Biotech Has a Merry December

…and the Burrill Biotech Select Index ends the year up a whopping 66%

San Francisco, CA - January 02, 2004

“With the boxcar sized issues of 2003 largely behind us and the capital markets gaining momentum, the biotech industry finished the month and the year on a high note,” said G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank. The Burrill Biotech Select Index gained 5% in December, lagging behind the DJIA (up 7%), but outperforming the NASDAQ (up 2%). “The biotech industry has made a terrific recovery from where it was a year ago. The FDA approved more than 19 biotech drugs in 2003 and with the passage of the $400 billion Medicare Prescription Drug and Modernization Act signed into law on December 8, biotech has a new Medicare partner,” added Burrill. “In addition to gaining ground on Wall Street, the biotech industry also managed to raise an impressive $16.3 billion in financing making 2003 the second best year in biotech’s financing history,” he noted.

“There’s a lot to like about biotech right now,” Burrill said. “The FDA has been greatly improved under the leadership of Commissioner Mark McClellan. We’re seeing acceleration on the drug approval side of the equation while at the same time we’re also beginning to see the benefits of all this marvellous science and technology accelerating discovery and improving drug effectiveness,” he noted. “This is a very exciting time for the biotech industry which has enabled great strides in the fight against cancer, HIV/AIDS, as well as various chronic and infectious diseases. Biotechnology has given us better tools for diagnosis and analysis as well. Perhaps less visible but every bit as important is what biotechnology is doing for areas like agriculture, nutrition, industrial processes, new materials, and the environment,” he added.

“Despite the tremendous strides made in laboratories around the world, we’re still at the early stages of the journey,” said Burrill. “Near term value building will come from sales, earnings, and product approvals, but in the longer term—five to ten years—we’ll see all of this technology translating into dramatically more efficient discovery and leading us rapidly down the pathway to personalized medicine,” he said.

“Meanwhile, the industry is poised for continued success with several high visibility drugs such as Genentech’s Avastin for colon cancer on track for approval in 2004,” Burrill said. “What’s more, the only way for big pharma to plump up its pipelines is to partner with or acquire its more innovative biotech brethren. We’re quite likely to see more transactions like Pfizer’s acquisition of Esperion Therapeutics (ESPR) or Eli Lilly’s acquisition of Applied Molecular Evolution (AME) although partnering with biotech will be big pharma’s ‘behavior of choice’,” he noted. So while biotechnology won’t be acquired, it will be big pharma’s innovation partner,” said Burrill.

While the industry succeeded in launching seven successful IPOs in 2003, by the end of December there were 14 deals on file with three deals pulled. “We can expect the biotech IPO market to remain vital for some months to come, but this ‘window’ is still somewhat fragile and investors are being selective. Of the six companies that filed in December— Corgentech (CGTK), Peninsula Pharmaceuticals (PPRX), Idenix Pharmaceuticals (IDIX), Immunicon (IMMC), Memory Pharma (MEMY) and Santarus (SNTS) all have excellent product stories,” stated Burrill.

The Burrill Genomics Index, which lost ground in November, had a very robust December rising 13% to end the year up 57%. Shares of Nanogen (NGEN) soared 50% in the beginning of December after the company received a U.S. patent that it said ‘significantly’ broadens its intellectual property in nanotechnology. Shares continued to rise and ended the month up a whopping 173%. CuraGen’s (CRGN) shares rose 16% upon publication of a methodology using a bioinformatics and statistical framework to prioritize promising drug targets for drug development from the abundance of new targets that have emerged from genomics, proteomics, and genetics.

Millenium Pharmaceuticals' (MLNM) shares gained 18% in December as the company reported several milestone achievements. In the beginning of the month, the company announced that the FDA granted its investigational cancer therapy, MLN2704, fast track designation. The drug is currently being evaluated in Phase I/II clinical trials for prostrate cancer. The company also announced encouraging results for patients being treated with Velcade for multiple myeloma, non-Hodgkin's lymphoma, and, in combination with thalidomide, for the treatment of advanced stages multiple myeloma. Velcade is the first of a new class of drugs called proteasome inhibitors and is the first treatment in more than a decade to be approved for patients with multiple myeloma. In December, Millenium announced the initiation of Phase I clinical trials for MLN2222, its novel complement inhibitor, as a potential therapeutic option for patients undergoing heart bypass surgery. The trial is being conducted in collaboration with XOMA (XOMA). The two companies also announced the initiation of a Phase I clinical trial of MLN3897, the first compound from the company’s inflammation collaboration with Aventis Pharmaceuticals to enter clinical trials.

The Burrill Biotech Select Index registered a 5% gain in December and finished the year up 66%. Shares of Protein Design Laboratories (PDLI) shot up 27% in December after the company said it was settling its patent disputes with Genentech over antibodies related to three key drugs. The disputes were settled on December 22. Under the terms of the agreement, Genentech will exercise licenses for Xolair and Raptiva resulting in the payment of license exercise fees to Protein Design Labs in January 2004. Genentech also agreed to exercise a license for its Avastin antibody product, contingent on FDA approval. In exchange, Protein Design Labs said that it would accept certain royalty reductions. Protein Design Labs also announced a licensing agreement with Abbott Laboratories giving Abbott certain exclusive rights to intellectual property related to antibodies capable of binding Interleukin-12, or its receptor.

Shares of Transkaryotic Therapies (TKTX) climbed 20% in December based in part on the company’s announcement of a marketing and distribution agreement with Orphan Australia for Replagal™ , the company’s treatment for Fabry disease. Geron (GERN), down 17% in December, saw shares drop dramatically after Duke University’s Dr. Johanness Vieweg, the principal investigator of the company’s cancer vaccine, TVAX, reported data that was significantly less positive than had been previously reported by Geron’s CEO at a UBS conference in September.

The Burrill Large-Cap Index rose 5% in December and ended the year up 67%. Shares of Genentech climbed steadily ending the month up 11%. 2003 was a terrific year for Genentech which saw the value of its shares gain nearly 182% largely on the strength of multiple drug approvals including Xolair for asthma and Raptiva for psoriasis. The company expects to win FDA approval for its much heralded colon cancer therapy, Avastin, in early 2004. In addition, Genentech and Biogen Idec announced that a large Phase III study evaluating Rituxan (in combination with chemotherapy) as a front-line treatment for aggressive lymphoma had met its endpoint two years early.

Shares of Amgen (AMGN) rose 7% on news of positive results from a study designed to examine the efficacy of Aranesp® in treating cancer patients with anemia. The company also announced positive Phase III data for its investigational drug for the treatment of oral mucositis, called palifermin. Despite the fact that its newly approved drug for erectile dysfunction, Cialis, lasts nine times longer than Viagra, shares of Icos (ICOS) shrivelled up some 8% in December.

The Burrill Mid-Cap Index was up 6% in December and up 47% for the year. Elan Corporation's (ELN) shares climbed 26% in December as the company continued to sell assets to raise cash. On December 2, the company completed the sale of its four pain products and related assets to aaiPharma (AAII) for $102 million. On December 23 the company announced an agreement to sell its European sales and marketing business to Medeus UK Limited for $120 million. Elan is retaining its profitable drug delivery and acute care businesses in the U.S.

Shares of Cerus (CERS) Corporation recovered from its downhill slide in November and ended December up 33% for the month, although a class action lawsuit charging Cerus with violations of the Securities Exchange Act of 1934 commenced on December 8. The complaint alleges that the company inflated the price of its stock by issuing false and misleading statements. Zymogenetics' (ZGEN) shares continued their upward swing, rising 16% after reporting that clinical development is proceeding as planned for its four lead product candidates. The company also announced that it received agreement from the FDA to initiate clinical studies with recombinant human Thrombin for the control of bleeding associated with surgical procedures. Shares of Antigenics (AGEN) slid 8% in December despite the fact that the FDA lifted its partial clinical hold on two Phase III clinical trials of the company's personalized cancer vaccine, Oncophage®, at the end of November.

The Burrill Small-Cap Index rose 13% for the month with many companies seeing gains during the last week of the month. The index closed the year up 86%. Esperion Therapeutics (ESPR) led the charge in December as the stock price jumped 51% with the announcement of Pfizer's (PFE) intent to buy the company for $1.3 billion. Esperion made headlines in November when a study involving its drug ETC-216 showed that the powerful synthetic HDL rapidly reduced plaque. Pharmacia, which Pfizer bought last year, owned the patent on the discovery that was the basis for ETC-216, giving Pfizer the right of first negotiation.

Shares of Neurogen (NRGN) shot up 32% after the company announced that it had forged an exclusive worldwide alliance with Merck to research, develop and commercialize novel small molecule medicines that work by targeting the vanilloid receptor (VR1), a key integrator of pain signals in the nervous system. Upon regulatory clearance Merck pledges to pay a $15 million license fee to Neurogen and to buy $15 million of Neurogen common stock at the average market price per share for the 25 trading days preceding regulatory clearance. Neurogen also announced that progress in its research and development collaboration with Aventis triggered a milestone payment of $1 million. The companies are collaborating to develop new drugs which target corticotrophin releasing factor (CRF-1) for the treatment of depression, anxiety, and other stress-related disorders.

Shares of Virologic (VLGC) rose 32% with values spiking after the company presented data showing that its new hepatitis C virus (HCV) drug resistance assay could facilitate the development of therapeutics for the treatment of the disease. On the other end of the spectrum, AVI BioPharma's (AVII) shares dropped to $4.28 per share after the company announced that it had entered into definitive agreements with several institutional investors for the purchase of 3.2 million shares of its common stock at $4.62 per share in a direct equity placement for gross proceeds of $15 million. Shares of AVII ended the month down 17%.

The Burrill Agbio Index rose 4% in December and finished the year up 22%. Dow Chemical’s (DOW) shares were up 10% after announcing additional capacity to serve the Asian market. The company said it will continue to invest in regions such as Asia and the Middle East that will provide access to low-cost feedstocks. The performance of Fresh Del Monte Produce, down 11%, and Eden Biosciences, down 8%, dragged the index down.

The Burrill Biomaterials/Bioprocess Index gained 9% in December and ended the year up 34%. Shares of Hercules Inc (HPC) gained 21% after the company announced the acquisition of Quantum Hi-Tech Co, a leading producer of carboxymethylcellulose (CMC) products in China. Shares of Ferro Corporation (FOE) rose 20% in December. Shares of Corning (GLW) dropped 9% when the company announced two plant closures and a decision to take pretax charges of $70 to $80 million.

The Burrill Diagnostic Index gained 4% in December, ending the year up 38%. Trinity Biotech's share price doubled after the company received U.S. regulatory approval to market its HIV test in the United States. The test produces a result in ten minutes. Shares of ChromaVision Medical Systems soared 231% after U.S. regulators granted it permission to broaden sales and promotion efforts for its breast cancer test.

Shares of Cepheid (CPHD) were up 24% in December as the company was granted two patents, one covering the design of a sample preparation cartridge containing a microfluidic chip for extraction and purification of multiple DNA targets simultaneously, and another covering the design of disposable cartridge technology. Quidel Corporation's (QDEL) shares also rose in December, ending the month up 25%. Shares of Orchid BioSciences jumped 47%--a nineteen month high for the company—largely because of the mad cow scare earlier in the month. Orchid provides tests to determine susceptibility of sheep to scrapie, a brain-wasting disease similar to mad cow. Losers in the index included Sequenom (SQNM) which saw its share price decline 12% despite the news that the company had obtained an important technology patent in Europe and formed a $30 million partnership with Proctor & Gamble to develop drugs for osteoporosis.

After an outrageously successful run all year, the Burrill Nutraceuticals Index was flat in December, gaining less than 1% but this index outperformed the other indices with an impressive gain of 105% in 2003. The big winner for the month was Cyanotech (CYAN) with shares gaining 53%. The deepest losses were incurred by Nutraceutical International (NUTR), share price down 14%, and Natrol Inc. (NTOL), share price down 7%. On December 30 the FDA announced that it would ban the weight loss-aid ephedra, the first supplement ever to be banned. Although many companies had already removed ephedra from their weight-loss products the impending ban seems to have had a chilling effect on this segment of the industry.

A review of the Burrill Life Sciences Indices for December 2003 follows:

Burrill & Company
Burrill & Company is a life sciences merchant bank, focused exclusively on companies involved in biotechnology, pharmaceuticals, diagnostics, human healthcare and related medical technologies, wellness and nutraceuticals, agricultural technologies, and industrial biotechnology (biomaterials/bioprocesses).

Venture Capital
The Burrill family of venture capital funds, with over $485 million under management, includes the Burrill Life Sciences Capital Fund, the Burrill Biotechnology Capital Fund, the Burrill Agbio Capital Fund and its successor—the Burrill Agbio Capital Fund II, and the Burrill Nutraceuticals Capital Fund.

Strategic Partnering
Burrill & Company assists life science companies in identifying, negotiating and closing strategic partnerships between large and small companies providing access to resources, technologies or collaborations essential for executing their business plans.

Burrill & Company also works with major life science companies to spinout internal assets and capitalize on their value, ranging from the outright sale of products or businesses to creation of new companies to exploit these assets. Burrill uses its extensive network to help companies identify, assess and capture (“spin-in”) products and companies strategic to building their businesses.

Burrill & Company’s BioStreet™ is an internet-based life sciences transaction service which enhances dealmaking capabilities by offering a broad range of services designed to streamline and facilitate deals. BioStreet combines the efficient distribution power of the worldwide web with the scientific skills and strategic relationships necessary for concluding successful transactions.

We have completed more than 25 strategic partnerships with a value in excess of $1.5 billion.

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