PRINT THIS PAGE Burrill Biotech Report: Q4 2005
09/01/2006. Source:Burrill & Company.
The $161m raised in Q4 2005 through IPOs was down almost 44 per cent from the $286m raised in Q3 2005 and down 14 per cent on the total raised in Q4 2004, says Burrill & Company. While the final quarter of the year was generally positive across all industrial sectors, it was biotech that again led the way with the Burrill Biotech Select Index posting a respectable gain of 5.6% outperforming the NASDAQ, which posted a Q4 05 gain of 2.5%, and the Dow, which closed up 2.25%. For December it was a different story for the markets with both the NASDAQ and Dow finishing in negative territory at 1.2% and 0.82% respectively for the month. The Burrill Biotech Select Index, however, held firm and recorded a monthly gain of 3.1%.
"With uncertainty in the markets towards the close of 2005 about when the Feds will stop raising interest rates all of the gains made earlier in the fourth quarter essentially left December flat," 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. "This type of one-step forward, one-step back has characterized the market movement for the full year.
"Although biotech started out 2005 on a slow note, it has seen positive increases since April," 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. "But, biotech's success in the capital markets has been led by the large cap companies with robust product pipelines and diversity. For December and Q4 05, for example, only the Burrill Biotech Select Index and Burrill Large-Cap Biotech Index performed consistently well. All the other indices have either been treading water or finding themselves in negative territory.
"While we could single out individual, emerging growth companies that have performed above average, not enough of them have performed to dramatically effect their index," said Burrill. "In 2005, it's the 'best of breed' biotech stocks that have pulled the biotech sector along."
The Burrill Biotech Select Index widely outperformed the NASDAQ and Dow Jones Industrial on a year-to-date basis - an incredible testimony to the industry's successful year (up 22% versus 1.3% for NASDAQ and -0.61% for the Dow).
"By any performance measures, 2005 was an exceptional year for the biotech industry in terms of financings and partnering, bringing in a record $35 billion for US companies.
Biotech top dog watch
Although Genentech (DNA) disclosed on the last trading day of the year that it had asked the FDA for "priority review" for its Lucentis neovascular wet age-related macular degeneration treatment, there was not enough time for investors to react and the company's shares closed the month down 3% at $92.50. Nevertheless their market cap at year end stood at $97.54 billion, which was just enough to claim the top spot ahead of Amgen (AMGN) whose market cap stood at $97.34 with its shares closing at $78.86, up 3% for the month, but down -1% during the quarter.
Amgen and Genentech have both had exceptional years, each hitting the $100 billion market cap mark in the fall, before they both dropped to $97 billion on weakening share prices in December.
"Because of these two companies individual success, the industry's market cap hit an all time high of $487 billion at the end of 2005 surpassing the previous record of $475 billion recorded in the summer of 2000, and up 22% for the year, up from the $400 billion mark at the end of 2004," said Burrill.
Investors still positive on biotech
Notwithstanding what has been a very challenging year economically and a very tough equity market, $17.3 billion was invested in the biotech sector in 2005 ... with all forms of funding finding takers. Only IPOs and debt financing fell short of the comparable 2004 totals.
IPO market mixed for biotechs in quarter
The $161 million raised in Q4 05 through IPOs was down almost 44% from the $286 million raised in Q3 05 and down 14% on the total raised in Q4 04. Four companies braved the market conditions in Q4 05: Accentia Biopharmaceuticals, Inc., (ABPI) a biopharmaceutical company focused on the development and commercialization of late-stage clinical products in the therapeutic areas of respiratory disease and oncology; Somaxon Pharmaceuticals, Inc. (SOMX) a specialty pharmaceutical company focused on psychiatry and neurology; CombinatoRx, Incorporated (CRXX) focused on developing new medicines built from synergistic combinations of approved drugs; and Nucryst Pharmaceuticals (NCST), which develops medical products that fight infection and inflammation based on nanocrystalline silver technology. Balancing out these four were four other companies that pulled their IPO's in the quarter -- Voyager Pharmaceutical Corporation a biopharmaceutical company focused on developing drugs for diseases associated with aging and development; Prestwick Pharmaceuticals Inc., whose drug products target chronic diseases of the central nervous system; dermatology company SkinMedica; and specialty pharma Reliant Pharma.
In addition six companies added themselves to the IPO runway in the quarter, looking for successful financings in Q1 06.
"Overall, the public equity IPO market in 2005 was negatively influenced by the macro-economic climate with only 17 biotech IPOs managing to get done in the US in 2005, most at the low end of their pricing ranges, raising $813 million," Burrill said. "The 2005 total raised from IPOs was 52% below the 2004 total but 78% above the 2003 total generated through IPO's.
"It has been tough for biotech to generate any momentum even though the IPO window is still officially open. Investors have remained on the sidelines mainly because of the current IPO class, particularly those of 2005, are underwater -- 76% of them in fact," explained Burrill.
"It has been slim pickings for the biotech public companies in the final quarter of the year," said Burrill. "You have to go back to the first quarter of 2003 to find a lower amount of debt raised by the industry in a quarter. The $238 million certainly pales in comparison to the $2.5 billion in Q3 05 and the $4.2 billion in Q4 04."
In total biotech raised $3.3 billion in 4Q 05, half the $6.0 billion raised in the previous quarter ($4.2 billion in Q1 05 and $3.7 in Q2 05). The $508 million generated from PIPEs was down 40% from the Q3 05 total and down almost 6% on the same quarter in 2004.
"Overall, the amount that biotech's generate from PIPEs each year has been fairly constant -- $2.3 billion this year, $2.4 billion in 2004 and $2 billion in 2003 -- showing that investors have a good appetite for these financing vehicles," explained Burrill.
However, the bigger story for the industry -- and one that has been unfolding all year, is the amount the industry has generated through partnering. The $17 billion raised is an all time record amount for partnering in biotech's 30+-year history.
In Q4 05 biotech brought in $7.4 billion, twice as much as the previous quarter ($3.3 billion) and close to the $8.9 billion raised for the whole of 2003.
"We have witnessed a very clear indication that M&A, along with partnering, has become a more attractive option for biotech companies to help drive their product development programs and ultimately increase shareholder value," said Burrill. "The Amgen acquisition of Abgenix is a marquee deal that shows how this trend is beginning to take hold.
"The December deal saw Amgen pay $2.2 billion to acquire Abgenix and was motivated, in part, by the deal structure Amgen had in place with its partner. Following positive phase III clinical trials on Abgenix' panitumumab for late-stage colorectal cancer therapies, Amgen's deal called for 50% of worldwide profits going to Abgenix once the drug is marketed. Since panitumumab has the potential to capture 50% market share -- estimated to be over $1 billion -- Amgen decided it was better to buy the company," Burrill explained.
This high profile merger has caused many again to speculate that the Amgen-Abgenix deal could mark the beginning of a new phase of drug development. Rather than paying out royalties to their partners, the biotechs, as well as big pharma companies, would instead acquire them and keep in house all of the royalty revenues. In addition, the specter that biotech will see extensive consolidation in 2006 has been raised with cash-rich companies, both from pharma and biotech, looking at opportunities to broaden their pipelines with product candidates that fit in-house expertise.
"Individual deals happen for specific reasons, unique to each, and just because one combination happens doesn't lead to large-scale industry consolidation," explained Burrill.
"The other key reason why the industry is unlikely to see massive consolidation is corporate partnering -- an activity that continues to build value for both the pharma and biotech participants. The massive and record breaking $17 billion in partnering deals during 2005 is certainly a testimony to that."
OSI Pharmaceuticals, Inc. (OSIP) closed a private placement of $100 million of 2.00% convertible senior subordinated notes due 2025. OSI intends to use a part of the net proceeds for the ongoing development and commercialization of Tarceva and Macugen. Cell Therapeutics, Inc. (CTI) completed the sale of $82 million principal amount of 6.75% convertible senior notes due in 2010 to qualified institutional buyers.
Vasogen Inc.'s wholly-owned Irish subsidiary, Vasogen Ireland Limited closed a private placement of $40 million senior convertible notes to several institutional investors.
Follow-ons fared somewhat better in the quarter with $1.2 billion generated, which compares well to the $1.3 billion raised in Q3 05 and $1 billion in Q4 04. For the year the $4.2 billion from follow-ons in 2005 was up 23% over the 2004 totals.
ViroPharma Inc.'s (VPHM) public offering generated $173 million, including over-allotments, which they will use for working capital. The company may also use a portion of the proceeds to repay or prepay all or a portion of its 6% subordinated convertible notes due March 2007. Idenix Pharmaceuticals Inc. (IDIX) a developer of anti-viral drugs sold 7.3 million shares and raised $150 million October.
Myriad Genetics, Inc. sold a total of 8,050,000 shares of common stock resulting in gross proceeds, before commissions and expenses, of approximately $148.9 million.
The amount of venture capital generated by biotechs was up a modest 8% compared to the Q3 05 amount raised. Again, like the previous quarter there were plenty of deals that got done -- 47 in fact, averaging about $20 million per investment (same as Q3 05). Year-over-date, the $3.5 billion raised was just shy of the $3.7 billion generated in 2004.
San Francisco-based Cerimon Pharmaceuticals completed a $70 million Series A financing, which will be used to expand the company's product pipeline through partnering transactions and product acquisitions. Cerimon also announced that it had acquired U.S. rights to market and sell two topical formulations of diclofenac, a non-steroidal anti-inflammatory drug. In December, Light Sciences Oncology, Inc., a Seattle-based company focused on the development of Light Infusion Technology (Litx(TM)) for the treatment of solid tumors, completed an offering of an additional $32 million of its Series A Preferred Stock. The completion follows an initial October closing of $35 million and brings the total amount of Series A Preferred to $67 million. The funds will be used to undertake a Phase III clinical trial for the treatment of hepatocellular carcinoma (HCC) as well as the initiation of clinical trials in other indications.
Raven biotechnologies, inc., a privately held biotechnology company focused on the development of monoclonal antibody therapeutics for treating cancer, raised $48.3 million through a Series D financing. Raven will use the funding for the ongoing RAV12 clinical development program now in Phase 1 trials. This antibody targets a novel antigen that is present on a number of human carcinomas, especially adenocarcinomas.
Deal making red hot in quarter
Partnering deals in Q4 2005 were up a whopping 125% compared with Q3 05 and 102% over the comparable Q 4 04 amount raised.
"The $17 billion raised through in 2005 has smashed all records and is a testimony that there been no sign that big pharma's enthusiasm for doing deals with biotechs is slowing down. Even large cap biotechs are getting into the game with the Amgen-Abgenix deal," said Burrill.
Burrill Biotech Select Index (Month: 3.12%; Quarter: 5.62%; Year: 22.2%) For once it wasn't Amgen (AMGN) or Genentech (DNA) that kept the Burrill Biotech Select Index in positive territory during December. In fact, both companies lost ground, down by 3% and 3%, respectively (down 1% and up 10% for the quarter). It was Abgenix (ABGX), thanks to the acquisition aspirations of Amgen, which closed the month up 57% (69% for the quarter, 108% for the year).
Cephalon (CEPH) also posted a healthy gain of 27% after it and Alkermes (ALKS) announced that they had received an approvable letter from the Food and Drug Administration for Vivitrol to treat alcohol dependency. Both companies said that said that they plan to launch Vivitrol (formerly Vivitrex) in the second quarter of 2006. Also helping to boost its share price during December was their completion of the acquisition, for about $360 million in cash, of all of the outstanding share capital of Zeneus Holdings Limited, a privately held company, which is now a wholly owned subsidiary of Cephalon. Zeneus Holdings of Oxford, England, is the parent company of Zeneus Pharma Ltd. The transaction accelerates Cephalon's push into the European cancer treatment market since Zeneus has several products already in the market including Myocet, a cardio-protective chemotherapy agent used to treat late-stage breast cancer; Targretin, a treatment for cutaneous T-cell lymphoma; and Abelcet, an anti-fungal treatment. Cephalon's shares closed at $64.74, up 39% for the quarter and 27% for the year.
Vertex Pharmaceuticals Inc. (VRTX) has also been on a tear all year and its 162% year-over-year gain in stock price value makes it a "contender" for biotech stock-of-the-year. In December it posted an 9% gain (24% for the quarter). Investors responded enthusiastically to the company along with GlaxoSmithKline (GSK) presenting positive results from a study evaluating the antiviral activity of the investigational HIV-1 protease inhibitor, brecanavir in Phase IIb clinical development.
Offsetting positive gains in the index was CuraGen (CRGN), which reported preliminary results from its Phase II trial evaluating a single-dose of velafermin for the prevention of oral mucositis (OM) in patients receiving high-dose chemotherapy failed to meet the primary endpoint. Shares of Curagen closed at $3.08, down 25% for the month (down 38% for the quarter and down 57% for the year).
Burrill Large Cap Biotech Index (Month: -0.68%; Quarter: 2.6%; Year: 23.3%)
With almost 60% of the companies in the index posting single digit losses for the month the Burrill Large Cap Biotech Index finished in negative territory at the end of December. However, this failed to dent what has been a stellar year for the biotech industry's senior biotech companies. One bright spot was Celgene (CELG) who received FDA approval of Revlimid, its second-generation version of Thalidomide, as a treatment for patients with myelodysplastic syndrome. The company's shares closed out the month at $64.80, up 6% in December. The gain helped put an exclamation point on what has been an outstanding year for the company with stellar share price growth of 145% in 2005. Gilead Sciences, Inc. (GILD) also posted a 4% gain in its share price in December. Just prior to the close of the month it announced it was repatriating approximately $280 million in foreign earnings, under the American Jobs Creation Act of 2004. With its share price closing at $52.57 its year-over-year gain was 50%.
In Q4 05 Biogen Idec (BIIB) also made inroads into its 60% erosion in share price in the first quarter of 2005 by posting a 31% gain (6% in December) Positive results of a Phase III clinical study of Rituxan (Rituximab) in rheumatoid arthritis (RA) helped the cause as did the news that had regulators granted priority review status to its, along with partner Elan Corp., application to bring the withdrawn Tysabri multiple sclerosis drug back to the market.
Burrill Mid Cap Biotech Index (Month: -9.2%; Quarter: -7.5%; Year: -34.3%)
Big loser in December was Rigel Pharmaceuticals Inc. (RIGL) following the failure of a lead allergy medication. Its shares closed at $8.36, down 62% in December (-58% for the quarter and -66% for the year). The threat of competition by Merck & Co.'s in the cholesterol field made investors in Kos Pharmaceuticals Inc., (KOSP) nervous. Kos' lead drug Niaspan raises levels of high density lipids. Its shares closed the month at $51.73, down 22%. One bright spot in December was Medarex Inc. (MEDX) who in the quarter, said that it expected to receive an undisclosed milestone payment from its licensing partner, Bristol-Myers Squibb Company, for the advancement into clinical trials of BMS-66513, a fully human antibody that targets CD137, for the treatment of cancer. Its shares closed December at $13.85, up 67% for the quarter and 32% for the month.
Burrill Small Cap Biotech Index (Month: -0.13%; Quarter: -8.3%; Year: - 15.6%)
Not a good year for small cap biotech in general with 70% of the 50 companies in the index posting significant losses in 2005. The index was bolstered somewhat by Cerus (CERS) up 244% on the year and 129% for the quarter and Arena Pharmaceuticals (ARNA) whose shares rose 33% in December as investors reacted to the company's positive phase II data of a compound targeted at obesity. Biggest loser was Aphton Corp. (APHT) following news in November that it and Sanofi Pasteur had agreed to terminate their co-promotion and licensing agreement related to Aphton's lead immunotherapy compound, Insegia. Shares closed the month at $0.32, down 18% (-57% in the quarter and 90% for the year).
Founded in 1994, Burrill & Company is a 50-person San Francisco-based global leader in Life Sciences Venture Capital, Life Sciences Merchant Banking and Life Sciences Media. The Burrill family of venture capital funds, with over $500 million under management, includes the Burrill Life Sciences Capital Fund, the Burrill Biotechnology Capital Fund, the Burrill Agbio Capital Fund and its successor - the Burrill Agbio Capital Fund II, and the Burrill Nutraceuticals Capital Fund. For more information, please visit Burrill & Company's website at www.burrillandco.com.
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