for Nordic Capital which was the lead investor in Nycomed. URL Pharma, a US specialty pharma company, was acquired in June 2012 by Takeda for $800 million in cash and undisclosed contingent payments. URL had sales of around $500 million. Takeda was mainly interested in URL's gout product (Colcrys) that was approved in 2009 and had net sales of over $400 million in 2011. In 1997, Elliott Associates and Momar Corporation purchased a majority of URL. No investment or return figures were reported, but it is believed that investor returns have been excellent (even though the holding period was about 15 years). Mercury Pharma was acquired in August 2012 by Cinven, a UK buyout group, for 465 million ($732 million). The company focusing on generics was bought by UK private equity house HG Capital in 2009 for 187 million ($285 million). This secondary buyout has yielded a multiple of around 3x to HG within a relatively short time period. The company was reported to have sales of 100 million. Cinven accounced that it plans to combine Mercury Pharma with Amdipharma, which was acquired later in 2012. In June 2012, US Jazz Pharmaceuticals completed the acquisition of EUSA Pharma (UK) for $650 million in cash plus contingent milestone payments of $50 million. EUSA was founded in 2006 by pharma executives and US investor Essex Woodlands to acquire specialty and/or orphan products. Sales of EUSA in 2011 were $95 million. The company raised approx. $225 million of equity mainly from European VCs and $55 million of debt. While no return figures have been published, the multiple to investors is believed to be between 2.5x and 3x. Azur Pharma, an Irish specialty pharma company with products in pain and women's health, merged with US-listed Jazz Pharmaceutcials in January 2012. Azur Pharma's shareholders will own 20% (valued at around $580 million) of the combined company Jazz Pharmaceuticals plc, to be located in Ireland. Azur was founded in 2005 by former Elan executives to acquire specialty pharma assets and was backed with over $150 million by private investors. While no return figures are available, it is believed that investors - based on the current valuation of Jazz - have seen an increase of over 3x in value. In June 2012, acquisitive Valeant purchased US Orapharma for $312 million of cash plus $114 million of contingent payments. Orapharma, a leading dental anesthesia and dental health company, was purchased by Water Street Healthcare from Johnson & Johnson in 2010. Water Street reportedly invested around $100 million in the deal. No investor returns are available, but it is estimated that Waterstreet made a 2x-3x on the upfront consideration. At the end of December 2012, JHP Pharmaceuticals was acquired by private equity firm Warburg Pinucs in a $195 million deal. JHP, a specialty pharma company, founded in 2007, was financed by Morgan Stanley Principal Investments. The company is a contract manufacturer and seller of branded and generics injectables. No return estimates on Morgan Stanley's investment are available. The US immune support supplement producer Airborne was purchased in April 2012 by publicly-listed vitamin maker Schiff Nutrition for $150 million in cash. The company, founded in the 1990s, had an eventful history including several ownership changes and lawsuits including a $30 million settlement payment to the Federal Trade Commission. Airborne was owned temporarily by Summit Partners and in 2009 was taken over by private equity firm CF Capital. Return figures are not available. In August 2012, BC Partners acquired German Aenova, a leading producer, developer and seller of solid dosage form medicines, from Bridgepoint, which invested in the company in 2005. The terms of this secondary buyout were not disclosed. Sales of Aenova are reported to be 250 million with 1600 employees. The company is catering its services and products to other pharma companies concentrating on generics and OTC products, among others.

HBM Pharma/Biotech M&A Report 2012 Trade Sales of VC-Backed Biopharma Companies
The number of VC-backed biopharma companies sold in 2012 was in line with previous years. While the upfront transaction volume was lower than in 2011, the total volume including contingent payments reached a new high of $8.5 billion. As noted previously, Boston Biomedicals potential deal value was $2.63 billion and Enobia could also become a billion-dollar deal if all milestones are met.
Private VC-Backed Pharma/Biotech Companies (US, Canada, Europe)

Trade Sales of VC-Backed Private Pharma/Biotech Companies Trade Sales of VC-Backed Biopharma Companies (US, Canada, Europe)

10.0
Upfront transaction value Total value

40 32 31 27 29 28 28

Transaction Volume ($ billion)

7.5

29

30
# of Transactions
10

5.0

19
8.3

20

6.7 2.5
4.0 3.3 3.1 3.5 2.6
2005 2006

4.8 2.4

5.1 3.7 1.9


2009

4.7 2.3
2010

4.1

10
3.4 0

0.0
2007 2008 2011 2012

Source: HBM Pharma/Biotech M&A Report

HBM Partners

18

The upfront consideration from trade sales of VC-backed biopharma companies in 2012 averaged $174 million per deal, below the $203 million in 2011. The median upfront value in 2012 was $100 million, compared to $115 million in 2011.
Private VC-Backed Pharma/Biotech Companies (US, Canada, Europe)

Average Investment / Average Upfront and Total Deal Values Trade Sales of VC-Backed Biopharma Companies (US, Canada, Europe)
VC-backed companies only.

400 350
Average Values ($ million)

440

Average Total Transaction Value Average Upfront Transaction Value Average Invested Capital 170 123 196 137 176 88 55 62 39 134 88 317 156 203 333

300
250 200 150

174

100
50 0

151
117 49

63 2009
16

56

73

70

2005
Number of transactions where investment amounts and transaction values were available

2006
20

2007
22

2008
21

2010
20

2011
20

2012
18

21

Source: HBM Pharma/Biotech M&A Report

Only for transactions where respective information was available.

HBM Partners

19

HBM Pharma/Biotech M&A Report 2012


Average total deal values (including biodollars) rose to $440 million in 2012. This number is skewed by the potentially very high deal value of Boston Biomedical. Therefore, median numbers are more meaningful here ($200 million in 2012 vs. $212 million in 2011). It is interesting to note that the average total VC investment into the companies that were sold in 2011 and 2012 was higher than in previous years indicating that investors are prepared to (or need to) invest more until a company reaches the exit stage.

Estimated Returns to Venture Investors


Wherever available, HBM is collecting additional information about biopharma trade sales that allows an estimate of (venture) investors returns in such transactions. While the biotech IPO market is open again at least in the U.S. step-ups from private to IPO valuations have been modest. Thus, a trade sale continues to be 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 average valuation paid by private investors to the exit valuation (upfront transaction volume). It should be noted that the ratios mentioned above and the return estimates were only available for about 70% of the deals. Also, one or two good exits can significantly drive up average values. Median return multiples are thus substantially lower.
Private VC-Backed Pharma/Biotech Companies (US, Canada, Europe)

Ratio of Deal Values to Invested Capital / Average & Median Multiples Return Estimates for Venture Investors from VC-Backed Trade Sales (US, Canada, Europe) 7 6 5
VC-backed companies only.

Total Deal Values/Invested Capital Upfront Deal Values/Invested Capital

These multiples are weighted by invested capital

6.4 5.7 4.6 3.7 2.5 3.7 2.7 2.5 1.7 1.0 3.5

Average Investor Multiples (on Upfront) Median Investor Multiples (on Upfront)

5.1

Ratio / Multiple

4 3.1 3 3.2 2.7 2.1 2.0 2.3

3.4 2.8 2.0 1.8

3.5

2.4
2 1 0 2.1 1.6

2.2 2.1 2.0 1.5

1.9

2.5

2005

2006

2007

2008

2009

2010

2011

2012
20

Only forinformation transactions where respective Comment: For VC-backed company trade sales where respective was available. Source: HBM Pharma/Biotech M&A Report information was available.

HBM Partners

The ratio of total value (including biodollars) to invested capital was about 3x until 2007 and then increased substantially as contingent payments became more prevalent. This ratio reached a new high in 2012 of 6.4x. If one excludes Boston Biomedical, where investors could get up to 40x of the invested capital, this ratio drops to 4.3x, still a good number. The ratio of upfront proceeds to invested capital inched up to 2.8x between 2005 and 2007 and then dropped to a low of 1.7x in 2010. The ratio jumped back to over 2x in 2011 and 2012. The gap between multiples from upfront and the maximum multiple widened substantially in 2009 and the following years as milestone-driven deals became more prevalent.
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HBM Pharma/Biotech M&A Report 2012


The estimated return multiples, i.e. upfront proceeds to private valuations, show a similar development. The multiples were stable at around 2x until 2009 and since then have shown a healthy increase. Overall, returns to VC investors clearly have been on the upswing since 2009 (both in the US and in Europe, see below). However, US deals have generated substantially better returns during the last 4 years.
Private VC-Backed Pharma/Biotech Companies (US, Canada, Europe)

Return Estimates for Venture Investors from VC-Backed Trade Sale (US vs. Europe)
VC-backed companies only.

Estimated Investor Return Multiples US vs. European Trade Sales

7x
6x
Multiples of average private valuations to upfront transaction value

6.7x Estimated multiples US (Average) 4.1x 3.1x 2.6x 2.4x Estimated multiples Europe (Average)

Estimated Multiples

5x 4x

3.1x
3x 2x 1.9x 1x 0x 2005 2006 0.8x 2007 2008

Median 3.5x 2.3x 2.7x

2.3x

2.4x

2.0x

1.8x
1.3x 2009

1.7x

Median 1.5x

Europe: Only 3 deals with return data!

2010

2011

2012
HBM Partners
21

Only for transactions where Comment: For Source: VC-backed company trade sales where respective information wasrespective available. HBM Pharma/Biotech M&A Report information was available.

Stage of VC-Backed Biopharma Companies at Time of Trade Sale


Since 2007, the number of pre-clinical acquisitions has generally declined and the number of acquisitions of companies with phase III programs or approved products has shown an increase. As mentioned in previous VC-Backed Companies (US, Europe) reports, we Private observed noPharma/Biotech systematic impact of Canada, company stage on investor returns. Trade Sales of VC/PE-Backed Biopharma Companies by Stage of Lead Product Stage of Lead Program at Time of Trade Sale (VC-Backed Cos US, Canada, Europe)
VC-backed companies only.

30
2 25
# of Transactions

2
3

2 2

4 6 3

2 2 6

Market

4 3 1 1 6 4

6 8 2 3 9 10 4
Phase II
Phase III / NDA

20 15 10 5 0

8
8 4

4
13 13

7
9 1 5
Phase I

10

3
2

Pre-clinical

2005

2006

2007

2008

2009

2010

2011

2012
22

Only transactions where sale respective Comment: Only for transactions where stage of lead product atfor the time of trade was available. HBM Partners Source: HBM Pharma/Biotech M&A Report information was available.

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HBM Pharma/Biotech M&A Report 2012


In line with the trend to later-stage M&A deals are two further observations: (1) Press releases of recent acquisitions rarely mention platform or technology as a reason for the acquisition. Usually one or more products (in various stages of development) are highlighted. We have analyzed the M&A press releases since 2005 and the chart below clearly confirms the trend towards product Private VC-Backed Pharma/Biotech Companies (US, Canada, Europe) deals (vs. technology deals). Main Reasons for Acquisition (as Mentioned in Press Releases)
Main Reasons for Acquisition
(as mentioned in press releases)

VC-backed companies only.

Platform or technology 25
# of Transactions

Product(s) 25 24 21

23

24

23

20

18
14 11 14

18 16

15
10 5 0

7 3

7 3

2005

2006

2007

2008

2009

2010

2011

2012
24

Only for transactions where Comment: For Source: VC-backed company trade sales where respective information wasrespective available. HBM Pharma/Biotech M&A Report information was available.

HBM Partners

(2) The time from founding of a company to trade sale has significantly increased since 2005. Whereas the average time to exit was a bit more than 5 years in 2005 it now has increased to almost 9 years, indicating that VC-backed biopharma companies have to develop their products in later-stage clinical trials before they Private VC-Backed Pharma/Biotech Companies (US, Canada, Europe) can orchestrate a trade sale. Years From Company Founding to Trade Sale Time From Company Foundation to Trade Sale
VC-backed companies only.

10 9 9.0 8.5 8.0 7.5 6.4 5.7 5.2 5 6.8

Years to Trade Sale

8 7 6

Time from company founding to trade sale

4
2005 2006 2007 2008 2009 2010 2011 2012
25
Only forinformation transactions where Comment: ForSource: VC-backed company trade sales where respective wasrespective available. HBM Pharma/Biotech M&A Report information was available.

HBM Partners

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HBM Pharma/Biotech M&A Report 2012 Outlook


While 2012 was not the strongest M&A year in terms of transaction volume, industry participants will nevertheless look back at 2012 as a good M&A year with a high number of significant transactions, especially in the private sector. Private deals mostly produced good returns for venture- and private-equity investors. Medium-sized pharma companies have become very active in the M&A market on the buy side and we expect this to continue in 2013. As the biotech IPO window is open again (in the US), US biopharma companies have an alternative exit route now, even though in most cases a trade sale is still preferred. As the public stock performance in the sector has been strong, public biopharma companies might look less attractive and interested buyers turn more towards private targets. The high number of larger exits for PE-backed pharma companies will certainly increase the appetite for buyouts groups to engage more in the sector. As buyout firms prefer to acquire well-established private companies or divisions of larger companies, we do not expect buyout houses to pick up VC-backed biopharma companies. Pharma/biotech M&A activity will focus mainly on the US and the emerging markets. European companies with unique products that can be sold worldwide also represent attractive targets. We have not seen yet a sell-out of smaller pharma companies in Southern Europe, i.e. in the countries which have been most affected by the Euro crisis. The good number of significant M&A transactions already announced during the first weeks of the New Year lead us to believe that 2013 could again be a strong M&A year for the pharma/biotech sector.

January 2013
Please address questions, comments or corrections 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 +41 43 888 71 71

About HBM Partners


HBM Partners is a globally active, healthcare-focused investment management group headquartered in Switzerland. HBM Healthcare Investments AG and funds advised by HBM invest in private and public companies across North America, Europe, India and China. Since 2001, HBM has generated more than 40 trade sales and IPOs of pharma/biotech, medtech and diagnostics companies. More information can be found at www.hbmpartners.com.

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