According to an SVP Financial Group report, contrary to conventional wisdom, biotech exits occur faster than device exits and have lower, but solid, multiples on invested capital. The study examined large, private merger and acquisition (M&A) exits of U.S. venture-backed life science companies between 2005 and 2010. The data set apparently included 60 biotech and 58 medical device deals. The report notes, “Biotech continues to see quick Big Exits from the close of Series A (5.05 years on average) with a solid 4.1X return. Device has taken longer over the last six years (7.01 years on average), but has a bigger average exit at 5.2X. Rudimentary gross IRR [internal rate of return] calculations show Big Exits in both areas are solid returners, with Biotech at about 34 percent IRR and Device at about 28 percent IRR.”

Another study finding was a sharp increase in structured deals in the biotech industry since 2009. The report cites three main reasons for the increase: (i) deals that were “all-in exits failed in subsequent clinical trials or during FDA approval,” leading acquirers to refuse to take all performance risk and to structure their deals by paying some upfront value “but waiting to pay out the majority of the transaction value until the asset completed milestones that advanced it deeper into the clinic”; (ii) a perceived weakness in venture capital’s ability to support companies with sufficient capital to “get through the next expensive and/or lengthy trial” apparently provides the acquirer with an advantageous bargaining position; and (iii) “[l]icensing deals have quickly morphed into M&A discussions as acquirers realize that many investors will accept smaller (and more importantly, quicker) realizations upfront with some performance upside.”