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A Year of Revaluation and Restructuring for Biotech

May 09, 2003

G. Steven Burrill's 17th Annual Report on the Biotech Industry captures a year of tumult, skepticism and change... and survival of the fittest

San Francisco, CA - May 09, 2003

Against the backdrop of global economic uncertainty, a pending war with Iraq and a bear market, the US biotech industry underwent massive revaluation and restructuring to survive in 2002, according to Burrill & Company's seventeenth annual report on the life sciences industry, Biotech 2003: Revaluation and Restructuring. "While 2002 was a difficult year for biotech on Wall Street, with investors fleeing the sector for lower risk propositions, the industry itself became leaner, meaner, and in some ways stronger than any other time in its history," noted G. Steven Burrill, author of the report and CEO of Burrill & Company, a San Francisco-based life sciences merchant bank.

"The public markets were brutal all year and biotech was no stranger to Wall Street's penalty box," noted Burrill. "The ImClone debacle delivered a huge blow in January and investor confidence continued to tumble. Announcements of restructuring, upper level management changes, delistings, and bankruptcies eroded faith further," he added. "By the end of 2002, the market capitalization for the industry had fallen 41% from $382 billion on December 31, 2001 to $224 billion on December 31, 2002 and was off 54% from its Q1 2000 peak of $490 billion," said Burrill. "But, subsequent to year-end, the industry has rebounded, market capitalization at the end of April was $259 billion, up 15% for the year."

"But 2002 was a year of massive change as well," Burrill stated. "Revaluation and restructuring touched every aspect of the biotech industry. We saw the FDA undergo a significant restructuring and finally gain a new leader-Mark McClellan. We saw the President and the Congress move on issues of national security with the promise of infusing billions of new R&D dollars into biotech for the provision of novel antibiotics, vaccines, diagnostics, and other countermeasures against bioterrorism," he continued. We also saw the industry move forward from a product development standpoint, advancing hundreds of compounds through later stage clinical trials," said Burrill.

"2002 also was tremendous year for technology," noted Burrill. "Fifty years after 'Watson & Crick', thirty years since the origin of the industry itself, and two plus years since the 'biotech bubble', the evolution of technologies driving the biotech world has been phenomenal," he said. "First draft sequences of the mouse, malaria and rice genomes were completed. Great strides were made in the war against cancer, HIV/AIDS, and infectious diseases. Big IT companies like IBM made big commitments to life sciences…but the way was very difficult for the platform companies, many of which saw their values disintegrate," he continued. "Still amid all the revaluation and restructuring, companies managed to advance their technologies, partner for integration, and launch new products," he said.

The application of biotechnology to traditional and novel manufacturing processes-industrial biotechnology-came into its own in 2002 with most of the traditional chemical industry giants embracing biotech in a big way. "Harnessing naturally occurring enzymes and microbes to produce fuels, plastics, textiles, and biomaterials for reconstructive surgery-to name but a few applications-has captured the attention and approval of the OECD, numerous environmental advocacy groups, and the Department of Energy," noted Burrill. "Even the President made a pledge to increase investment in the science and technology necessary to enable to next generation of hydrogen-based products like fuel cells," he added.

In addition to reporting on the technologies, products, trends and drivers in the US biotech industry, Burrill's report devotes considerable attention to companies and activities in Canada, Europe, Asia and Australia. "Global insecurity as well as the weak capital markets that plagued the US investment scene had the same chilling effect in other parts of the world," said Burrill. "Most of the genomic-proteomic tool and data providers emerging form the once well-funded regional biotech clusters in Germany struggled for survival. But not all the news was bad," he noted. "Biotech gained momentum in Scandinavia's Medicon Valley, in Israel, in Canada and in parts of Asia/Pacific where governments continued to spend billions to ensure their place on the biotech stage," said Burrill.

Burrill's Outlook for 2003…
What is in store for 2003? "The market bottomed out in August 2002 and in these first four months of 2003 we've seen biotech's market capitalization rise by 15.4%. At the end of April 2003, the industry's market cap was $259 billion," Burrill said. "The industry's total financing for 1Q 03 was $1.64 billion compared to 4Q 02 financings of $1.35 billion and 3Q 02 of $1.09 billion-a nice performance considering that war was taking place in the background," he noted. "With a swift victory now under our belts, we can expect to see the capital markets rejuvenate. We'll also see significant trends unfolding. These include:

  • Industry consolidation will continue both on the biotech and the pharma side as companies seek to increase technology integration, achieve dominance and jockey for power.

  • At the same time, the US will continue to move towards a paradigm where players in the healthcare system have more buying power than ever before. As a result, we'll see more big economic transactions where bundling and incentives are used to get the best bang for the buck.

  • After two years of downward revaluation, the surviving technology platform companies are on the path to building growing, sustainable businesses. These companies will gain value in the year ahead based on positive revenue trends and earnings. As investors begin to grasp that not only products but also the tools used to discover and develop them can create sustainable business models, we'll see investor interest in these technology companies return (by mid-year) as companies increasingly integrate along the drug discovery value chain.

  • There will be continued interest in the intersection of biotechnology, information technology, and nanotechnology-all-important components to understanding biology on a systems level. We will see more intra-industry integration as companies link disparate technologies and different pieces into a grander whole. In addition, we'll see an increased use of toxicogenomics to rout out the losing compounds far earlier in the discovery process-an event that is likely to save considerable time and money in development.

  • We also will see increased investment in biotech outside the pure healthcare side where biotech will be used to improve our "wellness", our food system, our energy resources, and our environment.

  • Stem cells and therapeutic cloning will continue to be scrutinized by various government bodies around the world. While the scientific community has succeeded in stalling an outright ban by emphasizing that new medical treatments and solutions for devastating illnesses are emerging from this research, the fear is that the "religious right" may win out over the "pragmatic center" on this emotionally charged issue.

  • The link between diagnostics and medical treatment will increase as the Mayo Clinic and other major clinics pursue a more personalized, information-based approach to treating patient populations. Pharmacogenomics will continue to gain ground as a valuable tool first for determining the best patient outcomes in clinical trials and ultimately for building more tailored therapeutics.

  • We will also see diagnostics become less hospital-centric and more patient-centric in their product development. We'll see increased interest in the use of patient specific diagnostics and we'll see a rise in the number of individuals who will be willing to pay for those tests out of their own pocket.

  • On the agbio side, GM acreage will grow and we are likely to see more penetration of GM crops in South America and in Europe as consumers and decision makers are educated about the economic and health benefits associated with biotech products.

  • We are still not out of the woods with the "plants as factories" debate in the US and elsewhere in the world where concerns about cross-pollination and the co-mingling of crops has folks worried about inadvertently eating industrial enzymes or therapeutic proteins in their corn flakes.

  • The nutraceuticals segment will continue to gain ground in 2003 as we discover more correlative evidence that regimens involving herbs, supplements, and specific foods are very adjunctive to regaining and maintaining health. As we understand more about how various active ingredients contained in plants and herbs affect human health, we'll see more people embracing nutrition as part of their overall health program. Wellness is an industry with lots of new players participating.

  • The international markets, which typically lag behind the US, will go through serious revaluation and restructurings in 2003. While the US paid a heavy price in 2002, that pain has yet to be shared abroad where many of the companies are still living on their earlier financings. As they go for their next round of funding, many of the European biotech firms will find that both the private and public markets in Europe will be slower to return to value than the US.

  • We will see increased investment in Asia, Scandinavia, and parts of Eastern Europe where acceptance and interest in biotech is strong and there is a powerful belief that biotech can solve huge problems affecting human health and welfare.

  • Once the politics are over, we can expect to see a considerable sum of money pour into anti-bioterrorism efforts ranging from the discovery of new vaccines and therapeutics to the development of powerful portable biosensors capable of detecting minute levels of toxins. The bioterrorism/biodefense spend will be a "moon shot" for the biotech industry and most of the R&D will be applicable beyond immediate homeland security needs. Both R&D funding and new markets will spur this biodefense segment."

"It's important to remember that biotech is the one industry that's poised to grapple with every major human and environmental challenge from global hunger to global warming. We have moved a long way from the initial mapping of the human genome just two years ago. The industry not only survived the economic challenges of 2002, it moved forward dramatically breaking new scientific ground in human healthcare, diagnostics, agriculture, nutrition, energy, industrial processes and materials, as well as the environment. This is an extraordinary industry which is characterized by long timetables and high financial risk. But investment in biotech is not just about money, it's about humanity, health, and the preservation of the planet," said Burrill.

Biotech 2003 Life Sciences: Revaluation and Restructuring gives readers a comprehensive and detailed analysis of the events that advanced, augmented, and in some cases, altered biotechnology forever.

In Biotech 2003 you will find:

  • 2002 Industry Financials for the US, Europe, Canada and Australia

  • Analysis of pivotal activities taking place in healthcare, diagnostics, nutraceuticals, agbio and industrial biotechnology

  • Industry highlights including: new product approvals, advances in technology, scientific breakthroughs, regulatory challenges, strategic partnering and M&A activities and the capital markets

  • 485 pages of analysis, data and graphs

To review the table of contents and order a copy for $295 plus shipping and handling, visit www.biotechreport2003.com or call 1-415-591-5476 or visit the Burrill & Company website at www.burrillandco.com.

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 biomaterials/bioprocesses.

Venture Capital
The Burrill family of venture capital funds, with over $417 million under management, includes the Burrill Life Sciences Capital Fund, the Burrill Biotechnology Capital Fund, the Burrill Diagnostics Fund, the Burrill Agbio Capital Fund and its successor-the Burrill Agbio Capital Fund II, the Burrill Nutraceuticals Capital Fund, and the Burrill Biomaterials/Bioprocess Capital Fund.

Strategic Partnering
Burrill & Company assists life science companies to identify, negotiate and close strategic partnerships providing access to resources, technologies or collaborations essential for executing their business plans.

Spin-outs/Spin-ins-Burrill & Company works with major life science companies to spin-out 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. We also use our extensive network to help companies identify, assess and capture ("spin-in") products and companies strategic to building their businesses.
BioStreet™-Burrill & Company's BioStreet™ is an internet-based life sciences transaction service which enhances dealmaking capabilities by offering a broad range of services designed to streamline and facilitate deals. BioStreet combines the efficient distribution power of the worldwide web with the scientific skills and strategic relationships necessary for concluding successful transactions.

We have completed more than 25 strategic partnerships with a value in excess of $1.5 billion.

For more information, please visit Burrill & Company's website at www.burrillandco.com

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