Secondary Financings Dry Up

Life science companies looking to raise money in public markets found few opportunities in August. Just one follow-on offering, a $7 million capital raise by immunotherapeutics developer Agenus, took place in the month. The dearth of offerings is not surprising. August will be remembered for the wild swings in the capital markets as investors hung on every political and economic move, hoping for the best one day and fearing the worst the next. Many life sciences firms took a beating and every major index fell in the month. Political fights in the United States exacerbated an already fragile economy where businesses, many sitting on plenty of cash, are waiting to see events play out before committing to new hiring and expansion.

Many small and mid-size life sciences companies, however, don’t have the cash cushion luxury of the bigger firms. And while venture capital continues to back private companies at a fairly steady pace, financing venues for public companies during volatile markets has slowed considerably.

Burrill Report data shows that total U.S. follow-on offerings averaged $575 million per month through the first seven months of 2011. That average drops to $504 million per month when August is included, a 12.3% decline. PIPES have faired slightly better but only $84 million was raised through private placements in the United States in August, compared to an average $142 million per month in 2011, 41% less than the average.

Life science IPOs have also slowed to a trickle with no completed offerings in the United States in August. Two U.S. companies, renewable chemicals developer EcoSynthetix and obesity control device maker GI Dynamics, completed offerings outside the country. EcoSynthetix raised $101.6 million on the Toronto Stock Exchange while GI Dynamics went to Australia to raise $85 million in an initial offering. Although companies continue to add themselves to the IPO queue, that has also slowed, and the prospect for more companies going public this year has dimmed.

The lack of publicly available capital and depressed share prices may lead to an upsurge in M&A activity, as the larger pharmas and biotechs continue to seek innovation outside their walls. It will also give them a greater bargaining chip and it will be interesting to see how it plays out. Among public companies in play, Icagen rejected a take out offer by Pfizer as being too low and Axis-Shield has spurned an attempt by diagnostics firm Alere to acquire it for the same reason. Both of these deals are likely to go through but have met with considerable resistance by shareholders.

Not all is gloom and doom, however. Beside a recent upsurge in U.S. regulatory approvals for cancer drugs, innovative startups are continuing to attract venture backing. August is generally a slow month for deal making, but U.S. VC-backed companies raised $551 million in the month. Unlike most months, medical device, digital health, and diagnostics firms scored the majority of the funding with $187 million raised by medical device firms, $138 million by diagnostics developers, and $94.5 million by digital health firms. Therapeutics developers scored $101 million, with $31 million going to tools and technology companies.

Go here to see a list of the deals for the week ending Sept. 2.