PRINT THIS PAGE

Biotech posts strong third quarter for 2005

Biotech financings and partnering/M&A deals set a torrid pace in Q3 2005 and the industry is on target to raise over $30 billion by year end, according to Burrill & Company's Quarterly Biotechnology Report, which tracks the ongoing performance of the biotechnology industry.

Reinforcing the strong performance in the capital markets in the third quarter, biotech raised almost $10 billion in financings and partnering. "During each successive quarter in 2005 we have seen a consistent increase in the total amount of financings that biotechs have raised. Barring any unforeseen development that derails the industry in Q4, we are on track to break the $30 billion barrier once again and perhaps even break the impressive $30.8 billion that was raised last year," said G. Steven Burrill, CEO of Burrill & Company, a San Francisco based global leader in life sciences with principal activities in Venture Capital, Merchant Banking and Media.

Capital Markets favorable to biotech issues

Public biotech companies were able to generate almost $5 billion in financing in the third quarter compared to $2.5 billion that was raised in the second quarter of 2005. The $5 billion 3Q 05 total represents a whopping 131% increase over the $2.1 billion that was raised in the same quarter of 2004.

"It certainly was a stellar quarter as far as public financings were concerned. In all financing categories, except for IPOs, the third quarter totals were considerably higher than both 2Q 05 and the comparable Q3 04 totals," commented Burrill. "The market had an appetite for PIPEs, follow-on issues and debt (with these instruments collectively generating $4.7 billion) showing a decided investor interest in more mature biotech companies," Burrill noted.

"Despite the fact that the Burrill Biotech Select Index finished the month just in negative territory, and biotech overall had a sub-par performance in September, as compared with the previous four months, these disappointing numbers failed to take the shine off what was another excellent quarter for biotech," said Burrill. "The third quarter results show that the Burrill Biotech Select Index again beat both the Nasdaq and the Dow, and is well ahead of both these benchmarks on a year-to-date basis.

"The over 15% gain since the beginning of the year, with most of this occurring in the second and third quarters, is a signal that investors are putting their faith in biotech stocks, which they have come to believe are much less sensitive to the prevailing market forces of rising interest rates, sky rocketing oil prices and the recent tragic combined economic effects of hurricanes Katrina and Rita," Burrill added.

IPO window opens ... but gingerly

"There are even signs that the IPO window is beginning to open once again, as we predicted it would after Labor Day, given the flurry of activity that occurred to close out the quarter. Although the issues of Avalon Pharma, Genomic Health and Sunesis Pharmaceuticals priced at the low end of their price range, and all of them closed the month below their issue price, we expect to see more biotech IPOs in Q4, particularly in the wake of the 260% increase in IPO financings over the amount raised by this route in Q2 05."

Looking at the performance of those biotech companies that completed IPOs since the "opening" of the window in 2003, the group is now collectively up 23% overall at the end of the third quarter -- even though over half are still trading well below their issue price.

"The Burrill Biotech 2003/4/5 IPO Index continues its steady improvement and although not fully above water as far as the year-to-date performance is concerned, we expect the Index to close the year in positive territory," said Burrill "It is this kind of continuing success of companies in the group, like Myogen, whose share price was up 236% for the quarter, that will contribute to an active IPO season for biotechs in Q4 with at least 10 companies currently on the IPO runway that could test the market."

While the amount of venture capital was down 11% compared to Q2 05, there were plenty of deals that got done -- over 40 in fact, averaging about $20 million per investment. Year-to-date, the $2.55 billion raised is down 14% on the 2004 three quarters total.

Biotechs Still Attractive for Big Pharma

Partnering deals in Q3 2005 were down approximately 10% compared with Q2 05 but up 22% over the comparable 2004 amount. "There has been no sign that big pharma is slowing down its partnering or acquisitions activities. Typical of this trend is GlaxoSmithKline's acquisition of Vancouver-based ID Biomedical Corporation (IDB), developer and manufacturer of innovative vaccine products, including influenza vaccines,' said Burrill. "In the past, we might have seen GSK forge a strong alliance with ID Biomedical, which has vaccine manufacturing facilities in Canada and in the U.S., but now the pharma sees itself as a major player in the 'flu vaccine market and hence they were willing to pay $1.4 billion for ID Biomedical."

Founded in 1994, Burrill & Company is a San Francisco-based global leader in life sciences with principal activities in Venture Capital, Merchant Banking and Media. The company publishes an annual book on the "State of the Industry," as well as a range biotechnology/life science newsletters devoted to Canada, China, India and Japan. Full details may be found at: http://www.burrillandco.com