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Biotech holds steady as broader markets tumble

February 02, 2009

FOR IMMEDIATE RELEASE
Contact: Peter Winter, Editorial Director
Burrill & Company Tel: 415-591-5474
Email: pwinter@b-c.com
 
SAN FRANCISCO - February 2, 2009 - Apart from Genentech, whose shares took a hit following the news that Roche was in hostile takeover mood for the remaining shares of the company it doesn’t already own, all other of biotech’s blue chip companies posted small gains. As a result, the Burrill Biotech Select Index was only down marginally in January in stark contrast to the broader markets. Wall Street ended its worst January on record. The major indexes all fell sharply with the Dow down 10 percent and NASDAQ down 7 percent, respectively. Some market analysts believe that this is not a good omen for the rest of the year, as historically the markets tend to end a year in negative territory if they fell in January.
 
The U.S. economy is deteriorating at an alarming rate as the housing, credit and financial crises keep feeding on each other in a vicious cycle that is proving difficult for Washington policymakers to break,” 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. “As my new annual report* discusses we are witnessing a major sea change for the biotech industry as the macroeconomic environment exerts its toll.
 
The future of biotech’s innovation residing in small and emerging companies is at risk. We have seen mounting evidence that companies are putting their projects ‘on ice’ and reducing staff in an attempt to ride out these brutal conditions. It remains to be seen whether these projects will ever be thawed out.
 
“It is clear that when the markets do return in late 2009/early 2010 we are likely to see a very different industry than exists today,” observed Burrill. “Revaluation and restructuring will now be the strategies of many companies going forward. Interestingly enough, as bad as the situation is today…it has created one of the greatest buying opportunities ever for investors, big pharma and big biotech. Trading at prices unheard of in their recent past are great companies with great products and pipelines with superb management.”
 
 
In fact, there was plenty to keep investor’s attention focused on biotech this month. JP Morgan's 27th Annual Healthcare Conference was held in San Francisco. Not surprisingly, the main topic of conversation in the halls and presentations was on the state of health of the industry. There was anticipation that a wave of M&A and partnering deals was imminent. This speculation quickly turned to reality later in the month with the announcement that Pfizer had made a bid of $68-billion for Wyeth. The cash-and-stock deal values Wyeth at $50.19 per share, a 29 percent premium.

The deal addresses some of Pfizer’s impending pipeline problems, gaining access to Wyeth’s strong portfolio of biologics and vaccines. 
The merger may have emboldened Roche announcing it would start a tender offer for Genentech’s shares within the next two weeks. But instead of sweetening the deal, it lowered its offering price by almost $2 billion, bidding $86.50 per share, down from the originally $89 per share in July.


BY THE NUMBERS
The collective market cap of the industry closed January at $395 billion, a drop of 2.3 percent for the month. Genentech’s market cap closed the month at $85.46B (down 1.4 percent); Amgen was at $57.43 billion (down 5 percent) and Gilead Sciences at $46.26B (unchanged for January).
 
Analyzing biotech’s monthly performance…the Burrill Mid Cap Biotech Index posted the best result, up 4 percent, thanks to a CV Therapeutics’s 70 percent jump in share value following the announcement that Astellas Pharma had made an unsolicited takeover offer for the biotechnology company valued at $16 a share, or nearly $1 billion.
Also posting an excellent share price jump in January was Geron (up 67 percent). The company received FDA clearance to conduct early-stage clinical trials on its stem-cell based therapy, aimed at treating severe spinal cord injuries. The decision comes after a long and often frustrating back-and-forth with regulators.
 
“This is a very significant event for researchers and companies developing stem cell therapies, as it will be the first human trial for embryonic stem cell therapy,” commented Burrill, “and it sets the tone for what is expected to be a very good year for stem cell research. President Obama’s administration is committed to lift the tight federal restrictions currently in place on embryonic stem cell research and we may see this happen in the first 100 days of the new Congress.”
 
IPO News
Biotech companies aspiring to go public will be closely watching Medidata Solutions, which provides an on-demand hosted technology platform for capturing and managing clinical trial data, filed which filed with the SEC for an IPO at the end of January. In terms of biotech IPOs, 2008 was one of biotech’s worst in history with only one completed - Bioheart - raising about $6 million…and because of the market conditions, 19 biotech IPOs were withdrawn.
 
Financing
Despite the difficult conditions, some financing deals for biotechs were completed. Topping the list this month was Pharmasset Inc.’s "registered direct" offering. A select group of investors purchased over 4.6 million shares at $9.73 per share (a 7% discount to their closing price), for gross proceeds of approximately $45.5 million. With Pharmasset’s share price closing the month at $11.40, this transaction has been good for the company as it removes any financing overhang and good for the investors, who bought at a fraction of the value Pharmasset had been trading just over a year ago when the company’s share price stood at almost $35, before the financial market implosion.
--------------------
*Burrill 2009-Life Sciences: Navigating the Sea Change, the 23rd annual report on the industry. The 400-plus page book contains analysis and perspectives on the performance of the industry in 2008 and projections for 2009 and beyond.
 
Biotech Indices
 
Index
12/31
2007
 
12/31
2008
 
1/31
 2009
% change
Month
Burrill Biotech
Select
331.52
300.33
298.00
-0.78%
Burrill Large
Cap Biotech
437.71
379.7
375.57
-1.10%
Burrill Mid-Cap
201.89
139.39
145.13
3.96%
Burrill Small Cap
137.6
78.35
77.27
-1.40%
Burrill Genomics
104.29
59.69
55.88
-6.82%
Burrill AgBio
198.83
127.72
139.59
8.50%
Burrill Industrial
158.66
106.12
108.66
2.34%
Burrill Diagnostic
159.43
138.3
139.99
1.21%
Burrill Nutraceutical
593.04
369.24
338.48
-9.09%
NASDAQ
2652.28
1577.03
1476.42
-6.81%
DJIA
13264.82
8776.39
8000.86
-9.69%
Russell 2000
766.03
499.95
443.53
-12.72%
Amex Biotech
786.5
647.15
634.56
-1.98%
Amex Pharma
338.52
272.84
258.17
-5.68%
 
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 publisher of a range of bio-intelligence reports including the monthly Burrill Report and annual “State of the Industry” report.
 
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