PRINT THIS PAGE US biotech deals continue to flow
23/05/2007. Source:Burrill & Company.
The amount of venture capital generated by biotechs in Q1 2007 was up 33 per cent over the Q4 2006 period and 100 per cent greater than the comparative period one year ago, says Burrill & Company. The 56 reported deals in the quarter averaged about $21m per investment, an amount that has held steady for several quarters. It was a roller coaster ride for the capital markets in the first quarter of the year although the bellweather Dow Jones Industrial Average and NASDAQ indices finished almost where they had started. The Dow was up a fraction (0.69%) for March but down 0.87% for the quarter ... the Nasdaq followed a similar path, up 0.5% for March and up slightly at 0.2% for the quarter. The Burrill Biotech Select Index had a rocky month of March losing 0.3% in value but outperformed the general markets by a wide margin closing up 4.3% for the first quarter of 2007.
"Biotech's quarter performance was quite impressive given the general markets turmoil in February with a 416-point dip and subsequent rebound in the Dow and renewed fears about the economy in the wake of the US imposing duties on some Chinese imports," said G. Steven Burrill, CEO, Burrill & Company, a San Francisco based global leader in life sciences whose principal activities are in Venture Capital, Merchant Banking and Media. "However, biotech didn't survive the quarter completely unscathed. Amgen's shares were hit hard on disappointing news surrounding its colon cancer drug Vectibix and its blockbuster anemia drug Aranesp," added Burrill.
Helping the Burrill Biotech Select Index' cause was Onyx Pharmaceuticals whose shares finished the quarter up a whopping 135%, despite slipping 5% in March. The jump was due to an announcement that it was prematurely halting a clinical trial testing Nexavar in advanced liver cancer, based on an interim review of the very good data. Also on the product front, the FDA approved Shire and New River Pharmaceuticals Inc.'s attention deficit hyperactivity disorder drug Vyvanse driving these two companies to a merger and to the growing list of M&A's that are pervading the industry.
The Burrill Mid-Cap Biotech Index continued where it left off in 2006, rising 4% in Q1 07. Most of the jump was recorded in March thanks to Dendreon which soared 179% in March, 210% for the quarter after the FDA recommended approval for its prostate cancer vaccine, Provenge. Studies found that Provenge did not slow progress of the disease, but it could extend patients' lives by 4.5 months by stimulating their immune systems to fight the disease. A final FDA decision on Provenge, also called sipuleucel-T, is expected May.
Market Cap dips
The industry's collective market cap dropped 4% by the end of March to $470 billion. Amgen was a prime factor in the dip as it shed $14.5 billion off its market cap to close the quarter at $65.2 billion well behind Genentech, which closed at $86.5 billion.
Investors remain positive on biotech
Financings and partnering deals brought in an impressive $8.7 billion for US companies in Q1 07. "While a quarter-over-quarter analysis shows that this amount is down 32% versus what the industry raised in the final quarter of 2006, biotech has started the year in good shape and remains on pace for the $35 billion target that we predicted," noted Burrill. "All forms of financings found takers, although the climate for biotech IPOs still remains soft. This situation could change depending on the fortunes of the company hopefuls that are now crowding the IPO runway."
Last year saw several billion dollar debt financings completed, particularly in Q4 06, so it was no surprise that the $862 million collectively raised by 20 companies in Q1 07 was 50% down from the Q4 06 total. Leading the way was specialty pharmaceutical company, Alpharma, which raised $300 million and Viropharma will use its $250 million debt financing for strategic investments and/or acquisitions of products.
Although the same number of follow-on deals were completed in Q1 07 as the previous quarter, the total amount raised of $1.09 billion was 60% down from the $2.7 billion that biotechs raised in Q4 06. Inverness Medical Innovations, Inc. sold 6,900,000 shares at $39.65 per share to gross approximately $273 million. Medarex generated $152 million from the sale of shares it held in Dutch company Genmab.
Financings through PIPEs picked up the pace once again in Q1 07 generating 60% more than in Q4 06.
Only one of the six biotech companies completing IPOs in Q1 07 was above water by the end of the quarter. Optimer Pharmaceuticals, Inc. bucked the trend of this group on the strength of news that it was advancing its lead antibiotic drug candidate Difimicin for the treatment of Clostridium difficile-associated diarrhea into Phase III clinical studies. However, this didn't deter 14 companies to join the IPO runway.
Venture Capital: Deals continue to flow
The amount of venture capital generated by biotechs in Q1 07 was up 33% over the Q4 06 period and 100% greater than the comparative period one year ago. The 56 reported deals in the quarter averaged about $21 million per investment, an amount that has held steady for several quarters.
EUSA Pharma Inc, a new transatlantic specialty pharmaceutical company focused on developing and marketing products for the hospital market both in Europe and the US, acquired OPi SA , ( Lyon, France), using the $175 million that was invested into the company. OPi has four products in the market, a further two products in clinical development and a fully human anti-IL6 mAb in preclinical development. Targanta Therapeutics, which is developing antibacterial drugs, raised $70 million in a Series C venture round. The company intends to utilize the capital to prepare and submit an NDA for its lead product, oritavancin, for the treatment of complicated skin and skin structure infections.
Deal making slows slightly
Coming off a record year for partnering, the industry's appetite for deal making continued into 2007 although not at a record breaking pace. The $4.4 billion in announced transaction values was 40% down from the $7.3 billion generated in Q4 06.
"Although partnering cooled off somewhat at the start of 2007, the biotech industry's record for deal making remains outstanding and indicates healthy growth as companies continue move their products forward, garnering the necessary resources and cash from strategic partners," said Burrill.
Interestingly, it was not big Pharma that headed the deal makers. Genentech entered into an exclusive worldwide license agreement with Seattle Genetics. The deal involves the development and commercialization of SGN-40 a humanized monoclonal antibody currently in Phase I and Phase II clinical trials for multiple myeloma, chronic lymphocytic leukemia and non-Hodgkin's lymphoma. Seattle Genetics will receive an upfront payment of $60 million, potential milestone payments exceeding $800 million and escalating double- digit royalties on annual net sales of SGN-40. Genentech also struck another antibody deal with Swedish company BioInvent to develop and commercialize its proprietary antibody candidate, BI-204, for the potential treatment of multiple cardiovascular conditions. Genentech will make an upfront payment of $15 million and potential milestone payments of up to $175 million as well as royalties on sales in North America.
Amgen was also in deal making mood entering a strategic collaboration with Cytokinetics Inc. on small-molecule therapeutics that activate cardiac muscle contractility for potential applications in the treatment of heart failure. Cytokinetics receives a non-refundable up-front license and technology access fee of $42 million. Amgen also purchased 3,484,806 shares of Cytokinetics common stock at $9.47 per share and an aggregate purchase price of approximately $33 million. In addition, Cytokinetics may be eligible to receive milestone payments of up to $600 million.
M&As now part of the industry scene
"The M&A trends, that were hot in 2005 and 2006 continued into the first quarter," commented Burrill. "Big pharma took the headlines with Schering- Plough paying $14.4 billion to acquire Organon BioSciences NV, the human and animal health business of Dutch chemical company Akzo Nobel, but biotech weighed in with Shire purchasing its collaborative partner New River Pharmaceuticals Inc. for approximately $2.6 billion in cash. It is likely that we will consistently see these types of billion dollar transactions throughout the year as pharma and biotech jockey for best-of-breed technology and market leadership in the almost $650 billion worldwide pharmaceuticals market."
It was not a good month for many of the companies in the group. In addition to Amgen's 13% drop in share value (-18% for the quarter), Curagen fell 28% in March (33% in the quarter) with investors recording their disapproval of the terms of the company's sell-off of its majority-owned 454 Life Sciences division to Roche for $155 million. Roche Diagnostics has been the worldwide distributor of the Genome Sequencer systems produced by 454. The Onyx jump in share price helped offset most of the negative numbers recorded by the rest of the group. Vertex Pharmaceuticals' shares closed down 25% for the quarter (-8% for March) mostly on the news that the company expects deeper losses in 2007 as it invests in developing its hepatitis C drug candidate telaprevir.
Burrill Large Cap Biotech Index
(Month: -1%; Quarter: -1%)
The Burrill Large Cap Biotech Index finished in negative territory for both the month and the quarter. Only Affymetrix Inc. (up 17% and 30% for the quarter) and Gilead Sciences (up 7% and 18% for the quarter) helped ameliorate the loss. Affymetrix launched its GeneChip HT Array Plate System, a full microarray processing platform that analyzes up to 96 samples at a time. Gilead completed a Phase II clinical trial of GS 9137, an oral HIV integrase inhibitor, and it met its primary endpoint. However, Gilead and its partner Achillion Pharmaceuticals announced that they would halt development of their hepatitis C treatment GS 9132, or ACH-806. Biogen Idec Inc. lost ground in February (down 2% for March and 10% for the quarter) after reporting fourth- quarter revenues fell short of Wall Street expectations.
Burrill Small Cap Biotech Index
(Month: 2%; Quarter: 0.56%)
Vivus was one of the star performers. Its deal with KV Pharmaceutical Company for the purchase of the US marketing rights to EvaMist, a novel new estrogen transdermal spray for the treatment of vasomotor symptoms associated with menopause helped drive up the company's stock value 30% in March and 42% for the month. KV agreed to pay $10 million at closing and to make an additional payment of approximately $140 million at the time of final approval from the FDA. Shares of Acadia Pharmaceuticals also went on a tear, jumping 117% in March after reporting positive results from its Phase II schizophrenia co-therapy trial with ACP-103. When combined with other antipsychotic treatments, the company said, its drug, labeled ACP-103, showed a statistically significant level of efficacy and reduced negative side effects. Shares of La Jolla Pharmaceutical got a positive response from investors after it reported good clinical trial data for Riquent, its lupus treatment. The company's shares closed up 96% for the month (100% 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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