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Biotech hit hard in second quarter

July 01, 2010

FOR IMMEDIATE RELEASE

SAN FRANCISCO
- July 1, 2010 – Continuing concerns about the stability of the global economy during the second quarter weighed heavily on the general markets and served to play havoc with biotech stock valuations. The Burrill Biotech Select Index fell 13 percent in Q2 despite a comparatively strong performance in June, dropping only 1.3 percent against the Dow’s monthly dip of 3.6 percent and 10 percent fall for the second quarter. The Dow closed at its lowest level of the year and the NASDAQ faired no better dropping 6.5 percent in June and 12 percent for Q2 ’10.

 

“It is difficult for biotechs to get any traction in these uncertain economic times even in the wake of companies reporting positive late stage clinical data on candidate cancer drugs at the recent American Society of Clinical Oncology annual meeting in Chicago in June,” 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, we are seeing biotech’s elite companies positioning themselves for growth and we saw this quarter both Gilead Sciences and Celgene making important acquisitions and Canadian-based Biovail announcing that it will merge with Valeant Pharmaceuticals.

 

“It was also an excellent quarter in terms of fundraising with $14 billion generated by U.S. biotechs via public and private financings and partnering deals,” Burrill added. “Financing remains available for emerging biotech companies as our analysis clearly shows but the current environment still favors risk mitigated companies and this situation is likely to continue for the next few months.”

 

Biotechs enter M&A stakes

There were several biotech M&A deals during the second quarter. Gilead Sciences said that it will acquire the privately held CGI Pharmaceuticals for up to $120 million with most of the money paid upfront and a portion to be paid based on clinical development progress. CGI has generated a library of proprietary small molecule kinase inhibitors. The lead preclinical compound from this library targets spleen tyrosine kinase (Syk) and could have applications for the treatment of serious inflammatory diseases, including rheumatoid arthritis. The company’s shares closed June down 4.6 percent and down almost 25 percent in Q2 ’10.

 

Celgene announced at the end of June that it had agreed to acquire Abraxis BioScience for $2.9 billion. Abraxis’ only approved drug is its breast cancer treatment Abraxane. Celgene said the transaction could add $1 billion to its annual sales by 2015. The company is hoping it will be able to "re-energize" sales of Abraxis and also win approval for Abraxane as a treatment for skin, lung, and pancreatic cancer. Celgene’s shares closed the month down 4 percent and down 18 percent for the second quarter.

 

In a deal valued at $3.2 billion, Canadian specialty pharma Biovail will reverse merge with Valeant Pharmaceuticals International, with the new company retaining the Valeant name. The combined company will have a significantly expanded presence in North America and operations in eight other countries, working across four growth platforms: specialty central nervous system therapeutics, dermatology, Canada and emerging markets/branded generics.

 

Also in June, Spanish healthcare company Grifols signed an agreement to acquire Talecris Biotherapeutics for a combination of cash and newly-issued Grifols non-voting shares for approximately $3.4 billion ($4 billion including net debt). Grifols is a leading global provider of plasma protein therapeutics while Talecris is a major provider of plasma products in the United States. The combination will create an international company with complementary geographic footprints and products, and increased manufacturing scale.

 

Financings improve in second quarter

“Analysis in our Burrill Report shows that, apart from cash generated from IPOs, all other financing vehicles were up a collective 78 percent compared with the first quarter of 2010,” noted Burrill. “However, the financings for the first half of 2010 were down 13 percent on the 2009 financings for the same period. The US biotech industry is still, however, on track to raise our predicted $15 billion by the end of the year.”

 

Venture capital financing continued to flow to U.S. biotech companies with the amount raised in the second quarter up 28 percent over the first quarter total of approximately $1.044 billion. However, follow-on financing fell 52 percent and only PIPE financing showed a slight increase in the amounts raised compared to the previous quarter.

 

The top venture financing deals, in terms of amounts raised, in the second quarter included:

TESARO, an oncology-focused biopharmaceutical company, which secured $60 million in start-up funding to acquire, develop and commercialize cancer therapeutics and supportive care products. The company was co-founded by former executives of MGI PHARMA that was acquired by Eisai Co., Ltd. in 2008 for $3.9 billion.


Two companies developing novel antibiotics to treat drug resistant bacterial infections – Achaogen (San Francisco, CA) and Tetraphase Pharmaceuticals (Watertown, MA) - raised $56 million and $46 million, respectively.

 

Partnering continues to be hot

Of the partnership deals that disclosed their financial terms, a whopping $8.9 billion was collectively raised in the second quarter of 2010 by U.S. biotech companies – up 45 percent on the $6.1 billion raised through partnership deals in Q1 ’10.

 

“We are on pace to match last year’s record setting total for partnership dollars,” said Burrill, “an incredible amount and evidence that pharma companies continue to access biotech innovation.”

 

Biotech IPO Activity

Despite the tough capital markets four biotech companies completed their IPOs in the second quarter:


- Tengion, a Pennsylvania-based regenerative medicine company, raised $30 million by offering 6 million shares at $5. In its first filing in December 2009, the company had targeted raising $40.25 million.


- Codexis raised $78 million through the sale of 6 million shares at $13 a share. The Redwood City, California-based biotech develops biocatalysts used in the production of pharmaceuticals and renewable fuels and chemicals.


- Alimera Sciences priced at $11 a share, 29 percent below its target range of $15 to $17, raising $72 million. The Alpharetta, Georgia-based biotech's late-stage lead compound is a treatment for diabetic macular edema.


- GenMark Diagnostics, which offers a molecular diagnostics testing system to hospitals and laboratories, raised $28 million by offering 4.6 million shares at $6, the low end of its revised $6-$7 range. The company had originally planned to sell 4.5 million shares at a range of $8-$10.

Year-to-date there now has been eight biotech IPOs and their average market performance as of the end of June is down 17.5 percent.

 

Company

IPO

Price

Price

06/30/10

%

Change

Ironwood Pharmaceuticals

$11.25 

$11.92

6

Anthera Pharmaceuticals

$7.00

$5.36

(23)

AVEO Pharmaceuticals

$9.00

$7.07

(21)

Alimera Sciences

$11.00

$7.44

(32)

Tengion

$5.00

$3.72

(26)

CorMedix

$6.25

$2.20

(65)

Codexis

$13.00

$8.76

(33)

GenMark Diagnostics

$6.00

$4.42

(26)


Three companies added themselves to the IPO runway in the second quarter:

- ReSearch Pharmaceutical Services, a global clinical research organization that provides trial management services to the biopharmaceutical industry. The company hopes to raise up to $100 million.

 

- Ikaria, a fully-integrated biotherapeutics company focused on the critical care market, is targeting up to $200 million in an initial public offering.

 

- Amyris Biotechnologies, which genetically modifies yeast strains to operate an industrial synthetic biology platform, filed to raise up to $100 million.

 

By the Numbers

(Compiled by The Burrill Report*)

- The industry closed the month with a collective market cap of $327.99 billion (down 3.9 percent for the month and 14 percent for the quarter)


- Top five biotech companies by market cap are: Amgen ($50.4B, up 1.6 percent for June, down 12 percent for the second quarter), Gilead Sciences ($30.5B, down 4.6 percent for June, down 25 percent for the second quarter), Celgene ($23.4B, down 3.6 percent for June, down 18 percent for the second quarter), Genzyme ($13.5B, up 4.6 percent for June, down 2 percent for the second quarter), and Biogen ($12.7B, unchanged for June, down 17 percent for the second quarter).


- 53 biotech companies (17.6 percent) have market caps greater than $1B (compared to 49 companies at the same time last year)


- 97 biotech companies (32.3 percent) have market caps less than $100M (compared to 39 percent (122 companies) at the same time last year)


-The Burrill Biotech Select Index is down 6 percent year-to-date.


- The $23.7 billion total financings raised by US biotech companies in the first half of the year was 1.6 percent higher than the total raised the same period in 2009.

(*The July edition of the subscription-based Burrill Report has a breakdown of the industry’s half-year 2010 performance together with complete global financings, M/A and partnering transactions.)






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.

 

Contact: Peter Winter, Editor, Burrill Report

pwinter@b-c.com  tel: 415-591-5474

 

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