HBM Pharma/Biotech M&A Report

Trade Sales of Pharma and Biotechnology Companies 2005-2011

The HBM Pharma/Biotech M&A Report covers all completed trade sales of North American (US and Canada) and European biotechnology, specialty pharma, generics, OTC and traditional pharma companies since 2005. 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 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 can also include contingent (biodollar) payments linked to the achievement of certain milestones. Additional data such as investment by VCs, investment multiples, stage of lead product etc. were collected from various sources. Please note that such data may not have been available for each transaction. Also, the results presented in this report may deviate slightly from earlier reports due to subsequent reclassification or correction of data. Further information about the HBM Pharma/Biotech M&A Report, including a slide presentation and a list of 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.

Summary Results
2011 was again a strong year for pharma/biotech M&A. Transaction volume from the sale of North American and European biopharma companies reached $64.1 billion ($66.9 billion in 2010). Including contingent payments, deal volume in 2011 reached $70.9 billion ($69.6 billion in 2010). [Note: This does not include the $11.2 billion purchase of Pharmasset by Gilead, as the transaction was completed after year-end.] The number of M&A deals in 2011 (71 transactions) was roughly in line with previous years, but down from last year when a record 79 deals took place. However, just counting deals with an upfront consideration of at least $100 million, 2011 was a record year with 38 such transactions (compared to 29 such transactions in 2010 and 28 in 2009). Deal activity was particularly strong during the first half of 2011 when a transaction volume of $53.1 billion was recorded. This included the $20+ billion purchase of Genzyme by Sanofi and the $13.7 billion sale of Nycomed to Takeda, the largest private pharma transaction so far. Upfront deal volume for VC/PE-backed company trade sales in 2011 reached a record $18.7 billion (up from $3.7 billion in 2010 and from $2.7 billion in 2009). Even if the Takeda/Nycomed deal is excluded, transaction volume was higher than in previous years ($5.0 billion upfront and $7.7 billion total deal value). The only year covered by our analysis showing similar deal values was 2007 when an upfront transaction volume of $6.4 billion ($6.9 billion including biodollars) was reached by the sale of VCbacked biopharma companies. Average multiples to investors (based on upfront payments) from VC-backed company sales jumped to 2.8x (1.6x in 2010). Including further contingent payments, the potential multiple reached 4.5x. So, 2011 will be remembered as a good year by the venture capital community.

HBM Pharma/Biotech M&A Report 2005-2011

Trade Sales of Public and Private Pharma/Biotech Companies1 in 2011

2011 showed strong M&A activity in the North American and European pharma/biotech sectors with upfront transaction volumes reaching $64.1 billion (and total deal volume, including biodollars, reaching $70.9 billion). When comparing 2011 with 2010, one should consider that the deal volume in 2010 includes the purchase of Novartis remaining stake in Alcon for $41 billion which accounted for over half of that years transaction & Private Pharma/Biotech Companies (US, Canada, Europe) Public volume.

(Upfront) Transaction Volumes of Pharma/Biotech Trade Sales

Public companies (> $10bn) Public companies

$177.1 bn

Transaction Volume ($ billion)

100
$80.8 bn

Other private companies

Private companies (>$10bn) VC/PE-backed private companies

80 60 40
$25.7 bn

155.5
$66.9 bn $64.1 bn

35.0
Merck KGaA/Serono Bayer/Schering AG

$49.2 bn

$52.7 bn

Pfizer/Wyeth Merck/Schering P. Roche/Genentech

20.1 41.2
Novartis/Alcon Sanofi/Genzyme

29.6 41.5
AstraZ./Medimmune Schering P./Organon

11.0

22.6 2.7 13.7

Takeda/ Nycomed

20
0

11.4 10.4 3.9

39.3

0.7 3.6

11.3 1.9

11.4 7.5 3.0

15.2 6.9 3.7

6.4

0.3 2.1

5.0

2005

2006

2007

2008

2009

2010

2011

Comment: Trade sales of pharma/biotech companies US, Canada and Europe. The Alcon/Novartis transaction was recorded with HBM Partners 4 Source: HBM Pharma/Biotech M&A and with $41.1 billion in 2010 (purchase of remaining shares, approval by Alcon shareholders in $11 billion in 2008 (minority purchase) Survey 2010, final completion of merger in 2011).

In 2011, US target companies accounted for almost two thirds of deal volume ($42.8 billion, 39 deals). The 28 European biopharma companies sold generated $21.2 billion of transaction volume. Even if one excludes the Nycomed/Takeda deal, transaction volume in Europe was at a similar level ($7.5 billion) as in 2010 ($7.6 billion). Finally, 4 Canadian companies were sold in 2011 for a total of $133 million. Most of the deal value was recorded in the first half of 2011 ($53.1 billion vs. $11.0 billion in the second half). This was the case both in the US (H1 transaction volume $33.0 billion, H2 $9.7 billion) and in Europe (H1 $20.0 billion, H2 $1.1 billion). In 2010, it was the opposite when the second half of the year generated the bulk of the transaction volume. The slowdown in M&A activity during 2011 can be attributed at least partially to the looming euro crisis and the associated uncertain economic outlook.

Largest Transactions in 2011

The largest deal in 2011 was the purchase of Genzyme (NASDAQ GENZ) by Sanofi for $20.1 billion plus contingent payments of approximately $2.8 billion. The sale of private-equity-backed specialty pharma Nycomed to Takeda for $13.7 billion marks the largest-ever trade sale of a private pharma company. The absolute amounts distributed to investors were substantial: Accounting for the $5.1 billion debt of Nycomed at the time of the sale, private equity investors should have received a record amount of $8.5 billion. Nordic Capital, the first and largest investor in Nycomed was reported to hold about 41% of the company at the time of exit. Investment multiples for this transaction were not disclosed.
1 This report covers only trade sales of pharma and biotech companies located in the US, Canada and Europe. 2

HBM Pharma/Biotech M&A Report 2005-2011

Other notable transactions were the sale of Cephalon (NASDAQ CEPH) to Teva ($6.8 billion), the sale of King Pharmaceuticals (NYSE KG) to Pfizer ($3.6 billion), the sale of Talecris (NASDAQ TLCR) to Grifols ($3.4 billion) and the sale of Crucell (Euronext CXRL) to J&J ($2.3 billion). Largest Pharma/Biotech M&A Transactions in 2011 (US, Canada, Europe)
H1/H2 Target Public/ Private VE/PEBuyer Backed Upfront Value Total Deal Value ($ million) ($ million)

H1 H1
H2

1 Genzyme (US) 2 Nycomed (Switzerland) 3 Cephalon (US) 4 King Pharmaceuticals (US) 5 Talecris Biotherapeutics (US) 6 Crucell (NL) 7 Q-Med (Sweden) 8 Martek (US) 9 Clinical Data (US) 10 Plexxikon (US) 11 Advanced BioHealing (US) 12 Eurand (NL) 13 Specifar (Greece) 14 Paddock Laboratories (US) 15 Azur Pharma (Ireland) 16 Pharmaswiss (Switzerland) 17 Prostrakan (UK) 18 Graceway Pharma. (US) 19 Inspire (US) 20 Biovex (US) 21 Anchem Pharma. (US) 22 Calistoga (US) 23 AB Sanitas (Lithuania) 24 Amira Pharma (US) 25 Oceana Therapeutics (US) 26 Antula (Sweden) 27 Cypress Bioscience (US) 28 Anadys (US) 29 Gemin X (US) 30 Intellikine (US) 31 Adolor (US) 32 Caraco (US) 33 Prism (US) 34 Novagali (F) 35 Synosia (Switzerland) 36 Victory Pharma (US) 37 Astex (UK) 38 Taligen (US)

public private public public public public public public public

private private VC VC

Sanofi (F) PE Takeda (J) Teva (Israel) Pfizer (US) Grifols S.A. (Spain) Johnson & Johnson (US) Galderma Pharma (Switz.) DSM (NL) Forest Laboratories (US) Daiichi Sankyo (J) Shire (UK) Aptalis (Canada) Watson Pharma. (US) Perrigo (US) Jazz Pharmaceuticals (US) PE PE
VC

20'100 13'680 6'800 3'600 3'400 2'300 1'200 1'087 929 805 750 587 562 540 525 478 475 455 430 425 410 375 372 325 300 281 255 230 225 190 190 188 170 135 122 118 117 111

23'900 13'680 6'800 3'600 3'400 2'300 1'200 1'087 1'114 935 750 587 562 540 525 518 475 455 430 1'000 410 600 372 475 300 281 255 230 525 310 415 188 338 135 122 127 117 478

H1 H1 H1 H1 H1 H1 H1 H1 H1 H1
H2 H2

public private private private private public private public

private

H1 H1
H2

Valeant Pharma. (Canada) Kyowa Hakko Kirin (J) Medicis (US) Merck & Co (US) Amgen (US) Par Pharmaceuticals (US) Gilead Sciences (US) Valeant Pharma. (Canada) Bristol-Myers Squibb (US) Salix (US) Meda (Sweden) Ramius/Royalty Ph. (US) Roche (Switzerland)

H1 H1
H2

private
private VC

H1
H2 H2 H2

public
private VC

private private public public

private private VC VC

H1 H1
H2

H1
H2 H2

Cephalon (US) Takeda (J) Cubist (US) Sun Pharma (India)

public public
private VC

H1 H1
H2

Baxter (US) Santen Pharma. (J) Biotie (Finland) Shionogi (J) SuperGen (US) Alexion (US)

public
private private private private VC VC VC VC

H1
H2

H1 H1

Comment: Grey shading = trade sales of PE-backed companies, green shading = trade sales of VC-backed companies. Martek, a producer of nutraceuticals, acquired in 2011 by DSM, was included in the analysis.

Number of Transactions
The number of M&A transactions in 2011 (71 deals) was a bit lower than in 2010 when a record number of 79 transactions were completed. 24 public companies were sold in 2011 (compared to 20 in 2010). The number of trade sales of VC/PE-backed companies also held up well (31 trade sales vs. 32 trade sales in 2010), whereas the number of other private companies sold dropped from 27 in 2010 to 16 in 2011.

HBM Pharma/Biotech M&A Report 2005-2011

Public & Private Pharma/Biotech Companies (US, Canada, Europe)

Number of Pharma/Biotech Trade Sales

Public companies >$100m Other private companies VC-backed private companies

100

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

80
# of Transactions

PE-backed private companies

6 9 25 13 14 12 18 27 16 14 7 17

60

13
24

19

11
26

40

24

20

33
2 2005

29 1 2006

33
1 2007

27

29
19 1 2009 3 2010

28
3 2011
5

2008

Comment: Trade sales of pharma/biotech companies US, Canada and Europe

Source: HBM Pharma/Biotech M&A Survey

HBM Partners

The number of pharma/biotech M&A deals has shown a substantial increase since H1 2009 with a high number of deals in H2 2010 and H1 2011 (see semi-annual numbers below). The number of transactions dropped again in H2 2011. Industry participants, especially the ones on the sell side, of course hope that this decrease in transaction numbers will be reversed in 2012.
Public & Private Pharma/Biotech Companies (US, Canada, Europe)

Number of Pharma/Biotech Trade Sales by Half Year

Public companies >$100m Other private companies VC-backed private companies PE-backed private companies Public companies <$100m value (not in survey before 2008)

50

# of Transactions

40 30
6

14

5 12 4 13 5 17 10 8 6 6 6 4 5 11

2 9 3 4 5 12

17
5 10

14

20 10 0

2 8

18
8

12
16 4

13 14
15

11 11 8 2 2 2 1 1 1 1 1 H1 05 H2 05 H1 06 H2 06 H1 07 H2 07 H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 9
HBM Partners
6

16

17

20

17

16

17

Comment: Trade sales of pharma/biotech companies US, Canada and Europe

Source: HBM Pharma/Biotech M&A Survey

HBM Pharma/Biotech M&A Report 2005-2011

Location of Buyers
In 2011, as in previous years (with the exception of 2009), European buyers again significantly outspent their US peers on biopharma acquisitions. European buyers not only have been more active buyers in their home region, i.e. in Europe, they also put up more money for US acquisitions than US buyers: Since 2005, European pharma firms have purchased US companies for a total of $192 billion whereas US pharma buyers only spent $170 billion (of which $109 billion was accounted for by the two megadeals Pfizer/Wyeth and Merck Inc./Schering Plough). Even if one excludes the two largest US acquisitions by European firms (Roche/Genentech $46.8 billion and Novartis/Alcon $52.1 billion1), European buyers still disbursed close to $100 billion on other US acquisitions.
Public & Private Pharma/Biotech Companies (US, Canada, Europe)

Pharma/Biotech Trade Sales - Location of Buyers

180
Transaction Volume ($ billion)

3.2
Asian buyers

160 140 120 100 0.7

European buyers
North American Buyers

57.2

80 60 40 20 0 0.9
14.7 10.1

108.7
Pfizer/Wyeth Merck/Schering P.

4.5 15.6

61.8

4.9 23.8 20.5

10.1 30.5 12.1 8.3

50.5
12.0

34.3 14.1

18.3

2005

2006

2007

2008

2009

2010

2011
10

Comment: Trade sales of pharma/biotech companies US, Canada and Europe

Source: HBM Pharma/Biotech M&A Survey

HBM Partners

Large Pharma as Buyers of US and European Biopharma Companies

In every year covered by this report, large pharma companies have been clearly the most important buyers of US and European biopharma companies contributing 58% (2005) up to 96% (2009) of yearly transaction volume (see chart on next page). This percentage is of course strongly influenced by mega deals with big pharma firms on the buy side. But large pharma companies also dominate the smaller end of the M&A market (see second chart on next page): Their share of acquisition dollars spent to buy of VC-backed private companies has since 2005 averaged roughly 50%. After an increase to 67% in 2007, the share dropped to below 50% in 2009 and then picked up again reaching 56% in 2011. Big pharmas continued interest in innovative companies as demonstrated by the increase of their share of VC-backed companies bought in 2010 and 2011 - is encouraging. However, most industry observers would agree that large pharma companies have become very selective and if they are interested in buying a company try to offload some of the risk to the sellers of companies (i.e. offering staged deals).

The Alcon transaction was recorded under US transactions (main operations in the US, legal headquarter in Switzerland). 5

HBM Pharma/Biotech M&A Report 2005-2011

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

Buyers of Private and Public Pharma/Biotech Companies (% Trans. Vol.) % of Upfront Transaction Volume
100%

% of (Upfront) Transaction Volume

80%

23%

21% 6%

15% 2%

1% 3% 9%

11% 6%

18% 2%

Other Small biotech Small & mid-sized pharma Large biotech

60%

15% 96%

40%

72%
58%

81%

81%

82%

Large pharma

77%

20%

0%

2005

2006

2007

2008

2009

2010

2011
HBM Partners
11

Comment: Trade sales of pharma/biotech companies US, Canada and Europe Source: HBM Pharma/Biotech M&A Survey
Private VC/PE-Backed Pharma/Biotech Companies (US, Canda, Europe)

Buyers of VC-Backed Private Pharma/Biotech Companies (% Trans. Vol.)

% of Upfront Transaction Volume / VC-backed companies only.

100%

22%
% of (Upfront) Transaction Volume

9% 3% 28%

5%

1% 13% 44% 37% 30% 14% 11%

8% 16%
Small biotech

14%
13%

80%

23%
60%

19%

Small & mid-sized pharma

9%
40%

15% 60% 67% 50% 39% 45%

Large biotech

20%

46%

56%

Large pharma

0% 2005 2006 2007 2008 2009 2010 2012

HBM Partners
18
Comment: Trade sales of pharma/biotech companies US, Canada and Europe Source: HBM Pharma/Biotech M&A Survey

HBM Pharma/Biotech M&A Report 2005-2011

List of Most Active Buyers

The table below shows the most active buyers of US and European biopharma companies in the last three years (2009 to 2011). The most acquisitive company in the period was Sanofi, which did 9 deals from 2009 to 2011(after having only bought one company in the period 2005-2008). Pfizer, having done most acquisitions during 2005-2008, is still actively acquiring companies (5 acquisitions during 2009-2011, 3 in 2011). Another very active acquirer during the last three years was specialty pharma company Valeant (5 acquisitions 20092011, 3 in 2011). The list is followed by a mix of large pharma, large biotech and medium-sized specialty pharma companies. Merck & Co, Novartis, Gilead, Cephalon, Roche, Takeda, Bristol-Myers Squibb, Johnson & Johnson, Endo and Lundbeck all bought 3-4 companies during 2009 to 2011, including at least one VC/PE-backed biopharma company. Most Active Buyers of Pharma & Biotech Companies 2010-2011 (Ranked by Number of Transactions)
# of Companies Bought 2005-2008 1 11 3 4 6 2 2 6 3 2 3 1 1 4 6 1 3 3 1 # of Companies Bought 2009-2011 9 5 5 4 4 4 4 3 3 3 3 3 3 2 2 2 2 2 2 2 Total (Upfront) Deal Volume 2009-2011 ($ million) 25'194 70'356 1'265 42'560 42'520 2'120 1'120 47'317 13'945 3'436 3'404 1'714 747 11'750 3'357 3'240 1'316 647 631 283 # of VC/PEBacked Companies Bought 2009-2011 3 2 2 1 2 3 3 1 2 1 1 1 1 1 1 1 1 Calixa Cloucester Advanced Biohealing Mpex

Buyer

# of Companies Bought in 2011 1 3 3 1 1 1 1 2 1 1 1 1 2 1 1

VC/PE-Backed Companies Bought 2009-2011 BiPar, Fovea, TargeGen FoldRX, Exaliard Aton (PE), PharmaSwiss (PE) SmartCells Corthera, Oriel Arresto, Calistoga, CGI BioAssets, Ception, GeminX Marcaria Intellikine, Nycomed Amira Respivert Qualitest (PE) Ovation (PE)

Sanofi Pfizer Valeant Pharmaceuticals Merck & Co Novartis Gilead Sciences Cephalon Roche Takeda Bristol-Myers Squibb Johnson & Johnson Endo Pharmaceuticals Lundbeck Teva GSK Celgene Shire Axcan Meda Cubist

HBM Pharma/Biotech M&A Report 2005-2011

Trade Sales of Private VC/PE-Backed Pharma and Biotech Companies

After a very strong first half of the year which included the landmark sale of PE-backed Nycomed to Takeda, fewer venture- and private-equity-backed companies were sold during the second half of 2011. The 12 transactions in H2 2011 generated an upfront transaction volume of $1.3 billion ($1.9 billion including biodollars). These numbers are somewhat disappointing as industry participants and especially investors in private biopharma companies hoped that the great momentum seen during H1 2011 would continue into H2 2011. Private VC/PE-Backed Pharma/Biotech Companies (US, Canada, Europe)

Trade Sales of VC/PE-Backed Private Pharma/Biotech Companies

Upfront transaction value Total value

+ $13.7 bn Takeda/Nycomed

5.0

19 16

20 17 17 17 16 16

19

20 16 12

Transaction Volume ($ billion)

4.0 3.0 2.0

10
4.3 4.6

10

9
4.1

4.1 3.8

5.8

11

12 8

2.1 2.6 1.8 2.0 1.5 1.6 2.1 2.4 2.1 2.3

2.2 0.8 0.9 1.2 1.8 1.5

2.4

1.3 1.9

1.3 1.5

1.4

1.0 0.0

4 0

H1 05 H2 H1 06 H2 H1 07 H2 H1 08 H2 H1 09 H2 H1 10 H2 H1 11 H2
Comment: Trade sales of VC/PE-backed pharma/biotech companies US, Canada and Europe

HBM Partners 13 Source: HBM Pharma/Biotech M&A Survey Private M&A activity dropped strongly especially in Europe where in H2 2011 only 4 VC-backed companies (Astex, Cellartis, DuoCort and Lectus) were sold, with only Astex and DuoCort yielding a significant upfront consideration.

Nevertheless, H2 2011 will be remembered at least by some VCs as a good period since four exits of VCbacked biopharma companies (all located in the US with the exception of DuoCort) generated investment multiples of 5x or more (just from upfront proceeds!): These are Vicept (sold to Allergan), Intellikine (sold to Takeda), Amira (sold to Bristol-Myers Squibb) and DuoCort (sold to ViroPharma). In H1 2011, there were two VC exits that reached even higher multiples: Both Plexxikon (sold to Daiichi Sankyo) and Advanced Biohealing (sold to Shire) yielded a multiple to investors of over 10x from upfront proceeds. For the whole period of 2005 to 2011, there were only two other such ten baggers (both in the US and both closed in 2010): Marcadia (sold to Roche) and AkaRx (sold to Eisai). Thus, at least some US VC investors will be happy with the results achieved in 2011. On the private-equity side, the action was mostly in Europe. The sale of Nycomed (Switzerland), backed by Nordic Capital and some other investors, to Takeda was, of course, the main event (see also page 2). The multiple of this deal is unknown, but investors gains are in the billions of dollars. This hugely successful transaction could whet the appetite of larger buyout firms to enter the pharmaceutical space. Another notable deal was the sale of specialty pharma company PharmaSwiss to Valeant for about $475 million. The sale of PharmaSwiss, backed by HBM BioVentures and Enterprise Investors, was the second largest European exit of a VC- or PE-backed private pharma company during the last 5 years.

HBM Pharma/Biotech M&A Report 2005-2011

# of Transactions

In the US, private-equity backed company Graceway, a 2006 buyout of 3Ms pharma business, was sold from bankruptcy for $455 million to Medicis. Buyout firm GTCR Golder Rauner had originally acquired the business for $875 million and according to industry sources the bank lenders lost most money here, as GTCR was able recap the company not too long after the acquisition (and probably got the money back then). Trade Sales of VC/PE-Backed Pharma/Biotech Companies in 2011 (Ranked by Upfront Deal Value)
H1/H2 H1 11 H1 11 H1 11 H1 11 H2 11 H1 11 H1 11 H2 11 H1 11 H2 11 H1 11 H1 11 H2 11 H1 11 H1 11 H1 11 H2 11 H1 11 H2 11 H2 11 H1 11 H2 11 H1 11 H1 11 H2 11 H2 11 H2 11 H2 11 H1 11 H1 11 H1 11 VC/PETarget Backed PE VC VC PE PE VC VC VC VC VC VC VC VC VC VC VC VC VC VC VC VC VC VC VC VC VC VC VC VC VC VC Nycomed (CH) Plexxikon (US) Buyer Takeda (J) Daiichi Sankyo (J) Upfront Value ($ million) 13'680 805 750 478 455 425 375 325 225 190 170 122 118 117 111 86 75 60 40 34 31 21 12 8 4 n.a. n.a. n.a. n.a. n.a. n.a. Total Deal Value ($ million) 13'680 935 750 518 455 1'000 600 475 525 310 338 122 127 117 478 86 275 250 40 175 31 21 35 12 6 n.a. n.a. n.a. n.a. n.a. n.a. Estimated Inv. Capital ($ million) n.a. 67 47 n.a. n.a. 166 120 40 266 41 63 85 45 119 76 96 16 100 n.a. 5 45 20 44 n.a. 7 70 25 23 58 n.a. n.a. Estimated Investor Multiple n.a. 11.0x 16.1x 1.8x n.a. 2.6x 3.1x 8.0x 1.0x 5.0x 2.7x 1.4x 2.5x 1.0x 1.5x 0.9x 6.0x 0.6x n.a. 6.0x 0.7x n.a. 0.3x n.a. 0.5x n.a. n.a. n.a. n.a. n.a. n.a.

Advanced BioHealing (US) Shire (UK) Pharmaswiss (CH) Graceway (US) Biovex (US) Calistoga (US) Amira Pharma (US) Gemin X (US) Intellikine (US) Prism (US) Synosia (CH) Victory Pharma (US) Astex (UK) Taligen (US) Cellerix (Spain) Vicept Therapeutics (US) Mpex (US) Abunda (US) DuoCort Pharma (S) CyDex (US) Cellartis (S) ZARS Pharma (US) Kinaxo (G) Amorcyte (US) Artisan Pharma (US) Excaliard (US) Lectus Therapeutics (UK) Aegera (Canada) Biocontrol (UK) Syntarga (NL) Valeant (Canada) Medicis (US) Amgen (US) Gilead Sciences (US) Bristol-Myers Squibb (US) Cephalon (US) Takeda (J) Baxter (US) Biotie (Fin) Shionogi (J) SuperGen (US) Alexion (US) TiGenix (B) Allergan (US) Axcan (Canada) Evolva (CH) ViroPharma (US) Ligand (US) Cellectis (S) Nuvo Research (Canada) Evotec (G) NeoStem (US) Ashai Kasei (J) Pfizer (US) UCB (B) Pharmascience (Canada) Targeted Genetics (US) Synthon (NL)

Comment: Companies underlined = European companies, CH = Switzerland, n.a. = not available

Average transaction values from trade sales of VC-backed biopharma companies (PE deals excluded) were high in 2011 when compared to 2010 values (see chart on next page). Average upfront proceeds notched above $200 million, a level not seen since 2007. And average total deal value jumped to $333 million, the highest number for the period covered by the survey. It is interesting to note that the average total VC investment into companies that were sold remained pretty stable over the years, averaging $50 million to $70 million. In Europe, average transaction values and average investment amounts were significantly lower, confirming that US biopharma companies are significantly better capitalized, but can also command higher exit values. And, as we will later analyze in more detail, the resulting exit multiples in the US have been better in recent years.

HBM Pharma/Biotech M&A Report 2005-2011

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

Average Investment, Average Upfront and Total Deal Values

VC-backed companies only. PE-backed companies excluded.

400
Average Total Transaction Value 350
Average Values ($ million)

Average Upfront Transaction Value Average Invested Capital 248 231 137

317

333

300 250 200 150 100 50 0 2005 144

170

166

203

151
125 83 54 55 2006 2007 88 39 2008

134 62
2009

88 73

55 2010

2011
19

Comment: Trade sales of VCE-backed pharma/biotechOnly for transactionsCanada and Europe companies US, where respective
Source: HBM Pharma/Biotech M&A Survey information was available.

HBM Partners

Return to Venture Investors

Whenever available, HBM is collecting additional information about biopharma trade sales that allows an estimate of (venture) investors return in such transactions. As the IPO market has been less rewarding for emerging biopharma companies, trade sales have become 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 last or average valuation to the exit valuation (takingCanda, Europe) VC-Backed Pharma/Biotech Companies (US, into account only the upfront consideration).
Return Estimates of Venture Investors from Private Biopharma Trade Sales
VC-backed companies only. PE-backed companies excluded.

5.1x 5x 4x
Multiple

4.5x 3.7 Total transaction value / invested capital Upfront proceeds / invested capital Estimated average multiple for investors (on upfront proceeds)

3.5x 2.9x 3.1x 3.0x 2.8x 2.2 2.2x 2.0

3.3x 2.4 2.1x

3x 2x 1x 0x

2.8x

2.3x 2.1

2.7x
2.1

2.1
1.6x

2005

2006

2007

2008

2009

2010

2011
HBM Partners
20

Comment: Trade sales of VC-backed pharma/biotech companies US, Canadarespective and Europe Only for transactions where
Source: HBM Pharma/Biotech M&A Survey information was available.

HBM Pharma/Biotech M&A Report 2005-2011

10

It should be noted that the ratios mentioned above and the multiple estimates were only available for about 70% of the deals. Also, one or two good exits can significantly drive up these average values (as it was the case in 2010 and 2011). Median return multiples were substantially lower. 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. The ratio of upfront proceeds to invested capital inched up to 2.8x between 2005 and 2007 and then dropped to a low of 1.6x in 2010. In 2011, this ratio jumped back to 2.8x. The gap between multiples from up front and the maximum multiple was especially wide in 2009 due to a number of transactions with high headline values (over $500 million), but relatively modest upfronts. In 2011, the biodollar portion of many deals was still high, but overall multiples clearly improved. 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 then increased in 2010 and again in 2011. We already mentioned the ten baggers in 2010 and 2011 which drove up these average values. The difference in 2010 between the ratio of upfront proceeds to invested capital (1.6x) and the average return multiple (2.4x) stems from the fact that the average return multiple is not capital-weighted whereas the ratio proceeds/investments is, and in 2010 there were a number of company exits where substantial amounts were invested and the outcome was negative (Solstice, Heidelberg Pharma, Develogen, Symphony Icon and Topigen). Overall, returns to VC investors clearly have been on the upswing since 2009 (both in the US and in Europe, see below) and have reached record levels in 2011. We do not know yet if this good performance of biopharma trade sales is strong enough to lift the overall performance of life sciences investments.

Investor Return in the US vs. Europe

The chart below shows the estimated return multiples for VC investors in US and European deals (where available). The dotted lines show the averages 2005-2008 and 2009-2011.
VC-Backed Pharma/Biotech Companies (US, Canda, Europe)

Estimated Investor Return Multiples US vs. European Trade Sales

VC-backed companies only. PE-backed companies excluded.

5x
Averages 2005-2008 / 2009-2011

4x

3.9x 3.0x

Estimated multiples US

Multiple

2.9x 2.6x
2.8x 2.4x Estimated multiples Europe 1.7x 1.3x

3x

2.3x
2x 1.8x

2.4x

2.0x

1.8x 0.8x

1x
0x 2005 2006 2007 2008

2009

2010

2011
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Only for transactions where respective Comment: Trade sales of VC-backed Survey Source: HBM Pharma/Biotech M&A pharma/biotech companies US and Europe information was available.

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During the years 2005 to 2008, average multiples in the US and in Europe were similar. Since 2009, US exits have produced multiples that are about 1x higher than European deals (all calculated on upfront proceeds). We should note that all these numbers are calculated in US$ and changes in currency exchange rates have not been taken into consideration. However, the clear lag in return multiples in Europe vs. US in recent years is of concern for young European biopharma companies and their investors. Raising life sciences venture funds has not been easy and if return multiples stay below US levels, it will become even harder to raise such funds in Europe. Therefore, it is no surprise that some European investors are turning their attention to growth companies with a lower risk profile.

Trade Sales by Stage of Lead Product

In our previous reports, we observed no systematic impact of company stage on return multiples. Generally speaking, however, high exit multiples were rarely achieved in exits of pre-clinical companies. The chart below shows the return characteristics of VC-backed biopharma companies sold in 2010 and in 2011, grouped Pharma/Biotech Companies (US, Canda, Europe) VC-Backed by stage of the lead product.
Estimated Return Multiples by Product Stage (Deals 2010 and 2011)
VC-backed companies only. PE-backed companies excluded.

15 6.3x

Loss 1x-2x multiple 2x-3x multiple >3x multiple Av. Est. Multiple

7.5x

# of Transactions

10

4 3.9x
1 1 4 Phase II 3

5.0x

3.7x 4 1.4x 0 1 1 Pre-clinical 1 3 Phase I 2.5x 2 4 3 1 2 2.5x

0.0x

Phase III / NDA Marketed

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Comment: Trade sales of VC/PE-backed pharma/biotech companies US, Canada and Europe Only for transactions where respective
Source: HBM Pharma/Biotech M&A Survey information was available.

During these two years, pre-clinical companies achieved the lowest exit multiples (as in previous years). The best average multiple was achieved by phase I companies (due to the successful exits of Amira, Intellikine and Marcadia). The exit performance of phase II companies was mixed, while companies with products in phase III, in registration or approved showed better results. While this analysis is based on a small number of deals, it illustrates the following points: Early-stage companies with unique platforms/pipelines (often focused on particular pathways or indications) can command attractive prices, sometimes translating into extraordinary multiples. However, buyers typically wait until initial human (safety) data are available (i.e. phase I). For phase II companies, there is a wide distribution of multiples, reflecting differences in the number of potential buyers and the value attributed to the available data. Depending on the indication, the daunting cost of phase III trials may still force investors to seek an exit, even for upfront payments near or below a companys last private valuation.

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Estimated Multiple

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Companies with lead products in phase III or with phase III results can usually attract multiple competing offers. Also, as an alternative to a sale, these companies (and their investors) often are able to take their lead products to approval. Thus improving their position towards potential buyers.

Contingent Payments
As already mentioned in earlier reports, buyers nowadays try to offload some of the remaining clinical and commercial risk of an acquired product to the sellers of the company. As a result, structured deals are today almost the norm. Thus, the total value of a deal is usually substantially higher than the upfront consideration, which can be quite modest. The level of staging is measured as the percentage of contingent payments in percent of upfront deal value. As the table below shows for trade sales of VC-backed biopharma companies, the contingent payments became substantial from 2008 onwards. (All transaction values have been summed up for this purpose. So large staged deals can drive up this value for any given year.) For 2011, in 55% of transactions, the portion of contingent payments was 50% or more of the upfront paid (i.e. more than one third of total deal value). Contingent Payments of Trade Sales of VC-Backed Biopharma Companies 2005-2011
Year >> Total Contingent Payments in % of Upfront Payments* % Deals with Over 50% Contingent Payments Total # of Transactions Analyzed 2005 5% 12% 26 2006 13% 9% 22 2007 8% 11% 28 2008 48% 36% 22 2009 136% 50% 16 2010 68% 43% 21 2011 64% 55% 22

Comment: Trade sales of VC-backed pharma/biotech companies US, Canada and Europe * Calculated based on the sums of contingent and upfront deal values of all transactions where such information was available.

In theory, we would expect contingent payments to be more important in earlier-stage companies (which bear the highest risk of failure). If we look at the 2010 and 2011 deals (see table below), pre-clinical deals (as expected) showed a very high percentage of deals (55%) with contingent payments of over 50%. Overall, total contingent payments for this group were higher (121%) than upfront payments received. Trade sales of phase I and phase II companies show similar characteristics: The majority of deals had a significant (>50%) biodollar portion. The overall biodollar amounts (in % of upfront payments) for phase II companies were even higher than for phase I companies. Also, companies sold with phase III or approved products had to accept significant contingent payments. Contingent Payments in Trade Sales of VC-Backed Biopharma Companies 2010-2011 by Stage of Lead Product
Stage of Lead Product >> Total Contingent Payments in % of Upfront Payments* % Deals with Over 50% Contingent Payments Total # of Transactions Analyzed Pre-Clinical 121% 55% 9 Phase I 50% 60% 5 Phase II 99% 54% 13 Phase III / NDA 67% 38% 13 Marketed 28% 33% 9

Comment: Trade sales of VC-backed pharma/biotech companies US, Canada and Europe * Calculated based on the sums of contingent and upfront deal values of all transactions where such information was available.

These findings match our (and other industry participants) experience that buyers are not willing to fully payup until the main product of a company is FDAapproved and has reached certain sales levels.

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Outlook
Overall, 2011 was a very strong year for biopharma M&A. The number of both larger and smaller transactions was high. Despite the slowdown of M&A activity in the second half of 2011, the transactions announced at year-end or just after that, lead us to expect that 2012 might be another good M&A year. Pharma and biotech deal making was only moderately affected by the financial crisis 2008/2009 and the current European debt crisis will in our view not substantially slow down M&A activity in the sector. There are plenty of companies looking for an exit and quite a number of cash-rich buyers (large and mid-sized pharma companies) seeking to expand their commercial and development portfolios or their geographic reach. In the US, where the IPO window has opened for high-quality biopharma companies, US sellers will be in a better position to demand prices that reward them for the risks they have taken. The overall slowdown in prescription drug sales in Western Europe and the US will accelerate the need for further consolidation. Furthermore, we expect that larger buyout funds will find the sector increasingly suitable to invest and will compete with industry buyers in acquiring small to medium-sized pharma companies.

Please address questions and comments 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
09 February 2012

About HBM Partners

HBM Partners is a globally active, healthcare-focused investment management group headquartered in Switzerland. HBM BioVentures 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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