SAN FRANCISCO – December 1, 2008 - A rally in the capital markets in the two days either side of the Thanksgiving holiday helped improve the fortunes of a number of industrial sectors including biotech. The upswing came as welcome news for investors for at one point late in November the Dow had slipped to 7550, dragging all sectors down with it. By months end, the Burrill Biotech Select Index, a price-weighted index tracking 20 of biotech’s “blue chip” companies, closed down almost 7 percent with the Dow down 5 percent and the NASDAQ 11 percent for the month of November.

 

“Although the past two months have been ugly, with biotech’s ‘blue-chip’ companies shedding 17 percent of their value, their fundamentals of strong sales and robust pipelines will see them recover, but it will take some time,” 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.

 

“It is the small cap biotech companies that will face the greatest challenges. The Burrill Small Cap Biotech Index dropped 13 percent in November and 34 percent since the end of September. Among the 370 publicly-listed biotechnology companies tracked by our monthly Burrill Biotechnology Report 54 percent of them now have a market cap well below $100 million. We are starting to see a clear pattern evolving for these companies,” commented Burrill. “Companies are shrinking to conserve cash and extend their runway...unfortunately, headcount is their biggest expenditure, and as a result of the negative capital markets, many programs have been put ‘in the refrigerator’ until better times prevail..."

 

The Burrill Biotechnology Report identified 15 North American biotech companies that announced a restructuring in November. This list will certainly grow in the months ahead as biotech companies look to ride out the prevailing economic conditions. Many may be forced to combine for survival and focus on the one key program between them that has the greatest opportunity for value creation and funding. “In this respect, it will not be a 1+1=2 (combination) or 1+1=3 (synergy) but a 1+1=0.5,” explained Burrill.

 

 

“If not restructuring, biotech companies will be acquired at bargain basement prices,” Burrill noted. “For example, Roche snapped up its partner Memory Pharmaceuticals for $50 million. The whopping 319% premium that Roche paid has to be put in perspective since Memory was trading at $0.15 and a market cap of $12 million the day before the announcement. The acquisition means that Roche gains full access to the partnered drug candidates in Alzheimer's disease and schizophrenia it had with Memory as well as its R&D that will augment Roche's own research and development CNS portfolio.

 

“Big pharma can certainly take full advantage of the fragile global economy to buy assets at a discount, commented Burrill. “They have the luxury of sitting back and waiting for the right opportunity and then acquire biotech companies at what represents 1990 prices.

 

The collective market cap of the industry closed November at $375 billion, down 10% for the month (20% since the end of September and 16% year-to-date). Genentech’s market cap closed the month at $79B; Amgen was at $59 billion and Gilead Sciences at $41B.

 

“Although the year that is drawing to a close will be remembered for the ugly events of the past two months our upcoming annual report (Biotech 2009-Life Sciences: Navigating a Sea Change to be published in Q1 2009) will reflect on the excellent progress the industry made in the first half, with its market cap reaching a record $521 billion. “In the subsequent five months, the industry lost 18% of its value - better than the Dow and Nasdaq, which shed 22% and 33% of their value, respectively, in the same five month period.

 

 

 

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.