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A Changing Prescription for Biotechnology

April 11, 2006

San Francisco, CA - April 11, 2006

G. Steven Burrill presents his annual state of the biotechnology industry and predictions for the future at BIO 2006 in Chicago - Monday, April 10, 2006 at 12:30 – 2.00pm in McCormick Place, South Building, Vista Ballroom.

Twenty years ago the first annual analysis on the biotechnology industry - Biotech 86: At the Crossroads - described an industry that was just 10 years into its development and comprised of around 700 companies (150 public) concentrated in the San Francisco and Boston areas. Fast forward to the present and the biotechnology industry's leading expert and visionary G. Steven Burrill’s latest 20th anniversary book on the industry - Biotech 2006 – describes a truly global industry that is over 5000 companies strong.

In his State-of-the-Union speech at BIO 2006, Mr. Burrill, CEO of Burrill & Company, a San Francisco based global leader in life sciences with principal activities in Venture Capital, Merchant Banking and Media, will reflect on how the industry has developed over this period. He will also describe the key drivers that are impacting the industry today.

"The business models that have successfully brought biotech to its current level of maturity are now being challenged as we move to a more personalized, predictable and preventative approach to medicine (the three "P’s"), that will revolutionalize the healthcare system as we know it," explained Burrill. "The technologies and discoveries embodied in the three Ps can come none too soon because we are already witnessing the winds of change rustling through the system. It is a ‘changing prescription’ for biotechs with tougher regulatory barriers and increased drug safety concerns, an aging population with chronic healthcare costs spinning out of control, medicare reimbursement issues, the specter of follow-on biologics and biogenerics and worldwide competition for talent, technology and financial resources in a world in which disease knows no borders."

"With biotech developing and introducing targeted therapies and molecular diagnostics, it is not surprising that payers, policymakers, the pharmaceutical industry and patients are counting on biotech to deliver on its promise of predictable and preventative medicine that meets the escalating health problems of an aging population, helps control burgeoning healthcare costs and counters the threat of bioterrorism and pandemics. It’s a changed world, and a changing environment and the successful companies of the future will be those that marry both molecular diagnostics with targeted drugs and deliver effective personalized therapies," noted Burrill.

During his presentation, Mr. Burrill will also reflect on the key events that have occurred during the 10 months that have elapsed since BIO 2005 and present insightful comments on the performance of the biotechnology industry. Building on this data, he will present his predictions for the rest of the year and his visions for the future. The following is a sneak preview:

The end of biotech’s "boom and bust" cycles
Biotech is on a roll and has been for almost three years…evolving into a robust and stable industry leaving its well documented "boom and bust" cycles behind. Global revenues have risen from over $22 billion in 2000 to over $80 billion in 2005. Of the over $350 billion that has been invested in the biotech sector in the past two decades almost half - $160 billion - was invested between 2000 and 2005.

US PUBLIC BIOTECH COMPANIES 2000 TO 20051

 
2000
2001
2002
2003
2004
2005
% change
2004-05
Sales/Revenue
$31.9
$39.0
$42.7
$47.4
$59.5
$71.5
20%
R&D Expense
$10.1
$12.3
$13.5
$14.3
$16.8
$18.5
10%
Net Income (loss)
(4.1)
(4.7)
(11.6)
(4.1)
(4.4)
(2.1)
52%
Cash & Equivalents 2
24.6
45.3
41.9
41.6
45.5
47.7
5%
Market Capitalization
441
382
224
344
400
490
22%
Number of US Public Companies
379
356
329
315
356
363
2%
1 Includes ADRs
2 Includes marketable securities
* Burrill & Company estimates

Other facts on the US Biotech Industry:
  • The industry’s market cap closed the year at an all time high of $488 billion surpassing the previous record of $475 billion reached in the summer of 2000. The Burrill Biotech Select Index widely outperformed the NASDAQ and Dow Jones Industrial on a year-to-date basis (up 20% versus 4% for NASDAQ and 0.4% for the Dow).
  • In terms of financings and partnering, a record $34 billion was raised by US companies since BIO 2005 in Philadelphia last June.
  • In the capital markets for 2005, notwithstanding what was a very challenging year economically and a very tough equity market, $17.3 billion was invested in the biotech sector in 2005…with all forms of funding finding takers. Biotech’s success in the capital markets was led by the large cap companies with robust product pipelines and diversity.
  • The bigger story for the industry—and one that unfolded during the year was the amount that the industry generated through partnering. The $17 billion raised was an all time record in biotech’s 30+-year history giving a clear indication that M&A, along with partnering, had become a very attractive option for biotech companies to help drive their product development programs and ultimately increase shareholder value.
  • Since the current IPO window "re-opened" in 2003, the average pre-IPO valuations (2003-2005) have declined around $70 million to $154 million. In the same period, average private acquisition values have increased nearly $100 million to $266 million—an approximately $100 million value gap in favor of M&A’s…a trend that we will see continuing in 2006.

In other biotech sectors a major milestone in agricultural biotech was reached in May 2005 when the one billionth acre of biotech crops was sown, capping a decade of plantings in 18 countries around the globe. More than 90% of the eight million farmers growing biotech crops are located in developing nations. In addition to record acceptance by farmers, scientists continued to increase their understanding and knowledge of plants and animals through genome sequencing projects. In 2005, the rice genome was mapped, and projects to sequence soybean, corn, and sheep genomes were also announced.

Industrial biotech "came of age" in 2005…attracting a great deal of attention in the wake of soaring oil and chemical prices. In August, President Bush signed the Energy Policy Act, which contains almost $1 billion in funding authorizations for bioenergy projects and research and development.

The globalization of biotechnology continued with China and India (“Chindia”) setting the pace. Due to high drug discovery and development costs, pharmaceutical/biotech companies are looking for innovative models for drug development, and China and India are becoming major players of this new paradigm.

What happened since BIO 2005?
Biotech has been on a roll, starting in 2004 and the trend has continued to today.

Pharma vs. Biotech Industry Market Cap ($B)

Company
BIO’04
5/31/04
BIO ’05
5/31/05
BIO’06
3/31/06
% change
BIO ’05 – BIO ‘06
 
Pfizer
272
207
183
-11.6%
Merck
105
71
77
+ 8.4%
 
Pfizer/Merck
377
278
260
-6.5%
 
US biotech
market cap
373
401
498
+24.2%
Industry
1.0x
1.4x
1.9x
 

US Biotechnology Industry Fundraising ($ in Millions)

 
BIO 03 - BIO 04
BIO 04 - BIO 05
BIO 05 - BIO 06
% change
BIO ’05 – BIO ‘06
Public
IPO
$1,541
$803
$757
-5.7%
Follow-on
$4,408
$3,140
$4,076
29.8%
Merck
105
71
77
+ 8.4%
PIPEs
$2,951
$1,631
$2,433
49.2%
 
Private
VC
$3,584
$3,133
$2,534
-19.1%
Other
$204
$529
$815
54.1%
Total Financings
$19,958
$16,639
$18,791
12.9%
Partnering
$9,739
$12,095
$17,460
44.3%
Total
$29,697
$28,895
$36,251
25.4%

IPO Window
Seventeen companies raised $819 million in the US in 2005. Looking at the performance of the biotech companies that completed IPO’s since the "opening" of this window in 2003, the story is one of continuing improvement with 55% trading above their issue price at the end of Q1 2006.

 
# of IPOs
Amount
Raised
Ups/Downs
Average Performance
since IPO
2003
7
$456M
5/2
-5.0%
2004
29*
$1,739M
14/14
33.1%
2005
17
$819M
9/8
21.1%
Q1 2006
6
$303M
4/2
22.0%
 
Total
59
$3,317M
32/26
17.5%
*Eyetech acquired

What's 2006 looking like?

  • Biotechnology will continue to fuel a major transformation in healthcare—one that emphasizes earlier disease detection, more targeted treatments, and adjunctive support through enhanced nutrition.
  • Biotech stocks in 2006 will continue to out perform NASDAQ, DJIA and the pharma indices although biotech’s performance will be out of its direct control and in the hands of the macro-markets (impacted by the price of oil, inflation, the war in Iraq, rising interest rates, and corporate earnings in the non-biotech sector). This may retard biotech’s growth somewhat because overall the world economy will not be as strong as it should be.
  • We will see a reasonably robust public equity IPO market with 30+ IPOs completed in the US and an even larger number internationally.
  • The biotech industry will generate over $35 billion in financings in 2006, with approximately $25 billion from the public equity markets and more than $10 billion in partnering.
  • More pricing pressure. Payers will become more demanding of drug companies to justify the cost of a drug with true clinical utility. The CMS Medicare part D will continue to be a big agenda item for Washington and the industry with heated debate around a government price controls system on the drug industry as a whole.
  • CMS will take an increasingly active role in evaluating which drugs it will pay for. And with CMS becoming a major customer of drugs with an estimated 40% of the market in 2008, a company will no longer be guaranteed that it will meet with a receptive reimbursement environment.
  • The trend towards personalized medicine will accelerate. The pressure from payers will result in more product bundling, more personalized medicine, less “blockbusterology” (fewer “one size fits all” drugs). The FDA’s Critical Path Initiative will drive progress in personalized medicine/theranostics. In 2006, the big stories at FDA will continue to center on the need to make reforms that strengthen drug safety while goosing innovation—goals agency officials insist are complementary.
  • Also in 2006, negotiations will begin to heat up on reauthorization of the Prescription Drug User Fee Act (PDUFA), which expires in September 2006. The bill to renew the act could serve as a congressional vehicle for drug safety reforms, follow-on biologics measures, and almost anything else related to drug development, approval, and post-market regulation.
  • The trend towards M&A’s will continue with substantially more deals than 2005, especially among the larger companies. Big pharma’s appetite for biotech deals, already fueled by a need to supplement thin pipelines and replace products losing their patent protection, will continue to grow. The partnering environment for biotechs will therefore continue to be “hot”.
  • We will see more and larger partnering deals with an emphasis towards discovery stage deals.
  • Drug safety issues will be high on the agenda and approvals will be tougher to obtain.
  • Pandemic diseases (avian flu) will get increased attention along with a focus on therapeutics for the lesser developed world.
  • Generic medicines will be key part of lower Medicare prescription drug benefit costs. In addition, biogenerics/biosimilars will become a hot topic as key patents start to expire on some of the early recombinant protein therapeutics.
  • At the same time, healthcare spending on aging populations will become a more urgent priority for governments and consumers alike.
  • Diet and nutrition will continue to form the backbone of the pharmacy of disease prevention. Traditional over-the-counter and prescription medicines blended with alternative strategies for nutrition and prevention will deliver a changing prescription for health.
  • In agriculture, more biotech crops will be sown as more countries become involved in biotech crop plantings around the globe.
  • Interest in biofuels will continue to be driven by the President’s 22% increase in clean-energy research at the Department of Energy, including funding for research in cellulosic ethanol.
  • Technology will be driven by:
    • Pandemic “preparedness”
    • The obesity “epidemic” that will attract more biotech and pharma players to this huge market opportunity
    • Proteomics and systems biology
    • Stem cell discoveries and progress on the political front
    • Memory…and our need to maintain it!
      The year 2006 will be a good one for biotech, but in a world with a changing prescription for the industry.


Media Contact:
Peter Winter, Director of Communications
Tel: 415-591-5474
Email: pwinter@b-c.com
During BIO 2006 please call: 415-690-3728

Burrill & Company: www.burrillandco.com

 

 

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