PRINT THIS PAGE Biotech update
20/12/2006. Source:Burrill & Company.
There has been no sign that the biotech industry has lost its ability to raise money. In fact we are on pace for a record level of financings in view of the fact that the over $26bn raised year-to-date is an amount that is typical for any good full year for biotech, notes G. Steven Burrill, CEO of Burrill & Company Despite high profile events such as the industry's showcase BIO 2006 in April and the annual meeting of the American Society of Clinical Oncology (ASCO) in June, they failed to generate any "buzz" for biotech investors in the second quarter.
"For a number of reasons investor confidence in biotech is at a low ebb," 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. "Biotech seems to be a victim of its own 2005 stellar success when the best-of-breed biotech companies led the charge and out-performed the markets by 22% by year-end. It appears that investors now believe that these companies are fully valued and have moved their attention to other sectors."
Despite a late June rally for the general markets, which saw the Burrill Biotech Select Index close down marginally for June, it was off over 18% for the quarter. In contrast the Dow's performance remained stable both in June and the second quarter ... with the NASDAQ holding its own in the month but off 7% for the quarter."
There was some good news on the closing day of the month, which helped stem biotech's downward slide. Genentech Inc. received FDA approval for its age-related blindness treatment, Lucentis. Investors responded favorably and biotech's top company closed out June up 2%. However, Genentech's shares were down 3% for the quarter and 12% year-to-date. Amgen's shares closed out the month even but down 10% for the second quarter and 17% for the year. With Genentech's market cap at $86.2 billion and Amgen's at $76.9, it typifies how quickly market sentiment can change ... late 2005 both companies were neck and neck for top spot with their market caps hovering around $100 billion.
"The traditional quiet summer months cannot come soon enough for biotech, noted Burrill, "however, despite this rough patch on the capital markets, biotech remains in excellent shape and continues to develop innovative products, record clinical successes and announce scientific breakthroughs and we expect to see biotech bounce back in the fall.
Financing
"There has been no sign that the biotech industry has lost its ability to raise money ... in fact we are on pace for a record level of financings in view of the fact that the over $26 billion raised year-to-date is an amount that is typical for any good full year for biotech," said Burrill.
Almost lost in the focus on the skittish capital markets was the fact that five new US biotech firms managed to launch IPOs during the quarter and ten companies added themselves to the IPO runway.
"The trend continues for biotechs with an eye on testing the IPO market ... deals get done, but on terms that are less than attractive," Burrill commented.
Debt Capital
The main contributors to the whopping $6 billion raised via convertible debt in Q2 06 was Allergan, Inc., which completed concurrent private placements of $750 million aggregate principal amount of 1.50% Convertible Senior Notes due 2026 and $800 million aggregate principal amount of 5.75% Senior Notes due 2016 and Gilead Sciences, Inc. which closed its sale of $650 million principal amount of Convertible Senior Notes due 2011 and $650 million principal amount of Convertible Senior Notes due 2013.
"It appears that debt financing is very popular right now with record amounts raised in the first and second quarters. The other offerings such as PIPES and follow-ons were softer, both dropping 72% and 28% respectively on the amounts raised in Q1 06," noted Burrill.
Venture Financings
Private companies were very active raising venture capital in the quarter with approximately 50 deals completed, averaging almost twice as much per transaction -- $27 million -- as in Q1 06. The collective total of $1.3 billion was the largest amount of venture capital raised in over two years.
Deal making cools
"Deal making cooled off in Q2 06 unable to maintain the torrid pace set in the first quarter of 2006. "The almost $6.5 billion raised in the first quarter was always going to be a hard act to follow and it is not surprising that the number of partnering deals would eventually level off," added Burrill. "Nevertheless, the over $8 billion raised to date leads us to believe that partnership deals will generate at least $16 to $17 billion by the end of the year."
INDICES
Burrill Biotech Select Index (Month: down 0.8%; Quarter: down 18.5%)
Vertex Pharmaceuticals posted solid gains after reporting an alliance with Johnson & Johnson to co-develop VX-950, an experimental hepatitis C treatment. The company's shares closed up 15% in June (no change in the quarter). Shares of Cephalon also recorded a healthy gain of 11% after the FDA issued an approvable letter for its experimental drug Fentora for cancer pain treatment. Cephalon shares are down 7% year-to-date and finished even in the quarter. Bayer Pharmaceuticals Corporation and Onyx Pharmaceuticals, Inc. received an FDA Fast Track designation for Nexavar (sorafenib) tablets for the treatment of liver cancer. Shares of Onyx closed the month up 12% but they were still down 36% in the quarter. Dragging down the index for the quarter was Neurocrine Biosciences Inc. whose shares tumbled 84% after its partner Pfizer said it was terminating an agreement to develop the sleep aid indiplon because of regulatory delays.
Burrill Large-Cap Biotech Index (Month: Up 4.8%; Quarter: down 8%)
Despite the fact that Biogen Idec and Elan Corporation, plc reported that they had received approval from the European Commission to market Tysabri (natalizumab) as a treatment for relapsing remitting multiple sclerosis, Biogen's shares closed the month down 1% (down 2% in the quarter). Invitrogen licensed Geron intellectual property related to the growth of human embryonic stem cells (hESCs). Invitrogen closed the month unchanged and Geron's shares were up 3%, but lost 17% in the second quarter.
Burrill Mid-Cap Biotech Index (Month: Up 4.8%; Quarter: down 8%)
There were few bright spots for biotech, but the mid-size companies managed to maintain or improve their share values although their performance in the quarter was less than stellar. One of the few companies to improve was Albany Molecular Research Inc., which is building a 50,000 sq. ft. R&D center in India, an expansion of its Hyderabad Research Centre. Its shares closed up 7% for the month. Also reporting a positive quarter was Illumina with its share price up 22% (2% for June).
Burrill Small-Cap Biotech Index (Month: Down 0.6%; Quarter: down 15%)
Like their mid-cap counterparts, the small-cap companies, for the most part, had a positive month. It was a different story for their overall performance in the second quarter. High double-digit losses were the norm reversing the trend from the first quarter when the Index gained over 26%.
Burrill Biotech IPO Index (Month: Down 10.5%; Quarter: down 25.4%)
The tough market conditions have not only kept down the number of new biotech IPOs that were able to get out in the quarter but also hit the fortunes of recent graduates. Acusphere Inc.'s shares, for example, plunged after a late-stage trial of a system to assess coronary heart disease failed to meet one of its three goals. The company's shares lost half their value in the quarter as any disappointing clinical trials news gets magnified and investors gravitate away from biotech, with its higher risk profile. The same fate befell shares of Threshold Pharmaceuticals, which lost almost three quarters of their value in the quarter after the company said the FDA had asked that portions of two clinical trials for its drug TH-070 be halted due to safety concerns.
Burrill Genomics Index (Month: Down 0.2%; Quarter: down 15.4%)
Human Genome Sciences signed a deal with Novartis to develop an experimental hepatitis C drug. HGS shares closed the month up 2% and down 2% for the quarter. Millennium Pharmaceuticals rose 1% in June as the company filed a supplemental new drug application with the FDA for its cancer treatment Velcade. Millennium turned down an offer to be acquired in June.
Celera Genomics and Medarex, Inc. have formed a strategic collaboration to discover and develop fully human antibodies for the potential treatment of multiple cancer indications. Celera and Medarex plan to jointly select targets from Celera's portfolio of novel cancer targets. Celera's shares closed June unchanged, but were up 11% for the quarter.
Affymax, Inc. and Takeda Pharmaceutical Company entered into an exclusive global agreement to develop Affymax's lead product candidate, Hematide, for the treatment of anemia. Despite the news Affymax's shares close June down 4% and were off 22% for the quarter.
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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