PRINT THIS PAGE Biotech see a lackluster end of year
14/02/2007. Source:Burrill & Company.
While it failed to fan the flames of positive investor sentiment, biotech M&A activity continued its torrid pace and an additional three biotech IPOs got out of the gate, finds Burrill & Company. The results of the mid-term elections, which saw the Democrats achieve majorities in both the House and Senate for the first time since 1994, has already begun to send shock waves through the biotech and pharma industries during November.
"We know that Congress will shift when Democrats take over both the House and Senate in January, with a new focus on healthcare, especially Medicare part B that will potentially plague the pharma and product based biotech industry," commented 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.
"A key issue on the Democrats agenda will be increasing the government's power to negotiate lower drug prices for millions of older Americans on Medicare. The pharma lobbyists are already lining up to fight against this agenda, although many concede that the House is likely to pass a bill intended to drive down drug prices. With heated debate squarely on drug pricing momentum is created for the generic-drug rivals' agenda," commented Burrill.
In the wake of the elections and recently released economic news, investors remained generally confident in the economy, as reflected by the strengthening market indices. The Dow finished the month up just over 1% and the Nasdaq fared even better closing just shy of a 3% gain. In contrast, the Burrill Biotech Select Index fell 1.7%.
"It was not all bad news for the biotech industry however. Stem cell funding emerged as an important issue during the mid-term elections, with the new Congressional leadership poised to bring new legislation to the table," added Burrill. "Of the 19 Congressional races in which stem cells were a divisive issue, 16 were won on the stem cell side, with all of the governor races also settled in favor of this issue.
Presumptive Speaker of the House Nancy Pelosi, D-Calif., has already listed, in addition to drug pricing, funding for stem cell research as one of the top priorities of the new House. Bringing this issue up in the first 100 hours of Congress indicates the importance it had on the electorate.
While it failed to fan the flames of positive investor sentiment, biotech M&A activity continued its torrid pace and an additional three biotech IPOs got out of the gate.
Genentech, Inc. announced its acquisition of Tanox Inc., a biotechnology company specializing in the discovery and development of biotherapeutics based on monoclonal antibody technology, for approximately $919 million. The companies have been working together in collaboration with Novartis since 1996 to develop and commercialize Xolair(R), an anti-IgE monoclonal antibody approved by the FDA in 2003 as a treatment for patients with moderate-to- severe allergic asthma. The deal also helps Genentech improve its pipeline in the areas of asthma, HIV, and age-related macular degeneration.
Illumina, Inc., which has been one of Wall Street's "darlings" with its stock value up a massive 173% since January, was also in deal-making mood mode picking up gene sequencing platform company Solexa, Inc. in a stock-for-stock merger valued at around $600 million.
Swiss-based Actelion Ltd plans to acquire CoTherix, Inc., which markets Ventavis (iloprost), the only approved inhaled therapy for the treatment of Pulmonary Arterial Hypertension in the US, for approximately $420 million - premium of 72% over the closing price 1 month prior, and a 21 percent premium over CoTherix's closing price of $11.20 on Friday, November 17, 2006. Subject to regulatory clearance and other customary closing conditions, the transaction is expected to conclude early in Q1 2007.
"We haven't seen this many deals in any year between pharma/ biotech and biotech/biotech in the industry's history," noted Burrill. "The huge premiums that big pharma is willing to pay for biotech innovation reflects their pipeline problems. Compared to the daunting $1.2 - $1.8 billion that is needed to bring a new drug to market and the long 10-15 years development cycle, paying big premiums, even for drugs that are not even in the clinic, is both a cheap and efficient way of reducing development costs and shortening commercialization timelines for the pharma acquirers," said Burrill."
IPOs still lukewarm
Three IPOs got done this month, although all had to modify their original filing prices ranges:
- Catalyst Pharmaceutical Partners, Inc. closed its IPO, raising $17.6 million from the sale of 3.35 million shares at $6 each. The company had to cut its price from a previous range of $11 to $13 a share for 3 million shares. It intends to use the net proceeds to seek approval to commercialize CPP-109, its product candidate based on vigabatrin, to treat cocaine addiction.
- Emergent BioSolutions also successfully staged its IPO, pricing 5 million shares at $12.50, a 17% reduction from the $14 to $16 range. Emergent sells BioThrax, an anthrax vaccine, to the Department of Defense for military personnel, a contract that produced $127.3 million in revenue in 2005.
- Metabolix, Inc. priced its IPO at $14.00 per share. The company is developing and commercializing biodegradable Natural Plastic as a clean alternative to petroleum-based plastics. At the close of November the company's shares were trading 20% higher at $16.80. Investors in Emergent and Catalyst did not fare as well with their respective share prices down 16% and 8%.
Adding themselves to the IPO runway were Optimer Pharmaceuticals, Inc. focused on anti-infective products and Synta Pharmaceuticals Corp. focused on small molecule drugs targeting cancer and chronic inflammatory diseases.
INDICES
Burrill Biotech Select Index (Month: -1.7%; YTD: - 9.9%)
After posting two months of solid gains, the Index finished in negative territory at the end of November with 60% of the companies in the group losing value. Neurocrine Biosciences closed down 20%. The cause for the drop was its announcement that it was going to run another clinical trial for its sleep disorder drug, Indiplon. On the plus side of the ledger was Curagen, whose shares received a boost and closed up 13% after its majority-owned subsidiary 454 Life Sciences Corporation announced that comparison of the human and chimpanzee genomes to Neandertal DNA sequences determined by 454 Sequencing revealed that modern human and Neandertal DNA sequences diverged on average about 500,000 years ago and the effective size of the ancestral population of the two groups was similar to that of modern humans. Gilead Sciences Inc. completed its $2.5 billion acquisition of drug company Myogen Inc. Shares of Gilead closed down 4%. Although PDL BioPharma, Inc. said that Roche would discontinue its agreement to jointly develop and commercialize daclizumab for organ transplant patients on longer-term maintenance therapy the company's share price close the month up 7%
Burrill Large-Cap Biotech Index (Month: -1.7%; YTD: -5%)
Biotech's elite companies lost the momentum gained in October. Genentech's shares closed down 2%, despite its acquisition of Tanox announcement and receiving FDA approval of Herceptin (Trastuzumab), as part of a treatment regimen containing doxorubicin, cyclophosphamide, and paclitaxel, for the adjuvant treatment of HER2-positive node-positive breast cancer. Amgen's shares fell by 6% despite a minimal news month for the company. The decrease in share price was enough to push it back into second place behind Genentech for the ongoing title to be the world's largest biotech company by market cap. Amgen's market cap was $82.8 billion with Genentech's standing at $86.1 billion at months end. The only bright spot was Biogen Idec's 10% gain in share value after receiving a favorable analyst rating.
Burrill Mid-Cap Biotech Index (Month: up -0.5%; YTD: 14.8%)
It was a wild month for biotech's mid-cap companies with the group balancing out huge drops in share value with similar gains. On the down side was shares of Adolor Corp., which closed November down a whopping 43% on the heels of news that the FDA needs additional data before it can approve its drug candidate Entereg. The agency sent an approvable letter on the drug, requesting 12-month safety data that includes analysis of serious cardiovascular events from an ongoing study. That study is focusing on the drug as a possible treatment to relieve constipation in people who must take opiates for cancer and other chronic pain. Counterbalancing this loss was Montreal-based Neurochem, whose shares closed the month up 58% mainly on the strength of receiving recommendations from both the North American and European Data Safety Monitoring Boards (DSMB) to continue its two Phase III clinical trials currently ongoing for its tramiprosate (Alzhemed) investigational product candidate for the treatment of Alzheimer's disease (AD). In November the company also reported a narrower third-quarter loss and a $40 million debt financing.
Burrill Small-Cap Biotech Index (Month: 2.4%; YTD: 13%)
Biotech's emerging and growth companies continue to shine and the Index is heading to be the leader in an otherwise lackluster year for the rest of the indices. Heading the gainers on positive product announcements this month were Sangamo Biosciences (up 41%), Kosan Biosciences (up 35%), and Vivus (up 23%).
Burrill Biotech IPO Index (Month: 4.37%; YTD: 5.2%)
"By and large the fortunes of recent IPO graduates are driven by binary events," said Burrill. "The wild swings in share value, on positive or negative clinical trials results suggest that these announcements are not well anticipated by the market. It is clear that there is a general lack of analytical enquiry about these exciting and emerging companies that leaves them vulnerable to success or failure on the roll of the clinical data or financial results dice."
Shares of Favrille Inc., for example, closed November down 35% after its cancer drug FavId did not meet its secondary goal in a Phase III trial.
Several other companies in this group have suffered dramatic falls in their share price during the year: Icagen and Threshold Pharmaceuticals are trading down 86% and 80% year-to-date respectively, on negative product developments.
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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