Over the past few years, the number of life sciences deals in Europe has increased dramatically, with a sharp acceleration in 2021. Whether this is just a coincidence or a deeper trend destined to continue into the future is debatable. If we analyze the reasons for this growth and compare it with more mature markets such as the US, we have every reason to believe that this is just the beginning for continental Europe.
The US life sciences market has been very active in recent decades and is considered to be very mature. The level of venture capital investments, which are now very standardized, as well as partnership agreements, mergers and acquisitions and listings in the stock market, is very high both in value and in number of transactions.
Over the past ten years, the UK life sciences market has been increasingly attracting US investors, and the number of growth funds is constantly growing. After a first round of fundraising based development, these companies are now mature enough to enter into partnerships, M&A and/or stock market listings. This is also the trend we expect for continental Europe, although each country or region still has its own characteristics (especially Germany, France and the Nordic countries).
European life sciences fundraising grew 65% year-on-year to more than $13.6 billion, with deal value growing much faster than deal numbers. The major European markets (UK, Germany, France and Scandinavia) accounted for over 65% of European transactions by value, with the UK well ahead of other countries.
The volume of fundraising in the field of life sciences has increased significantly, even at the seed stage or at an early stage. French biotech company Mnemo Therapeutics, for example, closed a €75 million Series A in 2021. Investments in growth or at a more mature stage of development (series C or D) are also more frequent, for example, series C DNA Script demonstrates. fundraiser of $200 million.
This can be explained by a virtuous circle characterized by the attractiveness of target companies and the availability of funds. The ecosystem is growing with the emergence of more mature life science start-ups, first in the United Kingdom and then in mainland Europe. In addition, funds from US investors who now regularly invest in European companies are increasingly available, as well as historical European investors or new entrants able to support long-term companies such as Jeito, Bpifrance, LSP or Sofinnova. Finally, a large number of digital health companies are attracting technology investors, further increasing the availability of capital for these companies.
In terms of partnership agreements (including licensing, joint ventures and joint research), the global life sciences partnership agreements have been record breaking in 2020, and many. Although this record was not repeated in 2021, the total value of transactions remained high. Initially limited to deals with large medical or pharmaceutical companies in exit scenarios, these deals are increasingly found between startups looking to diversify and startups (either early-stage or platform technology) looking for non-dilutive alternative financing.
This trend goes hand in hand with more aggressive IP auditing, which is important for the early stages of trading, especially in disruptive technology areas where the IP landscape is not well defined. Licensing agreements with academic institutions are increasingly difficult to negotiate globally because certain provisions requested by universities create problems when biotech companies subsequently enter into licensing or collaboration agreements with partners.
In line with the global trend in life sciences deals, the United States has significantly outperformed other countries in the number of licensing deals. In Europe, the UK is once again far ahead of Germany and France. Of all the therapeutic areas, cancer research is the subject of the most licensing agreements. In addition, license agreements target the core technology areas of digital health and small molecules. Option contracts are also becoming more and more popular. In particular, in the field of cell and gene therapy, the number of option contracts has increased over the past two years.
Europe also saw strong growth in M&A and IPOs in life sciences in 2021. The number of European life sciences IPOs on Nasdaq has doubled, and the amount raised from these IPOs has also doubled between 2020 and 2021. Not surprisingly, most of these companies were more mature British companies, more ready to take the plunge. However, more and more continental European companies are considering listing on the Nasdaq, where they expect better valuation and liquidity than European markets.
The number of M&A deals reached unprecedented levels just before Brexit, which explains the rather long start to 2020. However, mergers and acquisitions in the life sciences are back to pre-2018 levels in both numbers and value.
Even before Brexit, when the country was plagued by political and legal uncertainty, the UK remained the largest market in Europe for life sciences M&A deals, both in terms of value and number of deals. This is easily explained by the level of market maturity. It is quite interesting to note that each of the other markets (Nordic countries, France, Germany) followed its own trend: stability in the Nordic countries, strong growth in France and volatility in Germany with prestigious deals.
All of these trends point in the same direction as they are all supported by the growing maturity of local markets. Therefore, it is highly likely that these trends will continue over the next few years with an increase in fundraising, partnership agreements, mergers and acquisitions and IPOs.