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Life-Sciences Funding Rebounds in Second Quarter
Investment dollars have returned to the life-sciences industry. Despite mixed signals from the economy, the sector—which includes the medical device and biotechnology arenas—captured the most venture capital investment dollars in the second quarter of 2010, according to a new report from global professional services firm PricewaterhouseCoopers. Life-sciences funding totaled $2.1 billion in 234 deals, a 52 percent jump in dollars and a 36 percent rise in deals compared with the first quarter of the year. With the industry’s dismal start to 2010—when investment fell 27 percent in dollars and 15 percent in deals compared with the final quarter of 2009—life-sciences executives are hoping the second-quarter figures herald the return of sustainable growth to the sector.
“It takes several quarters to establish a clearly sustainable growth trend, but the data look good so far,” said Tracy T. Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. “If the markets remain positive, we’ll likely continue to see robust investment levels for the remainder of the year, with venture funding in 2010 poised to surpass 2009 levels.”
The industry already may be well on its way to surpassing last year’s funding levels: According to the PricewaterhouseCoopers report (titled “Quarterly Rebound”), life-sciences investments totaled $3.4 billion through June 30, a 26 percent increase compared with the first half of 2009. In addition, the total number of life-sciences deals climbed 18 percent to 406 in the first six months of 2010 (consequently, there were 345 deals reached during the first half of last year).
One of the factors that likely contributed to the higher deal volume and funding growth in both the second quarter and first half of 2010 was the number of life-sciences companies that went public, Lefteroff said. Eight pharmaceutical and biotechnology firms took their stock public during the first six months of the year, according to data from various venture capital companies. Among the more noteworthy IPOs were Cambridge, Mass.-based Ironwood Pharmaceuticals Inc., which raised $188 million; Aveo Pharmaceuticals Inc. (also based in Cambridge), which earned $81 million; and Codexis Inc. of Redwood City, Calif., which collected $78 million.
The mini-revival in life-sciences IPOs, however, came with a price—namely, the value of the public offerings. Many of the companies that filed for IPOs this year have had to cut their share price to get them off the ground, a sign that investors are still wary of backing companies with a high development risk and no marketed products.
Codexis and CorMedix Inc., a Bridgewater, N.J.-based pharmaceutical company, priced shares at the bottom end of their respective ranges (Codexis at $13 per share; CorMedix at $6.50 per share), while Alimera Sciences Inc. and Tengion Inc. both reduced prices significantly. Alimera was hoping to raise up to $87 million by selling 6 million shares at $14 to $17 per share; instead the Alpharetta, Ga.-based biopharmaceutical firm made $72 million from 6.5 shares sold at $11 per share. Tengion, which is attempting to develop regenerative medicine technology, had hoped to raise $46 million through the sale of 4.4 million shares at $8 to $10 per share. The company wound up collecting $30 million from 6 million shares sold at $5 per share.
Medical device firms fared no better (it could be argued that they were worse off than their biotechnology and pharmaceutical counterparts due to the lack of IPOs in the last two years). AGA Medical Holdings Inc. of Plymouth, Minn., for example, raised $199.4 million through a public offering last fall, but the amount was well below the $275 million the company had hoped to collect. Weak demand forced the company to lower its share prices from an estimated $19-$21 to $14.50.
Weak demand and poor market conditions led Memphis, Tenn.-based SurgiVision to postpone an IPO it had been planning for seven months, though lately the company has seemed to be unable to make up its mind about going public. Several days before it called off the sale in late July, the company reduced its proposed offer price to $5 per share from $13-$15 per share, which would have given it a net catch of $15.2 million on 3.7 million shares. Then on Aug. 19, a report from Renaissance Capital, a Greenwich, Conn.-based firm that provides independent research and investment management services on newly public companies, suggested that SurgiVision had changed its mind about going public. The report claimed the company’s IPO—the sale of 3.67 million shares at $5 per share for a total haul of $18 million—would occur the week of Aug. 23.
Fortunately for the device sector, IPOs are not the only way to raise money these days. There’s also seed and early-stage funding, as well as equity offerings and merger and acquisition exits. Audax Medical Inc., a privately held company in Littleton, Mass., used its equity to raise $686,000 several months ago while Phoenix, Ariz.-based Providien Inc. convinced investment firm Endeavor Capital LLC to fork over $10.5 million so it can acquire small contract manufacturing firms looking for liquidity.
Early and late-stage funding to medical device firms rose in the second quarter, according to the PricewaterhouseCoopers report, which includes figures from the National Venture Capital Association MoneyTree report (based on data from Thomson Reuters). Early-stage funding increased 25 percent and late-stage investments grew 10 percent compared with the second quarter of 2009. Both stages also fared better than they did in the first quarter: Early stage funding doubled and late-stage investments climbed 10 percent, the report stated.
The growth in early-stage and late-stage funding helped funnel more money into the device sector in the second quarter of 2010. Overall, medical device funding jumped 40 percent between April and June, with $755 million invested in 95 deals, the report stated. In the first half of 2010, device funding rose 13 percent compared with 2009, an increase that Lefteroff attributed to the healthcare industry’s intense focus on disease detection and prevention.
“The health industries have seen a trend toward prevention and early detection of diseases and medical conditions driven by diagnostics,” he said in the report. “This trend is expected to accelerate. The demand for innovative products is not expected to stop.”
Lefteroff’s reasoning could explain why funding for both medical therapeutics and medical diagnostics rose in both the second quarter and first half of 2010 but investments in medical products fell during those same periods. The report did not give precise figures, but said that funding to diagnostics firms climbed 11 percent in the second quarter and a staggering 87 percent in the first six months of the year. Investments in therapeutic companies skyrocketed 74 percent in the second quarter and 16 percent in the first half of 2010. Surgical instruments received $211 million in funding in the second quarter, while pacemakers and drug delivery products captured $127 million and $34 million, respectively.
Double-Dip Recession? Orthopedic Firms Are Not Convinced
The growing chorus of doomsayers (and some economists) warning of a double-dip recession is falling on deaf ears in the orthopedic device market.
Despite seesawing quarterly earnings reports (much like the vacillating stock market of late), orthopedic manufacturers are showing no real concern about the possibility of another recession. In fact, many chief executives have predicted strong growth through the end of the year.
“Our second quarter performance was characterized by year-over-year constant currency sales growth in all geographic segments,” said David Dvorak, president and CEO of Zimmer Holdings Inc., which reported a 21 percent decline in profit in the second quarter of 2010 but a 9 percent rise in adjusted earnings per share (EPS). “We anticipate accelerated growth through 2010…”
Dvorak made his bold forecast in late July, as chatter about a potential double-dip recession reached its apex. Those who initiated the chatter (dubbed “double-dippers” in the media) cited several factors in their favor: a still anemic housing market, a stubbornly high unemployment rate, Europe’s sovereign-debt problems and big austerity drive, China’s slowing growth, and massive overcapacity in the U.S. economy.
But none of those warning signs mattered much to companies such as Zimmer, Stryker Corp. or Wright Medical Group Inc. Perhaps bolstered by positive earnings reports, or by the realization that double-dippers could be wrong—housing starts rose 1.7 percent in July and the Dow Jones Industrial Average climbed 7 percent—the firms maintained their outlook for 2010.
Stryker, which reported a 9.5 percent increase in second-quarter net earnings, still expects its annual sales to rise by 5-8 percent. The Kalamazoo, Mich.-based firm projects net earnings for 2010 to range between $3.20 and $3.30 per share, an increase of 8 percent to 12 percent compared with 2009 net earnings of $2.95 per share.
Zimmer reaffirmed its full-year sales and adjusted EPS guidance when it released its second-quarter earnings report on July 22. The Warsaw, Ind.-based company expects adjusted EPS for 2010 to range between $4.15 and $4.35 per share, and an annual revenue increase of 3-5 percent on a constant currency basis.
Wright Medical doesn’t expect its guidance to change, either. The Arlington, Tenn.-based firm expects its full-year adjusted EPS to grow 4-11 percent, falling anywhere between 88 cents and 94 cents per diluted share. Its 2010 net sales outlook of $515-$530 million represents a growth rate of 6-9 percent.
Investment dollars have returned to the life-sciences industry. Despite mixed signals from the economy, the sector—which includes the medical device and biotechnology arenas—captured the most venture capital investment dollars in the second quarter of 2010, according to a new report from global professional services firm PricewaterhouseCoopers. Life-sciences funding totaled $2.1 billion in 234 deals, a 52 percent jump in dollars and a 36 percent rise in deals compared with the first quarter of the year. With the industry’s dismal start to 2010—when investment fell 27 percent in dollars and 15 percent in deals compared with the final quarter of 2009—life-sciences executives are hoping the second-quarter figures herald the return of sustainable growth to the sector.
“It takes several quarters to establish a clearly sustainable growth trend, but the data look good so far,” said Tracy T. Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. “If the markets remain positive, we’ll likely continue to see robust investment levels for the remainder of the year, with venture funding in 2010 poised to surpass 2009 levels.”
The industry already may be well on its way to surpassing last year’s funding levels: According to the PricewaterhouseCoopers report (titled “Quarterly Rebound”), life-sciences investments totaled $3.4 billion through June 30, a 26 percent increase compared with the first half of 2009. In addition, the total number of life-sciences deals climbed 18 percent to 406 in the first six months of 2010 (consequently, there were 345 deals reached during the first half of last year).
One of the factors that likely contributed to the higher deal volume and funding growth in both the second quarter and first half of 2010 was the number of life-sciences companies that went public, Lefteroff said. Eight pharmaceutical and biotechnology firms took their stock public during the first six months of the year, according to data from various venture capital companies. Among the more noteworthy IPOs were Cambridge, Mass.-based Ironwood Pharmaceuticals Inc., which raised $188 million; Aveo Pharmaceuticals Inc. (also based in Cambridge), which earned $81 million; and Codexis Inc. of Redwood City, Calif., which collected $78 million.
The mini-revival in life-sciences IPOs, however, came with a price—namely, the value of the public offerings. Many of the companies that filed for IPOs this year have had to cut their share price to get them off the ground, a sign that investors are still wary of backing companies with a high development risk and no marketed products.
Codexis and CorMedix Inc., a Bridgewater, N.J.-based pharmaceutical company, priced shares at the bottom end of their respective ranges (Codexis at $13 per share; CorMedix at $6.50 per share), while Alimera Sciences Inc. and Tengion Inc. both reduced prices significantly. Alimera was hoping to raise up to $87 million by selling 6 million shares at $14 to $17 per share; instead the Alpharetta, Ga.-based biopharmaceutical firm made $72 million from 6.5 shares sold at $11 per share. Tengion, which is attempting to develop regenerative medicine technology, had hoped to raise $46 million through the sale of 4.4 million shares at $8 to $10 per share. The company wound up collecting $30 million from 6 million shares sold at $5 per share.
Medical device firms fared no better (it could be argued that they were worse off than their biotechnology and pharmaceutical counterparts due to the lack of IPOs in the last two years). AGA Medical Holdings Inc. of Plymouth, Minn., for example, raised $199.4 million through a public offering last fall, but the amount was well below the $275 million the company had hoped to collect. Weak demand forced the company to lower its share prices from an estimated $19-$21 to $14.50.
Weak demand and poor market conditions led Memphis, Tenn.-based SurgiVision to postpone an IPO it had been planning for seven months, though lately the company has seemed to be unable to make up its mind about going public. Several days before it called off the sale in late July, the company reduced its proposed offer price to $5 per share from $13-$15 per share, which would have given it a net catch of $15.2 million on 3.7 million shares. Then on Aug. 19, a report from Renaissance Capital, a Greenwich, Conn.-based firm that provides independent research and investment management services on newly public companies, suggested that SurgiVision had changed its mind about going public. The report claimed the company’s IPO—the sale of 3.67 million shares at $5 per share for a total haul of $18 million—would occur the week of Aug. 23.
Fortunately for the device sector, IPOs are not the only way to raise money these days. There’s also seed and early-stage funding, as well as equity offerings and merger and acquisition exits. Audax Medical Inc., a privately held company in Littleton, Mass., used its equity to raise $686,000 several months ago while Phoenix, Ariz.-based Providien Inc. convinced investment firm Endeavor Capital LLC to fork over $10.5 million so it can acquire small contract manufacturing firms looking for liquidity.
Early and late-stage funding to medical device firms rose in the second quarter, according to the PricewaterhouseCoopers report, which includes figures from the National Venture Capital Association MoneyTree report (based on data from Thomson Reuters). Early-stage funding increased 25 percent and late-stage investments grew 10 percent compared with the second quarter of 2009. Both stages also fared better than they did in the first quarter: Early stage funding doubled and late-stage investments climbed 10 percent, the report stated.
The growth in early-stage and late-stage funding helped funnel more money into the device sector in the second quarter of 2010. Overall, medical device funding jumped 40 percent between April and June, with $755 million invested in 95 deals, the report stated. In the first half of 2010, device funding rose 13 percent compared with 2009, an increase that Lefteroff attributed to the healthcare industry’s intense focus on disease detection and prevention.
“The health industries have seen a trend toward prevention and early detection of diseases and medical conditions driven by diagnostics,” he said in the report. “This trend is expected to accelerate. The demand for innovative products is not expected to stop.”
Lefteroff’s reasoning could explain why funding for both medical therapeutics and medical diagnostics rose in both the second quarter and first half of 2010 but investments in medical products fell during those same periods. The report did not give precise figures, but said that funding to diagnostics firms climbed 11 percent in the second quarter and a staggering 87 percent in the first six months of the year. Investments in therapeutic companies skyrocketed 74 percent in the second quarter and 16 percent in the first half of 2010. Surgical instruments received $211 million in funding in the second quarter, while pacemakers and drug delivery products captured $127 million and $34 million, respectively.
Double-Dip Recession? Orthopedic Firms Are Not Convinced
The growing chorus of doomsayers (and some economists) warning of a double-dip recession is falling on deaf ears in the orthopedic device market.
Despite seesawing quarterly earnings reports (much like the vacillating stock market of late), orthopedic manufacturers are showing no real concern about the possibility of another recession. In fact, many chief executives have predicted strong growth through the end of the year.
“Our second quarter performance was characterized by year-over-year constant currency sales growth in all geographic segments,” said David Dvorak, president and CEO of Zimmer Holdings Inc., which reported a 21 percent decline in profit in the second quarter of 2010 but a 9 percent rise in adjusted earnings per share (EPS). “We anticipate accelerated growth through 2010…”
Dvorak made his bold forecast in late July, as chatter about a potential double-dip recession reached its apex. Those who initiated the chatter (dubbed “double-dippers” in the media) cited several factors in their favor: a still anemic housing market, a stubbornly high unemployment rate, Europe’s sovereign-debt problems and big austerity drive, China’s slowing growth, and massive overcapacity in the U.S. economy.
But none of those warning signs mattered much to companies such as Zimmer, Stryker Corp. or Wright Medical Group Inc. Perhaps bolstered by positive earnings reports, or by the realization that double-dippers could be wrong—housing starts rose 1.7 percent in July and the Dow Jones Industrial Average climbed 7 percent—the firms maintained their outlook for 2010.
Stryker, which reported a 9.5 percent increase in second-quarter net earnings, still expects its annual sales to rise by 5-8 percent. The Kalamazoo, Mich.-based firm projects net earnings for 2010 to range between $3.20 and $3.30 per share, an increase of 8 percent to 12 percent compared with 2009 net earnings of $2.95 per share.
Zimmer reaffirmed its full-year sales and adjusted EPS guidance when it released its second-quarter earnings report on July 22. The Warsaw, Ind.-based company expects adjusted EPS for 2010 to range between $4.15 and $4.35 per share, and an annual revenue increase of 3-5 percent on a constant currency basis.
Wright Medical doesn’t expect its guidance to change, either. The Arlington, Tenn.-based firm expects its full-year adjusted EPS to grow 4-11 percent, falling anywhere between 88 cents and 94 cents per diluted share. Its 2010 net sales outlook of $515-$530 million represents a growth rate of 6-9 percent.
