Life Science Investors Use Bad Assumptions

A Silicon Valley Bank study recently looked at the behavior of private, venture capital-backed biotech and medical device companies in mergers and acquisitions. The study reviewed private merger or acquisition transactions by a selection of biotech and medical device companies.

The conclusions about investments in life science companies surprised the bank because they ran counter to conventional wisdom. The bank says investors are using outdated assumptions when looking at life science companies.

60 biotech and 58 medical device companies, all funded by US venture-capital, were included in the investigation, with activity from 2005 to 2011 taken into account.

The study only included private life science M&A activity of more than $50 million for device companies and $100 million for biotech companies. Silicon Valley Bank says their research shows that many of the basic assumptions upon which life science investors base their decisions do not hold up in today’s market.

“We wanted to look at the big deals – the winners – and learn from their common characteristics. We were definitely surprised by the results and think this report will have an impact on some firms’ life science investment philosophies.”
– Jonathan Norris, Managing Director of SVB Capital Venture Capital Relationship Management team

The study turned up two very interesting results when comparing biotechs to medical device companies.

  • Biotech companies generally have quicker exits
  • Medical Device companies have higher multiples
  • The Biotech companies in the study, that received Series A venture capital investments at the pre-clinical stage, made up the majority of the biotech exits over the past six years.There has also been a shift in the exits for biotech companies, towards structured deals that pay a portion up front, with the remaining payment coming when the company achieves its future milestones.This is contrary to the previously established trend, in which the entire transaction amount was paid up front. Only three years previously, almost 80 percent of significant life science M&A transactions received up-front funding.Three new trends emerged from the report

  • Merger and Acquisition activity is rising
  • The dollar amount of medical device company exits is rising
  • Later stage exits are becoming more common
  • You can see a complete copy of the report at

    Silicon Valley Bank is heavily involved in the life sciences area, working with more than 50 percent of life science-focused VC firms and life science companies nationwide. They specialize in companies in biotech and medical device fields. The bank’s biotech clients research and develop therapeutics and diagnostics for the medical, pharmaceutical and healthcare industries, and their medical device clients design and distribute medical equipment and surgical instruments.


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