Recent Financings Boost Biotech M&A Returns

In the last five years, the average up-front return on investment in private biotech acquisitions has declined from 4x in 2006 to under 2x thus far in 2010, thanks primarily to the rise in earn-out-heavy dealmaking. ( See "Pharma: Serious About Change?" IN VIVO , October 2010 Also see "Pharma: Serious About Change? " - In Vivo, 1 October, 2010. and "Biotech Backers Are Learning to Live with Exit-by-Earn-out," START-UP , March 2010 Also see "Biotech Backers Are Learning to Live with Exit-by-Earn-out " - Scrip, 1 March, 2010..) While there have been a few outliers – Direvo Biotech AG and CoGenesys snatched 8x and 7x returns, respectively, when they were purchased by Bayer HealthCare LLC and Teva Pharmaceutical Industries Ltd. – more deals have trended like Wyeth's (now part of Pfizer Inc.) buy of Thiakis, which had raised $120 million in venture capital, only to be acquired for $30 million up front. [See Deal][See Deal][See Deal]

At a time when bigger pharmaceutical players have the dealmaking leverage, what steps – if any – can privately held...