PRINT THIS PAGE Biotech starts out on right foot in January 2007
20/03/2007. Source:Burrill & Company.
US biotech M&A is being fed by the fuel of product innovation, says Burrill & Company. Last year was the second in a row that 18 novel drug approvals were approved by the FDA - a number that is still surprising low given the over $50bn that the US industry spends on research and development. During the past eight years, the high point for novel drug approvals was 35 in 1999 and the low was 17 in 2002, according to FDA data. While 2006 was one that many of the larger biotech companies would prefer to forget the New Year has started out on a positive note for these bell-weather companies. The Burrill Biotech Select Index, which slipped almost 14% in value by the close of 2006, recovered in January finishing up 4.5% by month end outperforming the NASDAQ, which posted a January gain of 2%, and the Dow just short of that at 1.3%. Although finishing a hair short of its record high, the Dow was bolstered on the final trading day of January by the Federal Reserve holding interest rates steady and citing a pickup in economic growth but no significant shift in monetary policy for now.
"There were some very impressive gains among biotech's elite companies during January, which helped biotech outperform the general markets during January," 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. "With the Feds holding firm on interest rates, it bodes well for a steady improvement in the fortunes of biotech companies during the year. We saw all Burrill indices performing well this month, something we haven't seen for several months," added Burrill.
"Also helping the cause of was the release of good clinical data by a number of companies at JP Morgan's 25th Annual Healthcare Conference. The 25th anniversary event, held in San Francisco mid-month, continues to set attendance records," noted Burrill. "The four day event featured presentations from over 300 companies."
A case in point was Incyte Corp., whose shares closed up 27% following the release of positive preliminary results from a Phase IIa placebo-controlled trial designed to evaluate the anti-viral effects and safety of INCB9471, the company's lead CCR5 antagonist that is being developed as a once-a-day oral treatment for patients with human immunodeficiency virus (HIV) infections.
"But the buzz around the meeting room hallways was not so much on trial data but the specter of increasing mergers and acquisitions," continued Burrill. "The sector is ripe for significant M&A activity, as big pharma looks to strengthen weak pipelines and replace blockbuster drugs that are coming off patent. There is general industry consensus that biotech firms with drugs on the market or near to market will become prime targets."
A related issue also fuelling M&A revolves around product innovation. Last year was the second in a row that 18 NMEs were approved by the FDA - a number that is surprising low given the over $50 billion the US industry spends on research and development. During the past eight years, the high point for novel drug approvals was 35 in 1999 and the low was 17 in 2002, according to FDA data.
"This further emphasizes why big pharma will be looking to access biotech's rich innovation," noted Burrill. "We are coming off a year that also saw a record amount of dollars that the biotech industry raised through partnership deals. This is a trend we expect to continue in 2007."
Pfizer could be at the head of this partnering and acquisitions trend following its announcement to pare $2 billion in costs by cutting its workforce by 10,000 and closing research and manufacturing facilities. It has been estimated that Pfizer is faced with the loss of 41% of its revenue to generic competitors between 2010 and 2012 putting pressure on the company to develop new medicines to replace this lost revenue.
It was not only healthcare biotech that grabbed the headlines in January. President Bush, in his State of the Union address, gave an addition boost to stimulate large-scale production of biofuels from cellulosic biomass. Thanks to recent advances in industrial biotechnology, the US is on target to achieve the goal of producing 35 billion gallons of renewable fuel by 2017 the President said.
Perhaps the only negative note to the month was in the stem cell arena. The Nancy Pelosi-led House of Representatives passed a bill promoting embryonic stem cell research but came up short of the two-thirds margin required to overturn a presidential veto. Shares of stem cell companies were adversely affected with companies such as Geron sliding 7% by the close of January.
It was a quiet month for biotech IPOs in January with only one getting out of the gate. Oculus Innovative Sciences, a developer and manufacturer of products designed to prevent infection in wounds, priced three million shares at $8, the low end of its pricing range. In the five trading days since its debut, the company's share value had dropped approximately 4%.
"Biotech has started out on the right foot following a positive month and we will look for this momentum to build in the first quarter of 2007," Burrill concluded.
BIOTECH INDICES
Burrill Biotech Select Index (Month: 4.3%)
Leading the charge of companies in this group was Neurocrine Biosciences Inc., whose share price crashed and burned in 2006 (down 83% in 2006) after the FDA denied approval for its drug Indiplon in May and Pfizer Inc. ended a partnership agreement with them in June, and Neurocrine laid off 100 employees afterward. This significant reversal contributed to the group's loss in 2006 value. The company's shares gained back 34% in January after the company said it planned to resubmit its application for insomnia treatment Indiplon. Neurocrine said based on its discussions with the FDA, it now expects to resubmit its application by the end of the second quarter of 2007, earlier than a previous announcement of resubmission in summer 2008. Amylin Pharmaceuticals Inc.'s closed up 8% after reporting its fourth-quarter loss narrowed as sales of its two diabetes drugs -- Byetta and Symlin -- surged.
Burrill Large-Cap Biotech Index (Month: 2.6%)
Although shares of Genentech Inc. fell after it issued a warning to 1,500 eye specialists about an increased risk of stroke in elderly patients taking its Lucentis to treat age-related blindness, they recovered to close up 8% by the end of January. Shares of Amgen Inc. also took a hit in the month following flat fourth-quarter earnings and disappointing data for its cancer drug Vectibix but they managed to recover to close up 3%.
Burrill Mid-Cap Biotech Index (Month: 2.5%)
In December Telik Inc.'s experimental cancer drug failed to improve survival in patients with advanced lung cancer or in patients with ovarian cancer, sending its stock plunging 74%. Interestingly, the stock bounced back in January to close up 51% without any real news, other than the company presenting at the JP Morgan Healthcare conference. Going the other way, again on very little news from the company in January was Neurochem, which closed down 20%.
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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