SAN FRANCISCO – January 2, 2009 -- Sharp annual gains in shares of biotech’s elite companies helped soften the industry's overall decline from the broader market collapse in 2008. The stock performances among this group proved to be robust thanks to strong drug sales and the specter of large buyout deals.

 

The biotech industry closed its books on a year that saw the Burrill Biotech Select Index, a price-weighted index tracking 20 of biotech’s “blue chip” companies, drop 9.4 percent in value. “In normal times this would be seen as a poor performance," said G. Steven Burrill, CEO, Burrill & Company, a San Francisco based global leader in life sciences with activities in Private Equity, Venture Capital, Merchant Banking and Media, “but the events in the financial markets during the last four months of the year made it anything but ‘business as usual’. The year of 2008 will certainly be remembered for a very long time not only for the wild swings in the Dow – the industry has experienced several market meltdowns in the past and lived to tell the tale - but also for how it has and will continue to impact for the foreseeable future the flow of much needed capital into the sector.

 

“Finance has been the industry’s umbilical cord for the past forty-plus years…the implosion of financial institutions severed this cord and, as a result, it has left many companies on ‘life support’. No one, however, could have predicted how dramatically and how quickly venture-backed life sciences companies and small and medium-sized public biotech companies pushed the panic button in response to seeing their relatively easy access to capital drying up.

 

“For example, The Burrill Small Cap Biotech Index and the Burrill Mid Cap Biotech Index dropped 29 percent (down 43 percent in 2008) and 22 percent (down 31 percent in 2008) respectively in the final quarter of the year. These dramatic drops in value factor in what was a relatively strong performance for these companies in the final month of the year, with the Burrill Small Cap Biotech Index gaining almost 8 percent and the Burrill Mid Cap Biotech Index gaining 1.6 percent. 

 

Even more dramatic evidence of the industry’s response to the financial crisis is the fact that among the 370 publicly-listed biotechnology companies tracked by the Burrill Report* almost 60 percent saw their market cap fall to well below $100 million. In addition, The Burrill Report identified over 100 North American public and private biotech/life sciences/pharma companies, that announced a corporate restructuring in Q4 ‘08. 

 

“We started to see a clear pattern evolving for these companies in the final quarter of the year,” 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 market conditions improve, and key management, scientific and sales staff have been laid off.

 

“The more mature and blue chip biotech companies have weathered this period quite well since they have plenty of cash, product revenue streams, strong pipelines and big pharma partners. Investors have viewed these large cap companies as safe havens, which is why the 10 percent drop in the Burrill Biotech Select Index, during 2008 can be viewed in a positive light when set in context of the Dow falling 35 percent and the NASDAQ falling 42 percent in the same 12 month period. The performance of the various biotech indices reflect the realities that investors still have faith in the blue-chip biotechs but are staying well away from the more risky emerging biotech companies,” added Burrill.

 

Big pharma companies were traditionally seen as safe havens in periods of uncertainty and recession but stricter regulation, impending patent expirations of blockbuster drugs with no new ones in the pipeline, increased pressure to lower prices and more intense generic competition caused investors to move into biotechs.  Reflecting this changing sentiment was the fact that the Amex Pharmaceutical Index fell almost 20 percent in 2008.

 

The market turmoil did not prevent biotech from its historical trend of seeing December as being typically one of its strongest months. The Burrill Biotech Select Index gained 9 per cent in the month and the Burrill Large Cap Index also returned a respectable 8 percent gain in December.

 

After a tough 2007, industry giants Amgen and Genentech got back on track in 2008 ending 2008 up 24 percent and 23 percent respectively. Amgen's increase in share price came largely from expectations over its future blockbuster sales potential with the osteoporosis drug denosumab. Genentech gained on strong sales and continued potential for its key blockbuster cancer drug Avastin. Shares were also boosted following Roche's $44 billion for the remaining shares of the company it doesn’t already own. Other companies posting strong yearly performances were: Vertex Pharmaceuticals, which climbed 30 percent, Celgene Corp. closed up 20 percent and Gilead was up 11 percent on the year. These gains were balanced by some notable drops in value by: Amylin Pharmaceuticals whose 70 percent drop was attributed to questions about the safety of diabetes drug Byetta and the company's next-generation treatment, exenatide LAR. Safety issues of multiple sclerosis drug Tysabri drove shares of Biogen Idec and partner Elan down 16 percent on the year. Onyx Pharmaceuticals’ shares took a hit early in the year when it stopped a late stage clinical trial. Although it closed the year down 39 percent, its 25.5 percent jump in value in December suggests that the company is back in favor with investors.

 

 

 

Financings and partnering deals collectively brought in $30 billion for US companies in 2008 with over $10 billion through financings and $20 billion in partnering capital. “The 32 percent drop in funds raised in 2008 compared to 2007 is certainly reflective of the market conditions and the lower valuations of public companies in general,” noted Burrill. The IPO window closed early in the year and only Bioheart managed to IPO, although it only raised about $6 million.

 

 

Click here to see Burrill's Predictions for what's ahead for biotech in 2009.