PRINT THIS PAGE Biotech turns in mixed performance in Q1 06
23/08/2006. Source:Burrill & Company.
Although there were approximately 41 venture financings, averaging $16m per transaction in Q1 06, the $734m raised was 23 per cent lower that the total raised in Q4 05. However the total was only 6 per cent below the $781m raised in Q1 05. On the eve of the industry's showcase event BIO 2006, biotech closed out a rough month of March, but this did not take the shine off the exceptional performance of the mid- and small-cap biotech companies.
Although the Burrill Mid-Cap Biotech Index dropped almost 5 per cent in March, it still closed out the quarter up 24.5 per cent. Topping this was the Burrill Small-Cap Biotech Index, which was up 2.5 per cent in March and an impressive 26.6 per cent for the first quarter of 2006. This was in stark contrast to the Burrill Biotech Select Index, which was down 4.5 per cent for the month and 0.5 per cent for the quarter. The NASDAQ finished March up 2.5 per cent and a healthy 6 per cent for quarter, and the Dow was also up 1 per cent for month and 3.6 per cent for the quarter.
"There were some very impressive gains in the emerging and growing biotech sector during the quarter," said G. Steven Burrill, CEO of Burrill & Company a San Francisco based global leader in life sciences whose principal activities are in Venture Capital, Merchant Banking and Media. "There has been a renewed investor interest in these companies, which seems to be, for the present time, at the expense of biotech's blue-chip companies. These bell-weather, large-cap biotech stocks did not carry over their momentum from a stellar 2005 into the first quarter of 2006 even in the wake of a late March market rally thanks to a general optimism about US economic growth and business spending," added Burrill.
"Contributing to the large cap biotech companies' sluggishness on the markets was several product disappointments. Cephalon, for example, had its Sparlon drug, an experimental treatment for attention deficit hyperactivity disorder in children, rejected by the FDA. The agency also pushed the action date on Biogen Idec and Elan's multiple sclerosis drug Tysabri back by three months to late June in order to have more time to review the companies' drug risk-management plans."
Q1 06 Capital Markets
Fundraising netted biotech companies an incredible $9.1 billion in the first quarter of 2006 ... representing over 50% of the total financings raised during the whole 2005, in part driven by Amgen's $5 billion debt offering this quarter. "The only time a larger amount was raised in a single quarter was back in Q4 2000 at the height of the "-omics" boom, when every investor wanted to 'own' biotechs," explained Burrill.
"While the capital markets were still a little choppy for biotechs, particularly in March, investors were showing their continued interest," added Burrill. "PIPES were a hot commodity in Q1 06, reinforcing the fact that private investors believe that biotech companies are substantially undervalued. The $1 billion raised from approximately 50 deals in the quarter was up 100% from the previous quarter.
Biotech raised $303 million in six US IPOs this quarter, versus $168 million in 4Q 05 by four companies. Wall Street had a lot of enthusiasm for the Altus Pharmaceuticals IPO, pricing in the middle of its expected range. The company raised $105 million on seven million shares. Altus, which was spun out of Vertex Pharmaceuticals in 1999, uses a proprietary protein crystallization technology to develop new protein drugs. Its lead product is an enzyme replacement therapy for the treatment of malabsorption as a result of exocrine pancreatic insufficiency. At the close of the month, Altus was priced at $21.93 -- a gain of 46% from its IPO price of $15.
In February, SGX Pharmaceuticals Inc. priced its offering at $6, well below its initial estimated price of $11 to $13 per share, raising only $25 million. The company focuses on cancer therapeutics, including Troxatyl, which is in a clinical trial for the treatment of acute myelogenous leukemia. SGX's share price closed the quarter up 58% on the strength of its announcement that it had partnered with Novartis covering the development and commercialization of BCR-ABL inhibitors for the treatment of drug resistant chronic myelogenous leukemia.
Also hitting Wall Street in February were the following companies: Valera Pharmaceuticals Inc., Iomai Corporation and Acordia Therapeutics, netting $35 million, $35 million, and $36 million, respectively. Valera, a specialty pharmaceutical company concentrating on the development, acquisition and commercialization of products for the treatment of urological and endocrine conditions, diseases and disorders closed the quarter at $10.15, up 13%. Acordia, whose lead product candidate, Fampridine-SR, is in a Phase III clinical trial for the improvement of walking ability in persons with multiple sclerosis, closed at $5.22, down 13%. For Iomai, which is focused on vaccines and immune system stimulants delivered to the skin, it has been all downhill since its IPO debut. The company closed March at $5.81, down 17%.
The only US IPO to be completed in March was Alexza Pharmaceuticals, Inc. whose initial public offering of 5,500,000 shares of common stock priced at $8 per share, slightly below its initial range of $10 to $12. Alexza is concentrating on the pain field and its share price closed the month up 22%.
"The capital markets have provided a tremendous amount of money to biotechs, but they are discriminating," said Burrill, "with a continued bias toward companies with drugs in the later stages of development, and those with big partnerships. With no deals pulled this quarter the nine companies on the IPO runway believe the market conditions are improving and that they will be able to complete their offerings. With the Burrill Biotech IPO Index up almost 19% for the first quarter, the biotech IPO market continues to look favorable to new entrants."
Debt Capital
The main contributor to the whopping $5.4 billion raised via convertible debt in Q1 06 was Amgen's issuance of two convertible senior notes priced at $2.5 billion each. The company said that it would use the net proceeds from the debt offering to purchase approximately $3.0 billion worth of shares of its common stock. The only other debt transaction was BioMarin Pharmaceutical's $295 million concurrent public offerings of common stock and senior subordinated convertible notes, which netted $167 million.
Venture Financings
Although there were approximately 41 venture financings, averaging $16 million per transaction in Q1 06, the $734 million raised was 23% lower that the total raised in Q4 05. However the total was only 6% below the $781 million raised in Q1 05. Topping the list of transactions was Microbia, Inc., a company with two internally discovered drug candidates in clinical trials, raising $75 million in a series E private equity financing. Cadence Pharmaceuticals, Inc. reached an agreement to acquire the development and commercialization rights to an intravenous formulation of acetaminophen (IV APAP) in the US and Canada from Bristol-Myers Squibb Company. Concurrently, Cadence received equity financing commitments of $53.8 million to fund development of IV APAP and make an up-front payment to Bristol-Myers Squibb. Helicos BioSciences, a pioneer in high-speed, high-sensitivity DNA sequencing, secured new investments totaling $40 million to support the development of "true single molecule sequencing" (tSMS) technologies and techniques that enables researchers to rapidly and accurately sequence individual molecules of DNA. This allows direct interrogation of the single molecule as opposed to an amplified population of molecules.
ARYx Therapeutics Inc. completed a $30.4 million Series E financing and will use the funds to continue developing its three clinical programs: ATI- 7505, a treatment for gastroesophageal reflux disease and gastroparesis, ATI- 2042, a treatment for atrial fibrillation, both in Phase II, and ATI-5923 an oral anti-coagulant therapy currently in Phase I.
Deal making continued its torrid pace
"If the first quarter of 2006 is anything to go by, biotech is on pace to beat the record-setting $17 billion raised through partnering in 2005," said Burrill. "Big pharma's enthusiasm for doing deals with biotechs continued in the first quarter with strategic transactions announced at almost $6.5 billion, up from the $2.1 billion posted in the first quarter of 2005.
Wyeth Pharmaceuticals, a division of Wyeth started out 2006 forming a strategic alliance with Seattle-based Trubion Pharmaceuticals with a deal that could exceed $800 if all the milestones are met. The alliance will utilize Trubion's proprietary Small Modular Immunopharmaceutical (SMIP) technology, a novel class of immunotherapeutics with enhanced drug properties over monoclonal and recombinant antibodies. Wyeth and Trubion will collaborate on the development and commercialization of CD20-targeted therapies including TRU-015, a novel SMIP compound currently in phase II clinical development for the treatment of rheumatoid arthritis. Trubion received an initial $40 million payment and will retain an option to co-promote CD20-targeted therapies in the US for certain indications.
Nastech Pharmaceutical Company Inc. and Procter & Gamble Pharmaceuticals, Inc., a division of The Procter & Gamble Company, signed a collaboration to develop and commercialize Nastech's Parathyroid Hormone (PTH1-34) nasal spray for the treatment of osteoporosis, which is being readied for Phase III trials. Nastech received $10 million upfront and the deal could be worth $577 million over the life of the project and position both companies with an alternative to therapies delivered by injection in the $6.2 billion osteoporosis drug market.
Novartis was an active deal maker in Q1 06 ... forging alliances with Infinity Pharmaceuticals Inc., Idenix Pharmaceuticals and SGX Pharma. With Infinity they are going after the Bcl-2 protein family members for the treatment of a broad range of cancer indications. Infinity will receive $30 million in upfront license fees, an equity investment and committed research funding over the first two years of the relationship. Along with success-based milestones, total payments to Infinity could exceed $400 million. Novartis also exercised its option to license valopicitabine (NM283) Idenix Pharmaceuticals, Inc.'s lead compound in development for the treatment of hepatitis C. Idenix may receive up to $70 million in license fees, of which $25 million is payable to Idenix in conjunction with the option exercise. The remaining $45 million in license fees is payable by Novartis upon the advancement of valopicitabine into phase III clinical trials in treatment-naive and treatment-refractory patients in the US. In addition, Idenix may receive up to $455 million in milestone payments. SGX Pharmaceuticals entered into a license and collaboration agreement with Novartis focused on the development and commercialization of BCR-ABL inhibitors for the treatment of drug resistant chronic myelogenous leukemia (CML).
There were two blockbuster M&A transactions announced in Q1 06 in the "big pharma space". On the closing day of the quarter, shareholders of Boston Scientific Corporation and Guidant Corporation approved the merger of both companies. Each share of Guidant common stock will be exchanged for $42.00 in cash and $38.00 in Boston Scientific common stock, valuing the deal at about $27 billion. Also in March, Bayer AG's $19.6 billion offer for drug maker Schering AG trumped Merck KGaA's $17.9 billion hostile earlier offer for the company.
BIOTECH INDICES
Burrill Biotech Select Index (-4.5% for month, -0.5% YTD) Vertex
Pharmaceuticals stumbled in March with its shares losing 15% in value after the company reported disappointing mid-stage data for VX-702 its experimental rheumatoid arthritis treatment. The results met the study's primary endpoint but patient response rates fell below that of current drugs such as Amgen's Enbrel. However, Vertex closed the quarter at $36.59, up 32%. Affymetrix Inc. posted an 8% decline in its fourth-quarter earnings and issued a first-quarter earnings outlook that fell well below consensus estimates. The company's share price fell 7% in March and was down 32% in value since the beginning of the year. Cephalon's shares also had a difficult month closing down 23% (down 7% YTD). The FDA advisory panel rejected recommending approval of Sparlon, an experimental treatment for attention deficit hyperactivity disorder in children. Following the disappointing news, Cephalon lowered its 2006 sales guidance by $100 million.
Burrill Large-Cap Biotech Index (down 1.3% for month, -6.5% YTD)
Despite posting a 1% drop in its share price in March and a 9% drop in value since the start of 2006, Genentech retained its top spot with a market cap $89 billion. Amgen's market cap stood at $86 billion. Its stock price performance was equally lackluster, closing down 4% for the month and 8% YTD.
Shares of Biogen Idec remained flat in March. The FDA delayed a decision on whether to allow its multiple sclerosis drug Tysabri back on the market. The company's shares closed at $47.10, up 4% in the quarter. Genzyme Corporation stopped enrolling new patients in its Phase II cardiac cell therapy trial. The trial's Data Monitoring Committee recommended this step after concluding that there is a low likelihood that the trial would result in the hypothesized improvements in heart function. The company will continue to follow all 95 patients who have been enrolled to date, and will collect all data specified in the protocol throughout the follow-up period. Genzyme's shares closed down 3% in March and down 5% YTD. Although ICOS's joint venture with Lilly (Lilly ICOS LLC) posted a 35% increase in worldwide sales of Cialis (tadalafil) in 2005, ICOS closed the moth of March down 9% and down 20% YTD.
Burrill Mid-Cap Biotech Index (-4.8% for month, 24.5% YTD)
Idenix Pharmaceuticals shares plunged 34% by month's end (-21% YTD) after the company delayed a Phase III trial of its lead developmental drug, NM283, a hepatitis C treatment. Idenix reported that gastrointestinal toxicity observed in some patients participating in a Phase IIb trial prompted the company to modify the trial; patient dosing levels were cut from 800 milligrams per day to 200 milligrams or 400 milligrams. Illumina, Inc. was awarded a genotyping services contract by SAIC-Frederick, Inc. to perform whole-genome SNP scans on over 2,500 prostate case and control samples provided by the Institute. Illumina will use its Sentrix HumanHap300 BeadChip and Infinium assay to perform the genotyping. The company's shares closed the month down 7% but up 68% on the quarter.
Burrill Small-Cap Biotech Index (2.5% for month, 26.6% YTD)
Companies in this group continue to rack up impressive gains. Nabi Biopharmaceuticals, for example, jumped 37% in March, and 67% YTD, after it said it would resume developing vaccines against staphylococcus bacteria after an outside panel agreed that quality problems with a vaccine lot skewed results from a late-stage trial of one vaccine. Nabi had announced in November that one of its vaccines, StaphVAX, had failed a Phase III trial and it would also halt work on a second vaccine, called Altastaph.
The share price of Xoma Ltd. jumped 36% in March (43% YTD) after posting a profit in 2005 on higher revenue. Other companies posting significant gains in March were: Biopure (up 43% and 74% YTD); Advancis Pharma (up 50% and 138% YTD); and Sirna Therapeutics (up 10% and 122% YTD).
Burrill Genomics Index (-4.8% for month, -10% YTD)
The quarter wasn't kind for genomics companies. In addition to the share price fall of Affymetrix, shares of Human Genome Sciences closed March down 13%, but up 27% YTD. The company reported mixed Phase II results for Albuferon, a hepatitis C drug in a head-to-head trial with Roche's Pegasys. On the plus side Nanogen, Inc. received 510(k) clearance from the FDA to market its StatusFirst CHF NT-proBNP EDTA plasma test to aid in the diagnosis of individuals suspected of having congestive heart failure (CHF). Nanogen's shares increased 20% in value in the month (16% YTD). . Leading gainer for the quarter was CuraGen Corp. - up 63% - but flat in March. A positive investment rating on the company helped boost its share price. This was based on the potential of its PXD101, a therapy to help patients with multiple myeloma. The Phase II results are expected mid-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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