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Biotech takes a beating in market meltdown

October 01, 2008


SAN FRANCISCO – October 1, 2008 – What a difference one day makes. The biotech industry had, up until September 29, performed reasonably well on the capital markets, despite the macro economic factors such as inflation, recession, credit market turmoil and escalating oil prices that had been swirling around it for most of the year. It was poised to post a positive third quarter…however the dramatic one-day 777 point drop in the Dow changed all that. Biotech and pharma stocks were smashed with the broader markets following news that lawmakers had voted against the $700 billion economic bailout plan.
The collective market cap of the industry lost $33 billion in one day. Biotech heavyweights Genentech and Amgen shedding 6.46%, and 8.52% of their value respectively and Gilead's shares were off by 12.75%.
“Although the market rebounded somewhat on the final day of the month, the meltdown in the financial markets represents a sea change in the world of financing,” said G. Steven Burrill, CEO, Burrill & Company, a San Francisco based global leader in life sciences with activities in Venture Capital, Private Equity, Merchant Banking and Media. “After roughly 40 years, where biotech companies have had reasonably easy and inexpensive sources of capital, the world has changed for them and it is going to get much more difficult going forward.
“In the past, biotechs have recovered from several "nuclear winters" as the financial markets rebounded from various perturbations. This time the problem lies in the very sustenance of the industry – capital, which has been its umbilical cord since the industry’s inception. Now that cord has been cut and we are entering a very different world where capital will be more expensive and difficult to obtain,” noted Burrill.
Analyzing biotech’s monthly and quarterly performance…the Burrill Biotech Select Index, a price-weighted index tracking 20 of biotech’s “blue chip” companies, finished September down 9% (-0.74% for the third quarter). In comparison, the Dow fell 6% (-4% for the third quarter) and the NASDAQ also dropped by 12% (-10% for the third quarter).
Market cap
The industry’s market cap closed September at $465 billion, recovering almost 50% of the value lost the day earlier, down 8.27% but up 1.1% for the third quarter and 3% for the year to date. Genentech’s market cap closed the month at $93.6B; Amgen at $62.71 billion and Gilead Sciences at $41.98B.
Although Amgen’s shares fell 6% in September they were up 25% over the quarter, on the strength of anticipated study data for its osteoporosis drug candidate denosumab. Shares of Genentech followed a similar pattern - down 10.7% for the month but up 16% for the quarter, with most of the boost coming after a $44 billion buyout offer from Roche.
Another buyout bid boost came for ImClone Systems Inc., which gained 54% over the quarter as a result of the acquisition bid by cancer drug partner Bristol-Myers Squibb.
Overall, shares of the “blue chip” biotech companies have weathered one of the most turbulent quarters in recent financial history. "Investors have regarded biotech’s elite as ‘safe havens’ in these times of economic uncertainty and away from the traditional big pharma companies,” observed Burrill.
Year-to-date, the American Stock Exchange Pharmaceuticals Index has declined over 13% compared to the Burrill Biotech Select Index, which is unchanged for the same period.
“In terms of biotech IPOs 2008 is shaping up to be one of biotech’s worst in history with only one completed to date,” said Burrill. “Except for venture capital deals, which have remained at steady state for the past three quarters, generating about $1 billion each quarter, all other forms of financing have fallen compared to the first quarter of 2008 and comparative 2007 figures.”
Collectively US biotech financings, both for public and private firms, raised $2.5 billion in the third quarter bringing the year-to-date total to almost $8.2 billion.
“The industry is on pace to generate about $10 billion in the year. You have to go back to 1998 to find a smaller amount that was raised by the industry,” said Burrill.
Partnering remains steady
While slipping almost $1 billion in Q3’08 compared to Q2’08 partnering deals did generate over $2.9 billion for US biotech companies. Notable deals in the quarter included a potential $820 million partnership between GlaxoSmithKline and Valeant Pharmaceuticals who entered into an exclusive worldwide collaboration agreement for the investigational drug retigabine, a first in class neuronal potassium channel opener for treatment of adult epilepsy patients. Pfizer inked a $725 million potential deal with Medivation to develop and commercialize Dimebon, Medivation's investigational drug for treatment of Alzheimer's disease and Huntington's disease. Dimebon currently is being evaluated in a Phase III trial in patients with mild-to-moderate Alzheimer's disease. Medivation will receive an up-front cash payment of $225 million.

About Burrill & Company
Founded in 1994, Burrill & Company is a San Francisco-based global leader in life sciences with activities in Venture Capital, Private Equity, 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.
Burrill is also the creator, sponsor and facilitator of over a dozen leading industry conferences worldwide and publishes a range of bio-intelligence reports including the monthly Burrill Biotechnology Report and annual “State of the Industry” report, the 22nd Edition is entitled Biotech 2008: Life Sciences – A 20/20 Vision to 2020.
Contact: Peter Winter, Editorial Director
Burrill & Company
Tel: 415-591-5474


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