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20,000 Biotech Executives Gather at Bio in San Francisco Biotech on Track for SuccessJune 08, 2004
. . $13 billion in fundraising YTD ‘04 and 25 firms through the IPO window
San Francisco, CA - June 08, 2004
“Although the general markets have been choppy all year—and are likely to remain so—the biotech industry has raised $13 billion already in 2004 and close to $29 billion since BIO 2003 convened in D.C. last year,” said G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank. “Since the IPO window opened in October 2003, 25 new biotech companies have entered the market, raising more than $1.5 billion thus far,” noted Burrill. “With 16 additional IPO deals currently on file, we’re predicting several more firms will make it through the “tight” window by the end of the year,” he added.
“Although the Burrill Biotech Select Index took a beating in May with the troubles in Iraq intensifying, concerns about bioterrorism, and worries over energy and economy rising, biotech has largely outperformed both the DJIA and the NASDAQ over the last twelve months,” Burrill said.
BIO ‘03 to BIO ’04 DJIA, NASDAQ, & Burrill Select Indices 6/1/03 – 5/31/04
“The news for biotech has been far more positive than negative in 2004,” said Burrill. “The Food and Drug Administration has approved some eight new drugs and diagnostics coming from biotech,” he noted. “In addition to approving ImClone/Bristol-Myers Squibb’s Erbitux for advanced colorectal cancer—the agency gave it’s blessing to DakoCytomation’s EGFR pharmDx™ diagnostic kit that identifies patients eligible for treatment with Erbitux—another step forward for “theranostics”—the combination of drug therapy and diagnostics—and personalized medicine,” Burrill said.
|Important FDA approvals in 2004:|
|Alimta||Eli Lilly||for use with cisplatin to treat malignant Pleural mesothelioma||2/5/04|
|Apokyn||Bertek Pharmaceuticals||to treat Parkinson’s patients during episodes of “hypomobility”||4/21/04|
|Avastin||Genentech||first-line treatment for patients with Metastatic colorectal cancer||2/26/04|
|EGFR pharmDx||DakoCytomation||diagnostic kit to identify colorectal Cancer patients eligible for treatment With Erbitux||2/16/04|
|Erbitux||Bristol-Meyers Squibb/ImClone||first monoclonal antibody to treat advanced colorectal cancer||2/12/04|
|OraQuick Rapid HIV Test Kit||OraSure||diagnostic kit that uses oral fluid to screen for HIV||3/26/04|
|Sensipar||Amgen||to treat secondary hyperparathyroidism in patients with chronic kidney disease||3/8/04|
|Taxotere*||Aventis||for use with prednisone to treat patients With advanced prostate cancer||5/19/04|
|Vidaza||Pharmion||first effective treatment for patients With Myelodysplastic Syndrome||5/19/04|
“In the months ahead, we’ll continue to see investors buying predictability—not passion, promises and predictions,” Burrill said. “The spector of ImClone and ‘uncertainty’ still haunts Wall Street,” he said. “Although Erbitux was cleared for market in February and revenues are now pouring in, it was just two years ago that Sam Waksal was hauled off in handcuffs and shares of ImClone were trading for about $6 a share,” he continued. “At the start of June, ImClone’s stock value was back up to $76 a share…but how many investors had the guts to stick by the drug instead of being distracted by the drama?”
One agency decision that did both surprise and disappoint was the FDA's Oncologic Drugs Advisory Committee’s decision in May to reject an application from Genta and Aventis for the experimental cancer drug, Genesense, for the treatment of advanced malignant melanoma. The committee voted 13-3 that the Phase III trial did not provide substantial evidence of effectiveness and cited the uncertainty about the validity of the response data submitted by Genta as the reason that they didn't feel efficacy was demonstrated.
IPO Deals Getting Done . . . But at Lower Valuations
Although the 2004 biotech IPO market had a big winner in Eyetech, which came to market January 30 at an opening price of $21 and has continued to trade up steadily closing May at more than $43 a share, the majority of new biotech firms have enjoyed far less spectacular rides
In comparison to the previous IPO class of 1999/2000, which raised an average of $100+ million, the IPOs to date in 2004 have raised an average of $62 million. The biotech IPO valuations for the Class of 2003-2004 have had a mean pre-money valuation of $217 million including Eyetech and $193 million excluding Eyetech
“The IPO market has lost momentum,” explained Burrill. “If a company comes to market at $7 a share and only goes up to $7.20 or even $7.50, the “buyside” is saying that’s not enough to compensate the new investors for the risk. The buy side may ‘love’ the company, but if they think they can get it cheaper tomorrow, they wait,” he added. “The deals that have come to market lately aren’t seeing dramatic price appreciation and that’s decreasing the interest level of the buy side to actively participate,” Burrill said. “But even in this highly selective market, we’ll continue to see a few more deals getting done. Just one home run—where the stock jumps 20% in a day—could reinvigorate the IPO market, but continued stagnancy may challenge the open window,” he noted.
International IPO Activity Picking Up
The European Union has yet to see the biotech IPO window open wide, although one Swiss and two British companies have managed to go public since the start of the year. Ark Therapeutics, one the largest privately-held biotech in the UK raised $101 million in the first quarter. The stock traded up 50% immediately. In April, BBI Holdings, also a British company, went public for £0.47. By the end of May, share values had risen 13%. Switzerland’s Basilea also managed its IPO raising $161 million and holding its value steadily thereafter.
In addition, there are a number of promising companies rumoured to be en route to the public markets. Two French companies—in vitro diagnostic company, bioMerieux and cancer company, Immuno-Designed Molecules have filed a Document de Base, which is the first step towards listing on the Paris Exchange. Microscience, a U.K. based vaccine company is expected to announce its intentions to list in London with a market cap of about $179 million. Speculation about two Austrian companies, an infectious disease company, Intercell, and cancer company, Igeneon, are both considering an IPO.
Although three companies managed to get their IPOs done in Japan last year, only one IPO has launched since the beginning of the year—DNA Chip Research which has gained 62% in value from its March 18 debut through the end of May. But the really big winner on the Japanese market is Soiken, which entered the market on December 18, 2003. The company’s stock value has jumped a remarkable 191% as of May 31, 2004. Soiken is managing the world’s first project to devise a scientific method of measuring fatigue and finding a cure for tiredness. Launched last November, the project involves 18 leading Japanese companies in the pharmaceutical, food-processing and trading fields, as well as five universities and the city administration of Osaka. According to project leader and Soiken board member, Osami Kajimoto, “We would like to bring the power of industry, government and academia together to find out fatigue biomarkers, develop anti-fatigue food products and train our sights on prevention of overwork and improvements in work hygiene.”
India has also launched a public company, Biocon, which has seen a 54% gain since going public on February 23. First established in 1978 as an industrial enzyme company, Biocon hopes to be a global supplier of bulk insulin in the near future.
Australia has been exceptionally busy with eight IPOs launching successfully since the start of the year. Two companies—Tissue Therapies and Xceed Biotechnology have done very well since entering the market gaining 80% and 60%, respectively, in value.
“The international markets are much more robust than many expected with a large number of companies accessing capital,” noted Burrill. “Many of these companies have performed well…taken as a whole, their value has risen 19%,” he said.
|Company||Country||Ticker||Date||Issue Proce (local currency)||Share Price 5/31/04||% Change Since IPO|
|Oncotherapy Science||Japan||4564||10/31/2003||JPY 1,000,000||JPY 1,660,000||66%|
|Medinet||Japan||2370||11/25/2003||JPY 350,000||JPY 127,000||-64%|
|Soiken||Japan||2385||12/18/2003||JPY 650,000||JPY 1,890,000||191%|
|Ark Therapeutics||UK||AKT||2/17/2004||£ 1.33||£ 0.95||-29%|
|DNA Chip Research||Japan||2397||3/18/2004||JPY 680,000||JPY 1,100,000||62%|
|Basilea Pharmaceutica AG||Switzerland||BSLN||3/25/2004||CHF 98.00||CHF 83.50||-15%|
|BBI Holdings||UK||BBI||4/28/2004||£ 0.47||£ 0.53||13%|
Fundraising from BIO 2003 to BIO 2004
“Before the start of the year we predicted a $20 –25 billion financing year for the industry,” said Burrill. “We have a shot of exceeding those expectations if the market isn’t spooked by another act of terror or similar disaster,” he added. “Since last year’s BIO meeting, the industry has raised more than $1.5 billion in IPOs, $4.4 billion in secondaries, almost $3 billion in PIPEs, and $7.3 billion in convertible debt. VCs have poured in nearly $3.6 billion and partnering transactions have generated an additional $9.7 billion. “In all, the industry has brought in about $29 billion since BIO 2003…that’s an enormously impressive performance considering the activities that have been taking place on the world stage,” said Burrill.
|Q3 03||Q4 03||Q1 04||Share Price 6/30/04 ($USD)||BIO to BIO Total|
|IPO||$ -||$ 453||$ 653||$ 435||$ 1,541|
|Total Financings||$ 5,465||$ 5,462||$ 5,746||$ 3,285||$ 19,958|
|Partnering||$ 2,556||$ 2,918||$ 2,010||$ 2,255||$ 9,739|
|Total||$ 8,021||$ 8,380||$ 7,756||$ 5,540||$ 29,697|
M&A and Alliances
At the end of March, Amgen announced that it would acquire Tularik Inc. in a stock deal valued at $1.3 billion. The acquisition valued Tularik's shares at $25, a 47% premium over their closing price of $17 when the deal was announced. The transaction adds a cancer drug in late stage testing and promising drug candidates for metabolic and autoimmune disorders to Amgen's pipeline.
After rejecting a takeover bid by Sanofi-Synthelabo S.A., Aventis S.A. accepted an improved offer at the end of April. The deal, valued at $65 billion, was approved by the European Commission and confirms the complementary nature of the combined group's existing product portfolio. Sanofi-Aventis brings together 94 NCE's and vaccines in development from Aventis and 56 from Sanofi. The deal also gives Sanofi a significant number of technology partnerships that Aventis has with other companies. “What the deal doesn’t do is stimulate innovation and build a novel pipeline,” Burrill commented. “It combines two old war horses into a larger war horse whereby a lot of infrastructure is eliminated under the mantle of profitability for a couple of years…but in the end, where’s the increased innovation?”
In a move to transform a small European pharmaceutical company into a top biopharmaceutical player, Belgium's UCB SA, a chemicals and pharmaceuticals maker, agreed to pay $2.7 billion for British biotech company Celltech Group PLC. This represented a 28% premium to Celltech's stock price on May 17th. The merger will create Europe's largest biotechnology company and the fifth largest worldwide. Celltech's most promising compound, CDP 870, is a treatment for rheumatoid arthritis and Crohn's disease and is in late-stage development. UCB's biggest selling drug is the allergy medication Zyrtec, which has already lost patent protection in some countries. The combined company will be valued at about $5.9 billion.
|Fujisawa Pharmaceutical||Yamanouchi Pharmaceutical||7,500|
|Sanofi-Synthelabo SA||Aventis SA||6,320|
|UCB Pharma||Celltech Group plc||2,700|
|Amgen Inc.||Tularik Inc.||1,300|
|Invitrogen Corp.||BioReliance Corp.||500|
|Fisher Scientific International Inc.||Oxoid Group Holdings Ltd.||300|
|Fisher Scientific International Inc.||Dharmacon Inc.||80|
|Respironics Inc.||Profile Therapeutics plc||45|
|Valeant Pharmaceuticals International||Amarin Corp. plc||38|
|Biovail Corp.||PharmaPass II LLC||35|
|OrthoLogic Corp.||Chrysalis BioTechnology Inc.||34|
FDA Addresses Drug Discovery Inefficiencies
In March, the FDA released a new white paper entitled, Innovation or Stagnation? - Challenge and Opportunity on the Critical Path to New Medical Products. The report looks at the inefficiencies in the drug discovery and development process and addresses solutions the agency can offer. "In the FDA's view, the applied sciences needed for medical product development have not kept pace with the tremendous advances in the basic sciences," the report states. "In many cases, developers have no choice but to use the tools and concepts of the last century to assess this century's candidates."
Because it costs $800 million to $1.7 billion to bring a drug to market, companies concentrate only on those drugs with the highest return on investment. According to the FDA, a drug now entering Phase I, after a decade of preclinical testing, has an 8% to 10% chance of reaching market compared to a 14% chance in previous years. This slowdown began in 2000, the year the human genome was sequenced.
Janet Woodcock, Acting Deputy FDA Commissioner and leader of the group that prepared the report, says that previous assessments of the pipeline problem focused on metrics such as review times and clinical phase lengths. This report focuses on the science involved and is targeting the whole research community. "There is not enough research in finding new methods or understanding toxicology at the basic scientific level," she said. "Experimental medicine approaches have withered. There is no robust clinical medical research capability, for example, in the development of biomarkers."
Improving any one of these issues could achieve a 10% improvement in predicting failures before clinical trials and could save $100 million in development costs per drug.
The agency is offering its expertise to help address problems. "We can provide information from having access to all the files - we've seen all the successes, best practices and negative data," says Woodcock. The FDA's files are the world's largest repository of in vitro and animal results that are linked with actual human outcomes data. "Companies have already admitted that if they had access to all that data they would save a lot of money, for example, by developing toxicogenomic data across the industry," says Woodcock. The report is a stimulating first step in dealing with the recent stagnation in the NME pipeline.
A Shift in US AIDS Policy
Bowing to pressure from advocacy groups, the Bush administration shifted its AIDS policy and expedited the approval process for generic and combination antiretroviral drugs so they can be purchased at lower prices and provided more efficiently and safely to people in Africa and the Caribbean. The Manufacturers are encouraged to create a single pill consisting of two or three licenses antiretroviral drugs. The FDA will also review applications from foreign manufacturers more rapidly so their generic drugs will be eligible for purchase under the Bush administration's $15 billion AIDS program.
These policy changes were announced by HHS Secretary Tommy Thompson at a news conference in Geneva before the annual meeting of the WHO. At the same time, Gilead Sciences, Merck, and Bristol-Myers Squibb announced that they were in discussions to develop a one-pill combination of three antiretroviral drugs. GlaxoSmithKline and Boehringer Ingelheim also said that they had entered into discussions to develop combination antiretroviral drugs for use in poor countries.
Agbio Grows Despite Controversy
Farmers continue to embrace GM crops despite the fact that consumers, especially in the European Union, are still wary of genetically modified foods. Indeed, the adoption rate for biotech crops has risen steadily for the past seven years, increasing 40 fold from 1.7 million hectares in 1996 to 67.7 million hectares in 2003.
Monsanto, which has already dropped efforts to develop genetically modified potatoes and various other vegetables, announced in April the withdrawal of a GM sugar beet developed with Syngenta for the European market. In May, the company halted its effort to introduce the world's first genetically engineered herbicide tolerant wheat because so many American and Canadian farmers feared that they wouldn't be able to export their crops to Japan and Europe. Some farmers thought that Monsanto would have had better success if it had started with a trait that would directly benefit consumers or food companies.
At the same time that Monsanto shelved GM wheat, the European Union lifted a six year moratorium on testing new bioengineered crops for cultivation on European soil by deciding to allow imports of a genetically engineered sweet corn developed by Syngenta. At about the same time, strict new rules on labeling for products on Europe's supermarket shelves took effect. The warning labels will tell consumers if 0.9% or more of the ingredients comes from bioengineered crops.
Meanwhile farmers in developing countries have been resisting pressure to grow GM crops - even if they could improve their productivity and reduce hunger - for fear of losing their European market. An interesting twist: China imports GM soybeans from the U.S., Brazil, and Argentina for use as livestock feed and human consumption. It then exports $100 million in sheep and hog intestines to the EU for use in sausage casings…
Monsanto's seeds and genomics division is still its greatest hope, turning profitable in 2003 and earning $421 million (EBITDA) on sales of $1.9 billion, mostly in the U.S. The company's ambitions of propagating its seed abroad now consist mainly of trying to control a thriving black market outside the U.S. In Brazil, where about 20% of the soybean crop comes from pirated seed, Monsanto struck a deal with grain operators to collect a royalty from farmers, splitting the fees with Monsanto and generating an after-tax profit for Monsanto of $18.5 million. Given Brazil's rapid growth in soybean acreage, it could amount to 18% of Monsanto's earnings by 2008. Argentina is exploring imposing a tax on soybeans to compensate GM seed companies.
FAO Calls On Biotech To Address World Hunger
The Food and Agricultural Organization, a United Nations agency, just released its report, The State of Food and Agriculture 2004. According to the report, 11,000 field trials have been performed on 81 different transgenic crops since 1987. The report confirms the safety of biotech crops, claiming that bioengineered food crops have real potential as a tool in the war on hunger. The FAO is calling on the private sector to intensify efforts to research and market biotech applications that address the needs of the poor. Today, only 15% of all GM field trials are taking place in developing or transition countries but with public/private partnerships and incentives, including adequate IP protection, that ratio could change dramatically.
Burrill’s Outlook for 2004:
What is in store for the second half of the year? “Although investors, in general, have been holding back waiting for news on the economy and interest rates, it’s likely that we’ll see investments pick up once the new rates have been digested,” noted Burrill. “But, will continue to experience choppiness in the general capital markets and we’ll continue to see deals getting done as big pharma strives to enhance pipelines and strengthen market position,” he said. “Biotech will continue to mature, to partner, to innovate, and to succeed…with investors sharing the rewards,” he said.
Here are a few of the trends we see unfolding in the months ahead:
- Although the rate of IPOs issuance will slow down, we will still see several more biotech firms get through the window before the end of the year. Unless we see a “pop” on the IPO market it will be a “buyers” market, and we will see pricing remain on the soft side.
- We will have a $20 billion plus financing year in 2004 and biotech stocks will outperform both the DJIA and NASDAQ during the second half of the year.
- Big pharma will continue to buy biotech in this market environment where the purchasing power is strong. When the markets are challenging, as they are today, acquisitions look more attractive and we’re likely to see another marquee level transaction by year end.
- It will be business as usual at the FDA and we will not see a major dislocation in approvals as a result of Mark McClellan’s departure (to CMS)and Lester Crawford’s assumption of the role of acting commissioner.
- In this election year, health care policy, pharmaceutical pricing, drug importation, healthcare availability and access will continue to dominate the airwaves, but in the end, little will be changed—for biotech.
- Interest in theranostics and personalized medicine will continue to grow, driven both by the FDA’s interest in pharmacogenomics and a desire on the part of payors to correlate drug utilization with effectiveness.
- Although we haven’t seen the end of the anti-GM movement, attitudes towards GM crops appear to be softening somewhat in Europe and elsewhere. We’ll continue to see growth in the uptake of GM crops and we’ll start to see more initiatives in developing nations as a result of the FAO’s call to action.
- Industrial biotech will move forward rapidly, driven largely by the widespread adoption among many of the largest chemical and energy conglomerates. We’ll see more solutions using biomass for conversion into fuels and feedstocks and we’ll see an emphasis on sustainability and cost effectiveness.
- Nutraceuticals will remain a strong segment as the US continues to address obesity, diabetes, and heart disease—all affected by diet and nutrition.
Biotech is transforming cancer from a death sentence to a manageable disease. It is helping AIDS patients live longer and more fruitful lives. Biotech is finding ways to make plants hardier and more nutritious. It is enabling the development of renewable energy sources and novel industrial processes that don’t harm the environment. Biotech has already endowed our lives and enriched our well-being and we’ll continue to see its contributions to mankind soar. Perhaps one could make more money investing elsewhere, but no industry is more dedicated to bringing us a better future.
About Burrill & Company
Burrill & Company is a life sciences merchant bank, focused exclusively on companies involved in biotechnology, pharmaceuticals, diagnostics, human healthcare and related medical technologies, wellness and nutraceuticals, agricultural technologies, and industrial biotechnology (biomaterials/bioprocesses).
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.
Burrill & Company assists life science companies in identifying, negotiating and closing strategic partnerships between large and small companies providing access to resources, technologies or collaborations essential for executing their business plans.
Burrill & Company also works with major life science companies to spinout internal assets and capitalize on their value, ranging from the outright sale of products or businesses to creation of new companies to exploit these assets. Burrill uses its extensive network to help companies identify, assess and capture (“spin-in”) products and companies strategic to building their businesses.
We have completed more than 25 strategic partnerships with a value in excess of $1.5 billion.
Strategic Advisory Services
Burrill & Company works with leaders of life science companies of all sizes (from start-up to big pharma) on growth strategy with a focus on how strategic transactions and partnerships can enable and accelerate the achievement of corporate objectives. We combine our scientific, business, operations, financial and technical skill sets within an objective advisory approach. We then work with our external clients to implement these plans, whether it is to succeed through an M&A/partnering transaction or a financing, divestiture or a restructuring.
Biotech 2004/Burrill Datacenter
Burrill & Company’s annual analysis of the “State of the Industry” has been an important part of the biotech industry’s view of itself over the last 18 years. Biotech 2004—Life Sciences: Back on Track, is a perspective on where the industry has been and is going and was released Q1 04. In addition, the newly created Burrill Datacenter is an online resource for keeping up-to-date information from the biotech industry at your fingertips, including updated data from Biotech 2004. To order Biotech 2004 or to subscribe to the Burrill Datacenter, visit Burrill & Company’s website at www.burrillandco.com or call (415) 591-5400.