In Europe, life sciences deals increased over the last few years with strong acceleration in 2021. As a result, the market wonders whether this is just an uptick or rather a steady trend which will impact our market in the future as well. Analyzing the reasons of such growth and comparing it with more mature markets such as the U.S. comfort us in thinking that it is just the beginning for continental Europe.
The U.S. life sciences market has been very strong over the past decades and is seen as very mature. The level of venture investments(which are now very much standardized), licensing, M&A and IPOs is very high, both in valuation and in number.
For the last ten years or so, the life sciences UK market attracted U.S. investors and an increasing number of growth funds. After a first step of development through venture investments, such companies are now ready for licensing, PE deals, M&A and IPOs. This is also the trend that we anticipate for the European market even if each country or region still has its own specificities (in particular UK, Germany, France and Nordic countries).
Venture capital financing in the life sciences sector in Europe grew by 65% year-over-year totaling more than $13.6 billion, with deal volume/value increasing much faster than deal count. Top markets in Europe (UK, Germany, France and the Nordic Countries) accounted for more than 65% of the total European venture capital deal volume/value, with the UK well ahead from the other countries.
The new venture capital transactions landscape in life sciences includes much larger venture capital round, even at an early stage like French biotech company Mnemo Therapeutics which closed a €75 million Series A in 2021. Growth or later stage investments (Series C or D) are also much more frequent as in French biotech company DNA Script with its $200 million Series C round.
This can be explained by a virtuous circle of attractive target companies and funds availability. The ecosystem is growing with the emergence of more mature life sciences startups first in the UK and then in continental Europe. In addition, funds are made available by U.S. investors which are now targeting European companies on a regular basis as well as historic or new European funds able to support the companies in the long term like Jeito, Bpifrance, LSP or Sofinnova. Finally, numbers of e-health companies are attracting a mix of life sciences and tech investors which increase again the availability of capital.
On the licensing side (including licenses, joint ventures and research collaborations), global life sciences sector licensing deals had a record-breaking year in 2020 and although 2021 deals fell short of 2020 record, total deal amount remained strong. Initially limited to deals with large medtech or pharma companies in exit scenarios, such deals are more and more common between startups looking for diversification and startups (either early stage or with platforms technologies) looking for alternative non-dilutive financings.
This trend goes with more aggressive intellectual property due diligence which is affecting earlier stage deal-making, particularly in breakthrough technology areas where the intellectual property landscape is not well-defined. License-in agreements with academic institutions are globally becoming even more challenging as certain clauses requested by academic institutions cause issues when biotech companies strike licensing-out or collaboration deals with partners later on.
In line with the global trend in life sciences deals, the U.S. out-ranked other countries in number of licensing deals by a large margin. In Europe, the UK is again well ahead from Germany and then France. Cancer is the therapeutic area with the highest number of licensing deals. Digital health and small molecules are also top technology areas targeted by licensing deals. Option deals are becoming popular, in particular cell and gene therapy was a technology area that had experienced an increase in the number of option deals over the last couple of years.
Life sciences M&A and IPO deals volume also saw a strong growth in Europe in 2021. The number of NASDAQ IPOs by European-based life sciences companies doubled and gross proceeds of such IPOs doubled between 2020 and 2021. Unsurprisingly most companies were UK companies as they were more mature and more ready to take the step. However, more and more continental European companies are considering getting listed on the NASDAQ where they expect a better valuation and liquidity than on European markets.
The number of M&A transactions reached unmet numbers immediately prior to Brexit which explains a pretty slow 2020. However, compared to pre-2018, life sciences M&A transactions are back to their level in volume and higher in number.
Even pre-Brexit, when suffering from political and legal uncertainty, the UK remained the top market in Europe life sciences M&A transactions, both in deal value and deal count. This can be easily explained by the level of maturity of the market. Interesting enough, the other markets (the Nordics, France, Germany), each had their own trend with stability in the Nordics, regular growth in France and variability in Germany with high profile transactions.
Life sciences PE deals saw a solid growth in Europe in 2021: PE investments in the life sciences sector in Europe grew by 15% year-on-year on amount in 2021 while volume stayed flat. Most PE deals in Europe were sponsored by European funds including ArchiMed EQT, and Ardian. U.S. PE funds are less active but remain active in larger transactions.
In France, the amount of deals dropped while the volume remained stable in 2021 showing a decrease in the deal size. In the UK however life sciences PE deals declined significantly in 2021 both in volume and in amount. It is interesting to note that the top investors in the UK for 2020 and 2021 were almost exclusively UK investment firms (Connection Capital, HG Capital, Polar Capital and Synova Capital along with one U.S. investment firm (H.I.G. Capital) while French PE deals where mainly led by French investors.
Notable deals included: Ardian injecting €1.6 billion in growth equity into France-based Labosud, which specialises in operating a medical laboratory; the Generic Rx Pharmaceuticals business of Perrigo Company being acquired by Altaris Capital Partners through a $1.55 billion LBO on July 6, 2021 and Pharmathen being acquired by Partners Group through an estimated €1.28 billion LBO on July 19, 2021.
All these trends follow the same direction as they are all sustained by a growing maturity of the local markets. So it is very likely that such trends will carry on for the next few years with more and more fund raising, licensing, PE deals, M&A and IPOs.
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Author(s)
Anne-Charlotte Rivière
Marie Fillon