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Biotech cools off in August as capital markets weaken

September 01, 2010

SAN FRANCISCO – September 1, 2010 – The Burrill Biotech Select Index gave back some of its strong July gains in August closing down 2.75 percent. It was also a choppy month on the capital markets with the Dow Jones Industrial Average briefly dipping below 10,000 before rebounding to close the month down 4.3 percent as mixed economic data did little to convince investors of the recovery's strength. The economy grew at a much slower pace this spring than previously estimated mostly due to the largest surge in imports in 26 years and a slowdown in companies' restocking of goods, according to the U.S. Commerce Department. The nation's GDP grew at a 1.6 percent annual rate in the April-to-June period down from an initial estimate of 2.4 percent last month and much slower than the first quarter's 3.7 percent pace. The Nasdaq Composite Index followed a similar pattern, dropping 6.2 percent for the month.

“August is traditionally a quiet month for biotech,” 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. “Nevertheless, the sector held its own relative to the general markets, which had a tough outing as investors remained nervous about the strength of the economic recovery.”

The Burrill Biotech Mid-Cap Index took a beating in August falling 10 percent. Shares of Momenta Pharmaceuticals reversed direction after vaulting 81 percent last month, dropping 35 percent in the wake of a court challenge, which was subsequently denied, from Sanofi-Aventis over the approval of the Abbreviated New Drug Application filed by the company's collaboration partner, Sandoz, for enoxaparin sodium injection USP, a generic version of Lovenox. The decision is subject to appeal. Shares of ImmunoGen sank 43 percent after the company said the U.S. Food and Drug Administration declined to accept an application for accelerated approval from its partner Roche, for the potential breast cancer treatment T-DM1.

Biofuels
The Burrill BioGreentech Index slipped 3.7 percent in August but remains up a healthy 17 percent year-to-date. Shares of Verenium, a pioneer in the development and commercialization of high-performance enzymes for use in industrial processes, rose 21 percent in the month. The company recently announced an agreement with BP Biofuels North America to sell its cellulosic biofuels business for $98.3 million.

Shares of Cosan fell 7 percent in August as investors reacted to disappointing first quarter 2011 financial data. Cosan reported a net loss of $11.9 million in the quarter compared
with a net income of $122.6 million in the first quarter 2010. Shares were buffeted somewhat at the end of the month as a $12-billion joint venture between Shell International Petroleum and Brazilian ethanol producer Cosan moved closer to reality. The two companies signed binding agreements on a deal first proposed in February. If completed, the deal will create the third largest ethanol producer in the world with 4,500 retail stations and annual production of 440 million gallons.
Interest in biofuels has been growing as ethanol prices have risen since the beginning of the year at the same time as petroleum prices have dropped. A tax break that encourages blending has also helped biofuels producers recover from a two year low. It has also encouraged two alternative fuel and chemical companies to join the IPO runway.

PetroAlgae, which produces biocrude from duckweed, hopes to raise $200 million. The company licenses and deploys a biomass production platform it believes will result in commercial scale, economically viable production of drop-in fuel products to replace fossil fuels and high quality digestible protein products for animal use.

Colorado-based Gevo, which produces isobutanol from biomass but has not yet generated any revenue, hopes to raise $150 million in an initial public offering. The company is commercializing bio-based alternatives to petroleum-based products using a combination of synthetic biology and chemical technology to produce isobutanol that can then be converted into a variety of plastics and fuels. [Burrill & Company is an investor in Gevo.]

Biotech IPO Activity
After more than two months of inactivity, two biotech companies slashed their prices to go public in August. Antibiotic developer Trius Therapeutics slashed its expected share price by 62 percent to complete its offering selling 10 million shares at $5 per share. The San Diego biotech plans to begin a late stage trial to evaluate torezolid, its lead next-generation antibiotic, against Pfizer’s Zyvox linezolid to treat acute bacterial skin and skin structure infections.

Specialty pharmaceutical company NuPathe raised $50 million after trimming its offering price to $10 from its original $14 to $16 range. NuPathe is focused on treatments for diseases of the central nervous system.

Besides the two biofuels companies, six other biotechs filed to add themselves to the IPO queue in August:

- Complete Genomics filed to raise about $86.3 million in its proposed offering. The company has already sequenced more than 200 complete human genomes since the beginning of the year, according to its filing, and has a backlog of more than 500 genomes. In 2009, the company posted $623,000 in revenues and a net loss of $35.9 million.

- Horizon Pharma filed with the SEC to raise up to $86.3 million in an initial public offering. The company has a product on the market in Europe-Lodotra, a proprietary low-dose formulation of prednisone, for the treatment of rheumatoid arthritis. Horizon plans to submit it to U.S. regulators later this year.

- Aegerion Pharmaceuticals is focused on the development and commercialization of pharmaceuticals to treat cardiovascular and metabolic diseases

- Cutanea Life Sciences is a development stage specialty pharmaceutical company whose mission is to strategically in-license novel, mid-stage candidates to treat diseased and aging skin conditions.

- Endocyte is a biopharmaceutical company developing targeted therapies for the treatment of cancer and other serious diseases. It uses proprietary technology to create small molecule drug conjugates and companion imaging diagnostics. [Burrill & Company is an investor in Endocyte.]

- Pacific Biosciences has developed its single molecule, real-time (SMRT) technology, enables analysis of biomolecules with single molecule resolution. The technology has the potential to transform the understanding of biological systems by providing a window into these systems that has not previously been open for scientific study.

Year-to-date there have been ten biotech IPOs and their average market performance as of the end of August is down 31percent.




“Although all the biotech companies that have completed their IPO’s this year have performed poorly so far we believe there will be at least another five getting out before the end of the year,” noted Mr. Burill. “Investor interest will be fueled by two high profile genomics companies - Complete Genomics and Pacific Biosciences – and the traditional bullish trend for biotech in the fourth quarter.”

BY THE NUMBERS
(Compiled by The Burrill Report*)

- The industry closed the month with a collective market cap of $319.18 billion (down 7 percent for the month and 8.5 percent for the year)

- Top five biotech companies by market cap are: Amgen ($48.92B, share price down 6.9 percent for August, down 10 percent YTD), Gilead Sciences ($26.69B, share price down 5.2 percent for July, down 22 percent YTD), Celgene ($25.42B, up 9.1 percent for July, down 0.4 percent YTD), Genzyme ($18.45B, up 37.2 percent for July, up 42 percent YTD), and Biogen ($13.52B, up 18.5 percent for July, and up 4.9 percent YTD).

- 50 biotech companies (16 percent) have market caps greater than $1B (compared to 49 companies at the same time last year)

- 103 biotech companies (33 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 1.6 percent year-to-date.
(*The September edition of the monthly, subscription-based Burrill Report has a breakdown of the industry’s August 2010 performance.)




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 leading industry conferences worldwide and publisher of a range of bio-intelligence reports including the monthly Burrill Report (www.burrillreport.com) and annual “State of the Industry” report, the latest of which has just been released entitled Biotech 2010-Life Sciences: Adapting for Success

Contact: Peter Winter, Managing Director, Editorial, Burrill & Company & Editor, Burrill Report
pwinter@b-c.com
tel: 415-591-5474

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