18 Dec 2006: A great biotech financing year, unless you were going public!
Well folks, this is my last article of the year, and I have talked less about music this year than in years past, so my New Year’s resolution for this column is bring back more music (hopefully something blue, rock, or folk-related). Part of the problem is that I simply have not gone to as many concerts this past year, or bought many new CDs (something else I will need to remedy!)
Looking over 2006, my focus has been more on biotech’s international side and trends, as I have been fortunate to travel this year to Japan, Israel, Brazil, Switzerland, and Colombia, and to Baltimore, and Boston, and Denver. I even traveled to the West Coast to update my perspective on the life-science industry there.
I did promise you in the last column that I would delve more into Midwest financing, which I will get to. Before I do, I came across some helpful info in the Dec. 2006 edition of Genetic Engineering News, which I thought worthwhile to bring to your attention. This info is a more complete picture of biotech financing in 2006 (whereas last column’s focus was just on the VC part). Let’s take a look:
U.S. Biotech Industry Financing ($ millions)
| Type of Financing | 2005 (Full Year) | % | 2006 (9 months) | % |
| Public IPO | $ 819 | 2.4 | $ 524 | 1.6 |
| Secondaries | $ 4,194 | 12.0 | $ 3,032 | 9.1 |
| PIPES* | $ 2,376 | 6.8 | $ 1,817 | 5.4 |
| Debt | $ 5,565 | 16.0 | $12,241 | 36.6 |
| Private VC | $ 3,518 | 10.1 | $ 3,086 | 9.2 |
| Other | $ 1,114 | 3.2 | $ 303 | .9 |
| Total Public/Private Equity Financings | $17, 586 | 50.5 | $21,013 | 62.8 |
| Corporate Partnering | $17, 268 | 49.5 | $12,463 | 37.2 |
| Total Financing | $34, 854 | 100.0 | $33,476 | 100.0 |
Source: Genetic Engineering News, December, 2006, and Burrill & Company
*PIPES= private investment in public equities
Amazingly, 2006 has been a great year for biotech financing with the nine month results for 2006 at about 96 percent of 2005, and we still had three months to go. The mix of the type of financing, however, is very different from one year to the other, with IPO financing, corporate deals, and “other” down substantially versus 2005. Debt financing is up significantly, even with higher interest rates than last year, but this is only applicable to companies that are publicly-traded or that have significant sales and cash flow.
A key part of this chart is the VC financing component, which we covered last week. This segment represents less than 10 percent of the total. The “Other” category is not really explained and I am wondering whether this represent angel money.
A really important aspect of this chart is the de minimus impact of the IPO market, representing less than two percent of the total.
According to Burrill and the article, there have been 17 IPOs this year, which on average have raised about $46 million per IPO. The average offer range for these IPOs was $11 to $13, but the actual issue price was $9.11, which gives testimony to my last article comment on the pricing haircut (22 percent to 30 percent). The average return for all of the IPOs was up 16 percent at the end of October 2006, although three IPOs show negative returns and one IPO no growth.
Midwest VC results – first nine months
I promised in the last column to give you a true Midwest state perspective on VC funding for the first three quarters. This information is for all business sectors.
Midwest VC Results 2006 (3 Quarters – $ millions)
| State | 2005 (9 months) | 2006 (9 months) | % Growth | # of Deals (2005) | Average Deal Size (2005) |
| Illinois | $181.9 | $291.7 | +60% | 31 | $9.4 |
| Minnesota | $169.6 | $240.6 | +42% | 26 | $9.3 |
| Michigan | $50.2 | $72.3 | +44% | 11 | $6.6 |
| Missouri | $74.9 | $70.0 | <7%> | 14 | $5.0 |
| Wisconsin | $24.6 | $49.7 | 102% | 12 | $4.1 |
| Ohio | $112.2 | $37.0 | <67%> | 23 | $1.6 |
| Indiana | $95.1 | $27.9 | <71%> | 10 | $2.8 |
| Iowa | $0 | $0.0 | NA | 1 | <$.5 |
| Total | $708.5 | $789.2 | +11% | 128 | $6.2 |
Source: PriceWaterhouseCoopers MoneyTree Report, 9/31/06
If you are comparing these total numbers to what I showed in the last column, they are not comparable because MoneyTree does not really makeup a true “Midwest region,” so I had to amalgamate two different geographic sectors in the last column, which includes far more states.
In the above analysis, it appears to a good year for the Midwest with overall VC investment up 11 percent versus the same period last year. Three of the eight Midwest states show declines in investment, with Ohio and Indiana having very difficult years thus far. Illinois leads the way both in total amount of money invested, number of deals, amount invested per deal, and has one of the highest growth rates in the region, surpassed only by Wisconsin’s strong showing.
I would like to point out that the above analysis doesn’t reflect angel group investment, which is particularly strong in Wisconsin, Missouri and Michigan, all of which have vibrant angel groups.
See you early next year, Happy Holidays, and I promise more music!
Recent articles by Michael Rosen
• Michael Rosen: Financing life science: The ongoing saga
• Michael Rosen: Midwest gaining stature in nanotech research
• Michael Rosen: Midwest colleges strong contenders for NIH funds
• Michael Rosen: Japan on the rebound: Implications for Midwest
• NIH ’05 funding: Midwest has two states in Top 10
The opinions expressed herein or statements made in the above column are solely those of the author and do not necessarily reflect the views of The Wisconsin Technology Network, LLC. WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.