Merger Notes From the BIO Investor Forum

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Notes from David Thomas who is out in San Francisco at the BIO Investor Forum,

  • Reverse mergers: It is difficult for a shell in this market climate to take on quality biotechs due to disagreements on valuation of the VCs vs. public company boards. Other issues with doing reverse mergers are disagreements with fitting the board with old shell vs new biotech board members. Public shells are looking for data driven catalysts that will move company valuation within two years.
  • Big Pharma: The climate today is better than ever before in terms of Big Pharma’s willingness and interest in acquiring early stage biotechs. Cash available and strategic position at Big Pharma suggests further opportunities. New players, in particular Japanese pharma companies, are entering the M&A space.
  • The tough public market climate, with no major biotech IPOs since October 2007, is shifting exit strategies toward acquisition. Furthermore, the data suggests that the return to VC investors on IPO exits is not always better than a return via acquisition. Investors are setting the deal price today, not the VCs.
  • Capital restraints: As companies and investors conserve cash and pull back on risk, the losers will be the drugs that never get a shot on goal. Lack of funding will result in narrowing the breadth of indications for compounds making it less likely for serendipitous findings. Many companies will cease to exist due to the inability to consolidate or raise new capital.
  • Suggestions for biotechs looking to be acquired: Stay focused on your internal expertise and not on external in-licensing or M&A. Selling off of assets to raise cash and return to your core focus is another option.