SOURCE: Burrill & Company

Burrill & Company

July 02, 2012 08:45 ET

Digital Health Takes Hold With Venture Investors, Says Burrill & Company

First Half of 2012 Sees Private Financings More Than Triple for the Emerging Sector

SAN FRANCISCO, CA--(Marketwire - Jul 2, 2012) - Digital health companies, a segment fueled by the convergence of information, wireless, and healthcare technologies, saw a 317 percent jump in financings in the first half of 2012 as venture investors embraced the promise of this emerging area to improve healthcare costs, access and delivery. Investments in the sector have accelerated as venture funding grew to $499 million in 46 transactions during the first half of the year, compared to just $156 million in 19 transactions for the same period in 2011.

The largest digital health financings during 2012 include the healthcare pricing consumer information service Castlight Health's $100 million financing in May, web-based home healthcare software provider Kinnser Software's $39.9 million in March, electronic health records provider Practice Fusion's $34 million financing in June, and telehealth provider American Well's $37 million financing also in June.

"The increased funding in the digital health arena reflects a growing awareness of the transformative power these technologies are bringing to healthcare," says G. Steven Burrill, CEO of Burrill & Company, a diversified global financial services firm focused on the life sciences. "It is also an area that is attracting both traditional technology and life sciences investors, who recognize the ability these technologies have to reduce cost, improve care, and personalize care."

The growing venture investment in digital health is part of an overall pick-up in venture activity in the first half of 2012 within the life sciences sector as total venture investment grew nearly 31 percent globally to $6.2 billion. Therapeutics companies raised more than any other sector in the first half of the year with a total of $2 billion in venture funding, a slight increase from the $1.9 billion in the same period a year ago. Tools and technology companies was the only sector to see a drop as financing fell to $416 million from $619 in the first half of 2011.

Bionergy companies were among the largest venture financings received during the first half of the year with Gazasia raising $150 million to fund its efforts to convert waste to biofuels in June, Sapphire Energy raising $144 million in April for algae-based biofuels, and Harvest Power's $110 million round, also in April, to fund its efforts to convert waste into renewable energy and fertilizer. Overall, venture funding for bioindustrial companies grew to $994 billion in the first half of 2012, an 89 percent increase over the $525 million raised in the same period the previous year. The increase in financing is driven in part by several companies moving to build commercial scale production.

The pick-up in venture capital in the first half of the year stood in contrast to a decline in overall public finance activity. Global public finance fell nearly 43 percent to $27.7 billion in the first half of 2012. In the United States, public financings fell 17 percent to $18.3 billion during the same period.

The biopharmaceutical company Tesaro successfully completed a $71 million IPO in June as it sold 6 million shares at $13.50 per share. The oncology-focused company priced its offering in the middle of its expected range. Life sciences IPOs in 2012 are in positive territory, posting a 22.7 percent gain on average from their initial offering prices with six of the nine companies in positive territory. Supernus Pharmaceuticals, a specialty pharmaceutical focused on central nervous system disorders, is the biggest advancer in the group with more than an 87 percent increase since its IPO. The bioenergy crop developer Ceres is the biggest decliner in the group, down about 30 percent from its initial offering price.

"The IPO market remains challenging for life sciences companies," says Burrill. "But companies going public are becoming more realistic about the valuations they can command today. The positive performance of 2012 deals offers some encouragement that if markets can stabilize we will see a pick-up in activity in the second half of the year."

Overall, the Burrill Select Index posted a 24.8 percent gain through the first six months of the year, outperforming the Dow Jones Industrial Average (5.4 percent), the S&P 500 (8.3 percent), and the Nasdaq Composite Index (12.7 percent).

                     
                     
Burrill Indices                    
Index   12/30/2011   5/31/2012   6/29/2012   Month Change   Year Change
Burrill Select   432.49   526.02   539.55   2.60%   24.80%
Burrill Large Cap   529.22   641.37   657.96   2.60%   24.30%
Burrill Mid-Cap   295.33   323.58   358.25   10.70%   21.30%
Burrill Small Cap   88.26   100.83   101.86   1.00%   15.40%
Burrill Diagnostics   175.42   183.34   196.13   7.00%   11.80%
Burrill Personalized Medicine   100.62   105.25   111.37   5.80%   10.70%
Burrill Biogreentech   149.36   152.73   155.42   1.80%   4.10%
Canadian Biotech   59.17   57.39   53.12   -7.40%   -10.20%
NASDAQ   2605.15   2827.34   2935.05   3.80%   12.70%
DJIA   12217.56   12393.45   12880.09   3.90%   5.40%
S&P 500   1257.6   1310.33   1362.16   4.00%   8.30%
Amex Biotech   1091.42   1425.03   1433.33   0.60%   31.30%
Amex Pharmaceutical   332.94   326.13   340.98   4.60%   2.40%
                     
                     

On the M&A front, the month ended with Bristol-Myers Squibb reaching an agreement to acquire Amylin Pharmaceuticals, maker of the diabetes drug Bydureon, $31 a share or $5.3 billion. The deal follows BMS' unsolicited $22 a share or $3.5 billion bid in March, which Amylin rejected before it then began a process to solicit bids from other potential suitors. Even with the Amylin acquisition, global M&A activity fell to $65.9 billion, more than 41 percent decrease in the first half of 2012 compared to the same period a year ago. The agreement between BMS and Amylin may represent a closing of the gap between buyers and sellers over value, a gulf that has dampened activity.

Inhibrx's worldwide option and licensing agreement with Celgene, worth up to $500 million for an undisclosed antibody program, stood as the largest partnering agreement in June. Overall though, global partnering activity fell more than 24 percent to $15.1 billion.

The U.S. Food and Drug Administration in June approved Arena Pharmaceuticals' Belviq, the first new obesity drug in 13 years and the first drug among several vying for the chance to address one of the nation's most pressing public health crises.

The first half of the year ended with the U.S. Supreme Court decision that upheld the individual mandate in the Patient Protection and Affordable Care Act, the Obama Administration's landmark healthcare reform legislation. In a 5-4 ruling, written by Chief Justice John Roberts, the court let the individual mandate stand. Although Roberts said the individual mandate was not valid exercise of Congressional power under the commerce clause, he ruled that the mandate was appropriate as a tax. Justices Stephen Breyer, Elena Kagan, Ruth Bader Ginsburg, and Sonia Sotomayor joined in the majority. In a separate opinion, these four justices said they believed the mandate was constitutional under the commerce clause as well.

The closely watched ruling had threatened to unravel healthcare reform with many pundits predicting the individual mandate would not only fall, but that a majority of justices would find the rest of the law unsustainable without it. Instead, the government is moving forward with implementing the law and an area of uncertainty that threatened to cast a shadow over the industry has been settled. For the biotechnology industry, it means the continued implementation of the pathway for biosimilars that was included in the law.

President Barack Obama is expected to sign within days legislation to renew the Prescription Drug User Fee Act, which allows the U.S. Food and Drug Administration to collect fees from industry to fund review of products seeking marketing approval. The comprehensive legislation will improve the transparency of new drug reviews, speed the review of drugs for rare disease, and extend for five years the fees paid by drug and medical device companies to support FDA employees dedicated to reviewing their products. In addition to fees paid by industry to support the review of new drugs, the bill includes new fees to be paid by the creators of generic drugs and biosimilars.

"While the financing environment remains challenging, the industry has made significant progress in the first half of 2012," says Burrill. "With the court battles over healthcare reform put to rest and the renewal of PDUFA completed ahead of schedule, significant areas of uncertainty have been resolved."

         
         
Life Sciences Scorecard in USD M        
    YTD 6/30/12   YTD 6/30/11   Change
Global Venture Capital   6,188   4,729   30.8%
U.S. VC   4,509   3,515   28.3%
             
IPOs (19 in 2012 v. 30 in 2011)   1,292   2,977   -56.6%
U.S. IPOs (9 in 2012 v. 12 in 2011)   630   1,061   -40.6%
             
Global PIPEs   3,464   2,200   57.4%
U.S. PIPEs   752   944   -20.4%
             
Global Follow-ons   3,270   7,426   -56.0%
U.S. Follow-ons   3,090   3,807   -18.8%
             
Global Other Equity   893   439   103.6%
U.S. Other Equity   789   168   371.0%
             
Global Debt Offerings   9,669   28,904   -66.5%
U.S. Debt   5,367   15,384   -65.1%
             
Global Other Debt   9,090   6,318   43.9%
U.S. Other Debt   7,675   826   829.5%
             
Total Global Public Financings   27,679   48,264   -42.7%
Total U.S. Public Financings   18,303   22,189   -17.5%
             
Global Partnering   15,130   19,929   -23.5%
U.S. Partner/Licenser   8,365   13,104   -35.2%
             
Global M&A   65,943   113,478   -41.9%
M&A, U.S. Target   45,261   56,004   -19.2%
             
             

About Burrill & Company
Founded in 1994, Burrill & Company is a diversified global financial services firm focused on the life sciences industry. With $1.5 billion in assets under management, the firm's businesses include venture capital/private equity, merchant banking, and media. By leveraging the scientific and business networks of its team, Burrill & Company has established unrivaled access and visibility in the life sciences industry. This unique combination of resources and capabilities enables the company to provide life sciences companies with capital, transactional support, management expertise, insight, market intelligence, and analysis through its investments, conferences, and publications. Headquartered in San Francisco, the company oversees a global network of offices throughout the United States, Latin America, Europe, and Asia. For more information visit: www.burrillandco.com

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