By OMAR FORD
Medical Device Daily Staff Writer
Despite the belief that big exits in the device space are rare, a report from Silicon Valley Bank (SVB; Santa Clara, California) shows otherwise, offering up data that suggests there was good exit activity across multiple indications.
The analysis, titled, "Continued Rebound: Trends in Life Science M&A," was focused on the exits that created substantial value back to venture capitalists in the form of significant realizations, which was at least $50 million for medical devices, and $75 million for biotech companies. The study was retrofitted from previous 2005 to 2010 data set to keep the analysis consistent.
Top returns came from surgical, vascular and services indications, and more than $8.8 billion in up-front lifesciences M&A value was created. Total value, including milestone payments, topped $12.7 billion.
"There might be a bit of perspective out in the market that deals are not happening," Jonathan Norris, Managing Director with SVB Capital's Venture Capital Relationship Management team and author of the report, told Medical Device Daily. "But these deals are actually happening and they're happening in good numbers. So it really sets up the industry for continued growth on the M&A side."
According to data presented from the report, the med-tech sector continues to show a strong upward trend in the number of big exits and solid exit values overall. The report said that there were 18 device big exits in 2011, and that this is a strong indicator of acquirer interest. It went on to say that the average up-front deal value in 2011 at $198 million compares very favorably to total deal values from 2005 to 2008.
"The biggest issue on the device side is that it is very difficult for device acquirers to pay for earlier stage deals that are not close to being accretive for the bottom line," he said. "I think that's the biggest struggle ... but even with that struggle you're seeing record high exits still happening over the $50K mark."
Although device deals are up there was a slight decrease in the overall dollar size compared to 2010. But analysts with SVB say that's because of Medtronic's (Minneapolis) acquisition of Ardian (Mountain View, California) back in November of 2010 for $800 million, plus commercial milestones (Medical Device Daily, Nov. 24, 2010).
"On the device side the overall dollar size related went down a bit, partly because of the anomaly of Ardian, but if you just look at this year's size and number of exits, it continues a really nice trend," he said.
Ardian's flagship product, the Symplicity catheter system, addresses uncontrolled hypertension through renal denervation, or ablation, of the nerves lining the renal arteries.
Norris told MDD, the Ardian acquisition was very telling because "you saw that not only did this company get acquired for a substantial amount of money, but the venture round that they did prior to that had corporate folks scrambling all over that company because they wanted to be a part of it."
He added, "I think what you're seeing in that area, is when you have a minimally invasive device that can replace a drug that has significant sales, that's a very intriguing area."
According to the report, device big exits in 2011 were concentrated on both ends of the barbell: the first end is faster-to-exit with less than $30 million in venture money, about five years to exit from first institutional investment; and on the other end is slower-to-exit, with more than $60 million, longer than 10 years, with mixed multiple results. There are more companies in the slower-to-exit category, causing overall years to exit to go up sharply at 2011. Indication does not appear to be a determinant in either end of the barbell, although regulatory path certainly is.
The report said that on the faster-to-exit end of the barbell, it was encouraging to see that a few of these 2011 device deals were acquired either prior to FDA approval or without a big commercialization round required. Quicker exits and lower capital deployed translates to higher multiples, better returns and satisfied investors.
"If you are looking at the exits, I would say that they break down 60/40, and that the 60% would be the quick to exit, with five years or less than $30 million in, while getting a $120 million exit," he said. "On the 40% side you get these bigger acquisitions such as Concentric Medical [Mountain View, California] or Cameron Health [San Clemente, California] where there are a lot more dollars going in."
Cocentric was acquired by Stryker (Kalamazoo, Michigan) for $135 million last year (MDD, Sept. 1, 2011) and Boston Scientific (Natick, Massachusetts) began its option to acquire Cameron earlier this year for $150 million (MDD, June 11, 2012).
"The 40% would be more for the companies that [go through] the PMA route," Norris said. "But unfortunately the vast majority of these companies have to get through FDA approval, in order to be a viable acquisition candidate. Just a very few companies are getting acquired prior to FDA approval. You're seeing some that have gone the CE mark route . . . and that might be enough to get to exit, but overwhelmingly, the majority of these deals are FDA approved companies."
Norris noted that the report should shed light about big exit strategies and said that contrary to popular belief "they're still out there and the space is still very attractive."
"Our data shows positive momentum in exits in the life science industry," Norris, said. "In 2011 we saw the most VC-backed big exits, generating the largest amount of liquidity in biotech and device[s], since we started tracking this data in 2005. While this does not correct the poor overall returns for the last decade, these dynamics position life science as an attractive investment opportunity now and in the future."
Published: July 24, 2012