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Biotech takes a hit following the Administration’s budget plans for healthcare

March 02, 2009

FOR IMMEDIATE RELEASE
 
Contact: Peter Winter, Editorial Director
Burrill & Company Tel: 415-591-5474
Email: pwinter@b-c.com
 
SAN FRANCISCO - March 2, 2009 – Many of biotech’s elite companies took a major hit to their share values in the wake of President Barack Obama’s call to expand healthcare coverage and curb costs by providing access to cheaper generic versions of biotechnology drugs, cutting Medicare payments to private insurers, allowing consumers to buy cheaper medicines from overseas and preventing drug companies from making deals that block generic competition. The budget plan, released February 26, seeks massive savings to pay for a major healthcare overhaul.
 
“It was high on President Obama’s agenda during his presidential campaign and so it should not have come as a surprise to anyone that the budget plans of his administration has put healthcare costs directly in its cross hairs,” 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. “However, it appears it did…and during the last two trading days of February investors sold off healthcare shares big time on fears that the proposal would sap industry profits.”
 
The Burrill Biotech Select Index closed the month of February down 7 percent compared to the Dow and Nasdaq, both falling 11.7 percent and 6.6 percent respectively. Up until the budget announcement biotech had been holding firm against the market uncertainties that raged around it. However, the final two days of the month saw the Index fall 8.5 percent and although Genentech’s share value held steady – closing up 5 percent for the month at $85.55/share. In the face of Roche's hostile takeover offer of $86.50/share, Genentech announced that it rejected the tender offer, which expires March 12. Biotech’s other blue chip stocks – Amgen (down 11 percent for the month), Gilead (down 11 percent), Celgene (down 15 percent) and Genzyme (down 12 percent) all took it on the chin, with most of these losses coming at the end of February.
 
“As we explain in our just released annual report on the biotech industry*, investors, throughout 2008 and year-to-date have treated biotech’s elite companies as relatively ‘safe havens’ from the financial crisis that continues to play havoc with the rest of the market,” explained Burrill. “Biotech got caught up in the general healthcare stock selling frenzy as a result of this ‘knee-jerk’ reaction to the budget plans. There is nothing in Obama's health care proposals that are surprising or different from what he articulated during the campaign and biotech’s fundamentals continue to remain strong.
 
“As we saw, investors get quickly spooked over uncertainty, which is why my new book predicts that in the ongoing financial crisis biotech’s elite companies will do just fine…it is the small and medium-sized public biotech companies that will have more difficulty weathering the storm,” added Burrill.
 
Analyzing biotech’s monthly performance…the Burrill Mid Cap Biotech Index dropped 15 percent in February. The share value of Geron exemplifies how quickly investor sentiments can change for members of this group. In January the company’s share price jumped 68 percent buoyed by the possibility that President Obama might loosen restrictions on federal funding for embryonic stem cell research and the FDA clearing Geron's application to conduct early-stage clinical trials on its stem-cell based therapy, aimed at treating severe spinal cord injuries. Fast forward one month and their shares dropped 43 percent after reporting fourth quarter revenues were only $544,000, down from $4.7 million in the year-ago quarter.
 
Shares of Idenix Pharmaceuticals suffered a similar fate – plummeting 37 percent in the month - after reporting a wider-than-expected fourth-quarter loss. Shares of Questcor Pharmaceuticals fell 25 percent in February after it said the regulatory process for expanded approval of Acthar was taking longer than expected. The drug is currently approved in the U.S. to treat flare-ups with multiple sclerosis. The company wants to expand the drug's use officially to treat infantile spasms, a potentially life-threatening disorder that typically begins in the first year of life.
 
BY THE NUMBERS
The collective market cap of the industry closed February at $369 billion, a drop of 7 percent for the month. Genentech’s market cap closed the month at $90B (up 5 percent). Genentech now has surpassed Pfizer in terms of market cap, which closed February at $83 billion. Amgen was at $51.2 billion (down 11 percent) and Gilead Sciences at $40.8B (down 12 percent). According to our Burrill Report, which tracks the progress of the 360 publicly listed biotech companies, there were 187 companies that had a market cap of less than $100 million at the end of February. One company, Bellus Health voluntarily delisted from Nasdaq during the month.
--------------------
*Burrill 2009-Life Sciences: Navigating the Sea Change, the 23rd annual report on the industry. The 470-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
 
2/27
 2009
% change
Month
%
change
Year
Burrill Biotech
Select
331.52
300.33
298.00
276.85
-7.10%
-7.82%
Burrill Large
Cap Biotech
437.71
379.7
375.57
351.02
-6.54%
-7.55%
Burrill Mid-Cap
201.89
139.39
145.13
123.3
-15.04%
-11.54%
Burrill Small Cap
137.6
78.35
77.27
66.68
-13.71%
-14.89%
Burrill Genomics
104.29
59.69
55.88
41.58
-25.59%
-30.34%
Burrill AgBio
198.83
127.72
139.59
133.12
-4.64%
4.23%
Burrill BioGreentech
158.66
106.12
108.66
99.34
-8.58%
-6.39%
Burrill Diagnostic
159.43
138.3
139.99
124.73
-10.90%
-9.81%
Burrill Nutraceutical
593.04
369.24
338.48
292.6
-13.55%
-20.76%
NASDAQ
2652.28
1577.03
1476.42
1377.84
-6.68%
-12.63%
DJIA
13264.82
8776.39
8000.86
7062.93
-11.72%
-19.52%
Russell 2000
766.03
499.95
443.53
389.02
-12.29%
-22.19%
Amex Biotech
786.5
647.15
634.56
596.42
-6.01%
-7.84%
Amex Pharma
338.52
272.84
258.17
226.38
-12.31%
-17.03%
 
 
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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