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Biotech has positive year despite weak fourth quarter performanceJanuary 02, 2008
Burrill looks back at 2007 and predicts what’s ahead for 2008
San Francisco, CA - January 02, 2008
The biotech industry finished the year in good shape with the Burrill Biotech Select Index, a price-weighted index tracking 20 of biotech’s 'blue chip' companies, gaining 9% in 2007 ahead of the Dow, which finished up 6.4% and on par with the Nasdaq, which closed up 9.8%," said G. Steven Burrill, CEO, Burrill & Company, a San Francisco based global leader in life sciences with activities in Private Equity, Venture Capital, Merchant Banking and Media. It could have been an even better year were it not for a sub-par final quarter of 2007, one that is usually one of biotech’s best.
The Burrill Biotech Select Index dropped over 6% in December (down 5% in the quarter) on the heels of a tough month for Neurocrine Biosciences (down 65%), Celgene (down 25%), Amgen (down 16%) and Genentech (down 12%). It was déjà vu all over again for Neurocrine. In 2006, the company’s share price lost almost 80% of its value. While it did recover during 2007, the company’s shares lost more than half their value in December, plunging to an eight-year low, after the Food and Drug Administration asked the company for additional data on Indiplon—its insomnia treatment drug candidate. Celgene stumbled over concerns of weak November sales for its leading cancer drug Revlimid, which it markets as a treatment for two cancers of the blood -- multiple myeloma and myelodysplastic syndrome. Onyx Pharmaceuticals Inc. had a much more positive story…while down 62% in 2006 following a Phase III product trial stumble… the company recovered nicely and has been one of Wall Street’s darlings all year long with its stock value finishing the year up a massive 426% on positive clinical trials data.
In 2006 the Burrill Biotech Select Index suffered a 14% loss, noted Burrill. The claw back of a substantial portion of that drop in 2007 is thanks to the stellar annual gains from companies other than Amgen and Genentech, who traditionally lead the way, with Onyx Pharmaceuticals, Incyte (up 72%) and Gilead Sciences (up 42%) leading the pack in 2007.
It certainly was an unusually tough year for industry giants Amgen and Genentech. Amgen, whose share price closed December at a five-year low, never really recovered from some bad news about its key anemia-fighting drugs, Epogen and Aranesp, which together account for 46% of sales and 60% of profits. Clinical trial data earlier this year raised safety concerns about the whole class of similar drugs when prescribed in high doses or for unapproved indications. Genentech became a victim of its own outstanding success of two years ago and has suffered from two straight years of negative stock price returns with investors believing that its growth had reached a peak.
Biotech IPOs finish strongly
Six biotech IPOs were completed in Q4 07, commented Burrill, bringing the number of new biotech IPOs in 2007 to 28 just about the number we predicted would get done in the year (30). The total amount raised from these IPOs was $2 billion, double the $920 million raised in 2006. The average amount raised per IPO is also considerably higher—$73 million versus $50 million in 2006.
The post IPO performance of these newly minted public companies was not great with 60% of them closing the year below their opening share price. Bucking that trend were notable gainers: Genoptix, Pharmasset and WuXi PharmaTech. WuXi, a China-based biotechnology R&D outsourcing company raised $212 million on the NYSE offering 15.1 million ADSs, at $14 per ADS, a 16.6% premium to the midpoint of its proposed $11 to $13 range. The company’s shares closed the year up 121%. Genoptix provides specialized laboratory services to hematologists and oncologists, raised $85 million pricing its 5 million share offering at $17, above its proposed $14-$16 range. Investors liked the company's prospects and the company’s share price closed the year up 79%. Pharmasset also fared well after raising $45 million in April with its IPO. It is developing and commercializing novel drugs to treat viral infections and buoyed by a partnership with Roche, the company’s share value rose 50% by the end of the year.
Investors like Personalized Medicine
Investors are warming to the fact that the transition to a more personalized medicine world is taking hold and companies such as Genoptix are benefiting from this new reality, said Burrill. We saw a 38% jump in the value of our newly createdBurrill Personalized Medicine Indexand a 30% annual jump in the Burrill Diagnostic Index.Investors are taking a keen interest in tools and platform companies once again. Personalized medicine is creating the need for molecular diagnostics, biomarkers, genotyping assays, etc. and so companies specializing in these areas have received positive investor attention.
Partnering still on a tear in 4Q
Financings and partnering deals collectively brought in almost $45 billion for US companies in 2007 with over $22 billion through financings and a record setting $22 billion in partnering capital.
US biotech companies followed up a stellar third quarter, where $7.6 billion was raised through partnering with another equally impressive $7 billion raised as big pharma continued its relentless drive to fill its pipeline with biotech’s innovation.
New Product approvals way down in 2007
The disappointment this year is that the prevailing safety-conscious attitude at the FDA is taking its toll on new drug approvals, noted Burrill the total number of NMEs approved for the market was the lowest in almost a decade. While this fact hasn’t had a negative effect so far in terms of the overall valuation of the biotech industry, investors have been harsh on a number of individual companies that had their lead products receive a failing grade from the FDA.
Overall, biotech performed well on the capital markets but this did not translate into an increase in value with the industry's collective market cap finishing the year at $455 billion, down 8%. Contributing to the decrease was the loss of several marquee companies being acquired by big pharma companies, such as MedImmune’s acquisition for over $15 billion by AstraZeneca, and lackluster performances from Genentech and Amgen whose drop in share values of 17% and 31% respectively, lopped over $42 billion from the industry’s market cap.
All of our predictions for the industry's 2007 performance were right on the mark, said Burrill. The biotech industry has now reached a level of maturity where even in tough years we will see approximately 30 IPOs getting done—collectively raising about $2 billion—and about $50 billion being raised annually, equally split between various forms of financing and partnering.
Burrill's Predictions for Biotech in 2008
- Capital markets in the US will remain turbulent during the first half of 2008 as investors digest year end earnings and Q1 results, especially a function of overall US market concerns about the continuing credit crisis and its impact on the economy. Biotech's elite companies will continue to impress with their financial returns and mid-cap and small-cap biotech companies will also keep pace. By year end 2008, the Burrill Biotech Select Index will have once again outperformed the general markets and the DJIA and Nasdaq.
- We will see biotech IPOs continuing to getting done, although valuations will still be problematic. Over 30 IPOs will be completed in the US in 2008 (the same as 2007), but mostly in the second half of the year.
- $50 billion will be raised by the US biotechs; and the industry's market cap will increase to $500B, despite continuing attrition as valuation is lost through M&As.
- Much the same as we have seen in 2007, the M&A trends that have been hot in biotech land during the past three years will not slow down. Pharma has come to rely on biotech to access pipeline and innovation. Both big pharma and big biotech will continue to compete for companies with advanced product pipelines, as well as important land grabs of technology.
- Partnering deals will remain at record levels and a significant portion of the $25 billion raised in bioworld dollars will be directed at gaining access to technology at an earlier stage in its development as companies strengthen their product indication franchises.
- We will continue to see US biotechs accessing capital overseas...especially on the public side…with Euronext and AIM leading the pack.
- The presidential campaign in 2008, will keep healthcare issues at the top of the political agenda. Along the campaign trail drug safety and the costs of medicines will continue to be a major issues.
- In the wake of PDUFA IV, drug approvals will remain slow and pharmacovigilence will be the story.
- Sales of products will continue to increase and more biotech companies will become profitable for the first time.
- Stem cell progress will continue, with more funding emanating from both public and private sources. There will be increased activity at the state level as they encourage stem cell development locally. However, during election year we will continue to see discord driven by opposing views on the morality of embryonic stem-cell research.
- Biosimiliars will become more prevalent in Europe and pressure to approve biogeneric pharmaceuticals will increase in the US although establishing a legislative and regulatory path for the approval of biosimilars will have a hard time gaining any traction during 2008.
Progress in biofuels will continue, as will the use of biotech in industrialized settings. The Energy Independence and Security Act will help catapult the US biofuels industry to the next level of commercial development.
- Biotech will continue to become more global as companies, particularly in the US, look to India and China for their manufacturing needs and to conduct clinical trials…and ultimately for access to large markets.
- Overall, biotechnology in 2008 will be a good one for biotech, especially in the second half of the year. The initiatives that are now in place will continue to drive the industry towards a personalizedhealthcare world—one that emphasizes earlier disease detection, more targeted treatments, and adjunctive support through enhanced nutrition.
The Capital Markets
Prediction: Capital markets in the US will be more robust than 2006 and biotech's elite companies will outperform the DJIA and Nasdaq.
Outcome: The Burrill Biotech Select Index out performed (+14%) both the NASDAQ (+10%) and the Dow (+7%)
Prediction: Biotech IPOs will pick up and improve on their lackluster numbers during the past two years and over 30 IPOs will be completed in the US.
Outcome: 29 IPOs were completed in 2007—a 42% increase over 2006—collectively raising $2 billion (126% up over the 2006 total).
Prediction: $40+ billion will be raised by the US biotechs; and the industry's market cap will reach an all time high of $575B (a 15% year-over-year increase)
Outcome: Over $45B was raised in 2007; $22 billion in financings and $23 billion in partnering. The industry’s market will close the year at around $450 billion (Acquisitions shaved $30B).
Prediction: The M&A trends, that have been hot in 2005 and 2006 in biotech land, will not slow down with pharma desperate to access pipeline and innovation. Both big pharma and big biotech will be competing for companies with advanced product pipelines, as well as important land grabs of technology such as the $1.1B acquisition of Sirna by Merck announced in November 2006.
Outcome: Pharma/biotech and biotech/biotech consolidation continued to be red-hot as pharmas looked increasingly outside for pipeline and access to innovation…Major deals in the year included:
- AstraZeneca/MedImmune $15.6 billion
- Eisai/MGI Pharma $3.3 billion
- GSK/Reliant Pharmaceuticals $1.65 billion
- Celgene/Pharmion $2.68 billion
- Shire/New River Pharmaceuticals $2.6 billion
- Inverness Medical/Biosite $2 billion
Outcome: Partnering generated approximately $25 billion for US biotechs—a record. Strategic partnering is now recognized as a key ingredient for the lifeblood of the biotech industry, and has become essential to maintaining a competitive edge.
Prediction: We will see US biotechs accessing capital overseas…especially on the public side…with Euronext and AIM leading the pack…but also new structures will appear, which allow companies to float in Japan (on Mothers) and other regional exchanges (Singapore, SWX, etc.).
Outcome: The increasing costs of listing on US markets due to Sarbanes Oxley compliance, as well as the relative ease of listing on Euronext and AIM has started to attract US biotech companies to list on these foreign exchanges.
Prediction: Issues that will dominate the 2007 political agenda include: FDA reauthorization and NIH spending levels. We will see heated debate on healthcare during the early campaign trail for the 2008 presidential election and this could have negative repercussions on the industry in general.
Outcome:On September 27, 2007, President Bush signed into law the Food and Drug Administration Amendments Act of 2007 which includes the reauthorization and expansion of the Prescription Drug User Fee Act. The reauthorization of PDUFA will significantly broaden and upgrade the agency's drug safety program, increase resources for review of television drug advertising, and facilitate more efficient development of safe and effective new medications for the American public.
Prediction: Stem cell progress will continue, with more funding emanating from both public and private sources. There will be increased activity at the state level as they encourage stem cell development locally.
Outcome:In the early part of 2007 the subject of stem cells dominated both the science and the political agenda. Technology advanced on all continents while US politics served to create a not so ideal environment for research and investment community domestically.
Prediction: Biosimilars will become more prevalent in Europe and pressure to approve biogeneric pharmaceuticals will increase in the US…and the industry's protection through the manufacturing process will be whittled away.
Outcome:The drive for cost savings by healthcare providers is increasing the focus on boosting the biosimilar market. With a regulatory approval pathway in place in Europe and substantial guidelines to support biosimilar development, the European biosimilars market is significantly more advanced than the US, where plans for a biosimilar regulatory approval pathway have stalled. Supporters of a follow-on biologics approval pathway have not given up, even though biosimilar legislation was not included in the FDA Amendments Act that was passed in September.
Prediction: Progress in biofuels will continue, as will the use of biotech in industrialized settings, and significantly more capital will be raised along with more immediate commercialization.
Outcome:The debate on energy security and climate change has placed biofuels back at the top of political agendas around the world. The Energy Independence and Security Act will catapult the US biofuels industry to the next level of commercial development. It will accelerate the creation of a U.S. biobased economy built on sustainable and renewable resources instead of petroleum.
Prediction:Biotech will continue to become more global as companies, particularly in the US, look to India and China for their manufacturing needs and to conduct clinical trials.
Outcome:The predicted increase in the growth of biotech internationally continued to take place in 2007 with China and India leading the way. Other countries such as Taiwan, which plans to invest $1 billion to attract foreign biotech companies, Singapore, Malaysia, Korea, VietNam, Chile, and Brazil have put their hats in the ring and plan to lever their biotech assets to help grow their economies.
Prediction:More pressure from payers (managed care, CMS, various country health ministries) resulting in more product bundling, more personalized medicine, less "blockbusterology" (fewer "one size fits all" drugs).
Outcome:The debate on a government price controls system on the drug industry as a whole is a major issue. Payers have become more demanding of drug companies to justify the cost of a drug with true clinical utility.
About Burrill & Company
Founded in 1994, Burrill & Company is a San Francisco-based global leader in life sciences with activities in Private Equity, Venture Capital, Merchant Banking and Media. The Burrill family of venture capital funds has over $950 million under management and its merchant banking business is one of the industry leaders in life sciences transactions. The company’s 60 person scientific and business team, supported by its 40-person Advisory Boards, the strategic and financial network of its limited partners, and the close relationships developed with numerous life sciences companies and management, provide Burrill with unparalleled access and insight.
Burrill is the creator, sponsor and facilitator of over a dozen leading industry conferences worldwide and publishes a wide range of bio-intelligence reports including: The Personalized Medicine Report, The Stem Cell Report, and periodic newsletters covering Canada, China, Europe, India, Japan and Partnering/M&A. In association with the California Healthcare Institute, Burrill publishes The Journal of Life Sciences—a bimonthly magazine. Burrill’s flagship publication is its annual State of the Industry report, the most recent 21st Edition being Biotech 2007: Life Sciences—A Global Transformation. The 22nd Edition is entitled Biotech 2008: Life Sciences—A 20/20 Vision to 2020, available 1Q ‘08. These publications provide the latest insight, intelligence and information on the life sciences industry. Back to News list