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Biotech takes it on the chin in October

November 02, 2009

FOR IMMEDIATE RELEASE

SAN FRANCISCO - November 2, 2009 – It was a turbulent month as stock values
waxed and waned throughout, culminating in a dramatic plunge on the last trading day of
October as a report about a drop in consumer spending fueled worries that the economic
recovery wouldn’t be sustainable. The drop served to erase the previous day's big gains.
Biotech’s steady improvement during the third quarter also came to an abrupt stop with
the Burrill Biotech Select Index posting a 10 percent fall in value in October in contrast
to the Dow, which finished unchanged and the NASDAQ, which fell 3.6 percent in value.
Almost all members of the Burrill Biotech Select Index saw a reversal in their share
values. Heading the list was Affymetrix Inc. whose shares dropped sharply and closed the
month down 40 percent after it posted disappointing third-quarter results and offered a
soft revenue forecast for the fourth quarter. Rival Illumina Inc.’s shares suffered a similar
fate closing the month down 24 percent after it reported third-quarter results and 2009
guidance below analyst estimates.
 
Amgen and Biogen both saw their share values drop 10 and 16 percent respectively.
Biogen Idec’s shares were hit following reports that the number of cases of a rare brain
infection in patients taking Biogen’s drug Tysabri is higher than previously reported.
European regulators reported 24 cases of so-called progressive multifocal
leukoencephalopathy (PML), more than twice the 11 cases Biogen reported in July.
Amgen saw its shares drop on news that the FDA had requested additional clinical trials
for its drug candidate Prolia before it will consider approving the drug for the treatment
of bone-loss in breast and prostate cancer patients.
 
“There wasn’t a lot to cheer about for biotech companies in October,” 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. “The
nervousness about the strength of the economic recovery combined with weaker or
average financial results took its toll on biotech’s top companies.
 
“However, it wasn’t just biotech’s elite companies that took a hit. With investors nervous
about the economy they have taken profits and cashed in on the excellent gains made by
emerging biotech companies and, as a result, the Burrill Biotech Mid-Cap Index fell a
whopping 18 percent and Burrill Biotech Small Cap Index was down 15 percent for the
month.
 
“There has also been some investor uncertainty over the healthcare reform debate and
this is likely to continue, as the legislators wade through the proposals,” commented
Burrill. “The drug industry will certainly take a big hit in the House bill, which was
released by the Democrats at the end of the month. For elderly people who are eligible
for both Medicare and Medicaid, the bill mandates rebates from the drug makers so that
the Medicare system ends up paying less. Those rebates are estimated to cost the industry
$60 billion over a decade.
 
“The bill is in favor of allowing 12 years of data exclusivity for biotech drugs and that is
good for our industry,” concluded Burrill. “It is clear that there will be plenty of debate in
the upcoming month as legislators try to get the healthcare reform bill passed before the
end of the year. With 25-50 million Americans added to the healthcare system, revenues
for the healthcare industry should increase…so the bills are a mixed bag for pharma, med
devices and biotechs.”
 
IPO watch
In the early part of October it looked as though the IPO window was opening a crack as
Omeros Corporation became the first venture-backed biotech to go public this year. It
priced its IPO of 6.82 million shares at $10 per share, but then saw its shares drop almost
immediately, closing down 13 percent on its first day of trading (it closed out the month
down 44.3 percent). The company will use the funding to complete its phase III trials of
its lead drug candidate, which is being evaluated for use during arthroscopic surgery to
improve postoperative joint function and reduce postoperative pain.
 
“Omeros’ opening and subsequent share price performance underscores the difficulty that
will exist for many biotech companies that are not yet profitable and are thinking about
raising money in the public markets,” noted Burrill. “We are likely to see more than 20
companies add themselves to the IPO runway this quarter with the hope that around the
time of the JP Morgan Healthcare Conference in early January 2010 the markets will be
receptive enough to invest in new biotech issues. The first biotech IPO movers of the new
year will have to perform well if we are to see the IPO window opening.”
 
Durham, North Carolina based Aldagen took its place in the queue of companies hoping
to go public in the coming months as the IPO window begins to open. The company,
which develops regenerative cell therapies, had initially filed to go public in May of 2008
but withdrew those plans last October when the stock market melted down.
Now that the markets have strengthened, the company hopes to raise an estimated $80.5
million in an initial public offering to fund a phase III trial of its most advanced therapy
for the treatment of critical limb ischemia.
 

By the numbers

Biotech Industry Market Cap: $322.2 billion (down 5.3 percent for the month ending 10/30/09)

Number of public companies: 320
- There are 49 companies that have market caps greater than $1B
- There are 36 companies that have market caps between $500 and $999M
- 136 public biotech companies (41%) have a market cap below $100 million

(From the monthly Burrill Report (www.burrillreport.com)
 
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, which tracks the progress of the global biotechnology industry
and annual “State of the Industry” report the latest of which is Biotech 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. (www.burrillandco.com)
Contact: Peter Winter, Editor, Burrill Report
Tel: 415-591-5474 Email: pwinter@b-c.com
www.burrillreport.com
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