Biotech Holds Its Own in October

The IPO window opens at last-but with mixed results

San Francisco, CA - November 03, 2003

Despite the news that the US GDP grew faster in Q3 03 than any other quarter in two decades—an annual rate of 7.2%—and that the Feds intend to maintain the lowest interest rate in 45 years for a "considerable period", business on Wall Street was less than stellar in October. The Burrill Biotech Select Index gained 4% during the month, lagging behind both the DJIA, up nearly 6%, and the NASDAQ, up 8% in October. "With October markets usually defined by Q3 earning releases, it's been a choppy month for the markets in general and biotech reflected that," noted G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank. "The markets are still concerned about the post-war Iraq situation, healthcare politics and economics, and whether current economic growth can be sustained," he added.

"But, biotech has had a very solid year thus far in the ten months year-to-date, raising more than $11 billion through secondaries, convertible debt, venture capital and other financings," said Burrill. "It's been biotech's second largest financing year ever, and we're only ten months into this year." "And in October, after five consecutive quarters without a single biotech IPO, Acusphere (ACUS), Advancis (AVNC), Myogen (MYOG), CancerVax (CNVX), and Genitope (GTOP) made their debut on NASDAQ raising $288 million, bringing the total financing to date to more than $11 billion and tentatively reopening the biotech IPO market." he said.

"The performance of the new public companies has been mixed in an uncertain biotech market environment," Burrill observed. Acusphere, which priced at $14 per share on October 7 ended the month at $9.60 per share, down 31%. Likewise, Advancis Pharma, which opened at $10 a share a few days later, dipped 9%, ending October at $9.07. Shares of CancerVax, which opened at $12 per share just before month end rose 7% to close the month at $12.87 a share. Myogen, opened at $14 per share on the same day and closed October at $16 per share, an increase of 14%. Genitope also began trading on October 30, opening at $9 and closing at $12.50, a gain of 39%. "Most of the offerings have come in at or below the range and in many cases with fewer numbers of shares than originally anticipated—both signs of 'softness'," said Burrill.

At the end of October, eleven biotech companies were lined up on the IPO runway. "We remain firm on our prediction that we'll see at least a dozen new entrants to the public market by the end of this quarter," Burrill noted. "In October, we saw three more companies join the IPO queue—Dynavax, which focuses on treatments for cancer, allergies, infectious and chronic inflammatory diseases; Renovis, which develops drugs to treat neurological disorders; and Xcyte, which is commercializing cell-based therapies for treatment of cancer and infectious diseases," he added. One biotech firm that was expected to complete its IPO in October didn't get it over the goal line, Aderis announced on October 22 that it would delay its IPO due to "adverse market conditions".

"These companies have good stories to tell. Genitope's leading drug candidate—MyVax Personalized Immunotherapy—is in Phase III clinical trials. If the drug ultimately gains approval and furthermore turns out to be a blockbuster, then investors who buy this stock now stand to win big time," said Burrill. "But there's a big risk associated with that potential."

"Myogen is currently marketing one product in Europe for the treatment of acute decompensated heart failure and is developing three product candidates for three distinct cardiovascular indications," noted Burrill. "CancerVax has been doing very interesting research in the cancer area and has a lead product candidate, CANVAXINT, in Phase III clinical trials for the treatment of advanced-stage melanoma. The FDA has granted both Orphan Drug and Fast Track designation for the vaccine—all very promising, but not a slam dunk."

Third quarter earnings reports for biotech firms were largely positive. Affymetrix (AFFX), Amgen (AMGN), Celgene (CELG), Invitrogen (IVGN), and Medimmune (MEDI) beat analyst expectations, with share values bolstered by increased sales and revenues. "Although some analysts speculate that the market is overvalued, we believe this industry still has considerable upside. At its peak in February 2000, biotech's market cap was $490 billion. At the end of October it was $327 billion, still off by 33%," noted Burrill. "The pharmaceutical industry is also way off. Expiring patents, pricing pressure, drug reimportation, and all the dialogue about Medicare prescription drug coverage have put a damper on pharma's growth in value," Burrill said.

There were also two biotech drug approvals of note in October. On October 17, the FDA approved Forest Lab's (FRX) Memantine (Namenda) for the treatment of moderate to severe Alzheimer's Disease, which afflicts an estimated 4.5 million Americans. The drug is the first of a new type of medicine for treating the disease. Researchers believe that the drug calms overstimulated nerve calls in the brain by blocking activity of the chemical, glutamate. Annual sales of the drug could reach up to $800 million. Shares of FRX remained flat, closing the month at $50 a share.

The FDA also approved Raptiva (Efalizumab) for chronic moderate-to-severe plaque psoriasis. Developed by Genentech (DNA) and Xoma (XOMA), Raptiva is the first biologic therapy for continuous control of psoriasis. It can be self-administered by patients as a single once-weekly, subcutaneous injection. Shares of Genentech closed the month up 2% and shares of Xoma were flat, closing at $7.49 a share.

The Burrill Large-Cap Index gained 4% in October, up 59% year to date. Shares of Icos (ICOS) soared 22% on new clinical data on Cialis, Icos' drug for erectile dysfunction. Affymetrix (AFFX) reported record product revenue and profit for Q3 03, sending shares of the company up 22% for the month. Shares of Chiron (CHIR) rose 5% driven in large measure by increased sales of PowderJect's popular flu vaccine even though the company posted a net loss in Q3 03. The company projected 20% earnings growth in 2004, in line with Wall Street's expectations. Shares of Amgen (AMGN) slipped 4% in October despite reporting a quarterly profit of on strong sales. The company reported that Q3 03 product sales rose 54% to $2.1 billion. Revenue rose 47% helped by sales of anemia drug Aranesp. "One of the reasons that investors are holding back on Amgen is due to their concern about efforts in Washington to put a lid on the rising costs of prescription drugs in general," said Burrill. "In addition, patents on Epogen and Aranesp are set to expire in 2004. These drugs generate half of Amgen's sales," he added.

The Burrill Mid-Cap Index slid a fraction of a percent in October but is up 34% for the year. Shares of Transkaryotic Therapies (TKTX) gained 25% in October as the company narrowed its Q3 03 loss from $20.9 million in Q3 02 to $13.6 million, beating Wall Street estimates. Sales of Replagal, its Fabry disease treatment, almost doubled in the third quarter to $16.7 million. The company also resolved two patent suits concerning Replagal in its favor. Kos Pharmaceuticals' (KOSP) shares rose 16% on news that the company earned $14.7 million in Q3 03 compared with a loss of $347,000 one year previous. The company reported better than expected sales of its cholesterol drugs, Niaspan and Advicor. Abgenix (ABGX) saw its shares slip 15% on news that it had ceded primary decision making authority over the development and commercialization of its experimental cancer drug ABX-EGF in return for a $60 million advance from Amgen to fund its share of development and commercialization costs. Abgenix also reported a larger Q3 03 loss as revenue fell sharply and startup costs at the company's antibody production facility rose streadily. The company did manage to secure a $100 million investment by AstraZeneca Plc at the end of the month which will take AstraZeneca into the field of antibody cancer therapies. The collaboration is for the joint discovery and development of therapeutic antibodies for up to 36 cancer targets to be commercialized exclusively worldwide by AstraZeneca. Shares of ImClone Systems (IMCL) dropped 11% in October (but up 221% year-to-date) despite the fact that the FDA accepted its application to market its anti-cancer drug Erbitux and will review expedite its review.

The Burrill Small-Cap Index also saw only a slight gain of less than 1% in October after rising so dramatically in September and the Index is up 59% year to date. Pharmos Corp. (PARS) saw its shares surge 54% after a Wall Street analyst said the company's lead traumatic brain injury drug, Dexanabinol, is the sole treatment in a $1 billion market. Dexanabinol is in Phase III trials and has been given fast track status by the FDA. Shares of Applied Molecular Evolution (AMEV) continued their meteoric rise, climbing another 45% in October as the company achieved two milestones. The company's Novasite Pharmaceuticals subsidiary was also awarded NIH grants totaling $500,000 to discover and optimize drugs targeting serotonin receptors. Shares of Hemispherix Biopharma (HEB) rose 22% as the company announced that it will stockpile various drug delivery formats for its two lead compounds for the treatment of viral and immune based chronic disorders. The company plans global clinical trials in the SARS arena. It also makes Ampligen, the only product currently in Phase III trials for the treatment of Chronic Fatigue Syndrome. News that Sunus Pharmaceuticals (SNUS) received fast track status from the FDA for Tocosol paclitazel, its drug for the treatment of some types of inoperable transitional cell carcinoma, sent its shares up 17%. On the down side, shares of Dov Pharmaceutical (DOVP) plunged 31% after the FDA halted the commencement of a Phase III trial for its anti-anxiety drug, Ocinaplon, until the company provides additional safety information.

The Burrill Genomics Index rose 9% during October and is up 39% for the year. "After the boom in financing in genomics in the 1999-2000 "window", Wall Street turned sour on technology as if these companies weren't going to have revenues, but these companies have continued to display that they can translate their technology into revenue and profits, frequently using a more integrated discovery/development model," commented Burrill. Shares of CuraGen (CRGN), for example, gained 21% for the month. The company reported a 12% decrease in net loss for the quarter to $17.5 million as compared to $19.9 million a year ago. The company has chosen four additional human monoclonal antibodies for development to add to their portfolio of novel protein drugs. Celera Genomics' (CRA) shares rose 14% with the announcement of research collaboration with Merck & Co. to identify and validate genetic markers useful in the development of prognostic tests and therapeutics for selected cancers. Affymetrix (AFFX), whose shares rose 22% in the month, signed a license agreement with Spectral Genomics to manufacture and sell spotted DNA arrays for use in the research market. They also granted Paradigm Genetics the right to access Affymetrix GeneChip technology for use in internal research programs. Finally, the National Human Genome Research Institute has awarded grants to selected academic researchers to apply GeneChip technology to the next phase of the Human Genome Project, known as the ENCODE Project (ENCyclopedia Of DNA Elements). Shares of Incyte Corp. (INCY) continued their rise to end the month up 14%.

The Burrill Diagnostic Index was up 4% in October and 27% year to date as many companies reported improved Q3 03 results. Quidel Corp. (QDEL) shares rocketed 36% on Q3 03 net earnings of $0.3 million compared with a net loss of $1.3 million in the year ago quarter. Earnings at Quest Diagnostics (DGX) exceeded Wall Street expectations rising to $120 million in Q3 03 as compared to $87 million in last year's quarter. Shares of the company went up 12% during the month. Finally, shares of Exact Sciences (EXAS) fell 21% during October even though it too reported slightly improved results for the quarter and reduced its loss from $0.40 to $0.36 per share.

The Burrill Agbio Index ended the month up 6% and up 13% year to date. Monsanto (MON), in an effort to stem increasing losses, closed its therapeutic pharming business to focus on large acre crops. Shares of Monsanto's stock rose only slightly, up 5% for the month. Large Scale Biology Corp. (LSBC), a leader in therapeutic pharming, saw its shares surge 38% as it reported improved results of a net loss of $4.3 million in Q3 03 compared to a net loss of $6.2 million in Q3 02. The company also announced that the Department of Defense would be funding a collaboration with the US Army Medical Research Institute of Infectious Diseases on gene improvements for biowarfare therapy. Large Scale Biology also entered into an agreement with Schering-Plough to evaluate the effectiveness of several vaccines designed to combat animal viral infections.

The Burrill Biomaterials/Bioprocesses Index rose 6% for the month and 19% year to date. Corning's (GLW) shares continued their steady climb ending the month up 17% as Corning posted its first quarterly profit since 2001. Shares of Dow Chemical (DOW) also ended the month up 16% as the company reported that Q3 03 earnings doubled from a year ago from $128 million to $332 million in Q3 03. Qiagen NV (QGENF) reported a 61% rise in Q3 profits sending its shares up 11%. Shares of Solutia Inc. (SOI) tumbled 33% on concerns that the company could default on its $1.25 billion in long term debt.

The Burrill Nutraceuticals Index had the largest gain in October rising 13% and up 85% for the year. "There is a renewed interest in wellness," noted Burrill. "Recently introduced legislation in the Senate aims to fight obesity through school grants to encourage people to exercise and eat well. Companies making and marketing 'healthy' foods are experiencing renewed interest as people move away from fast foods to functional and health inducing foods." Weider Nutrition International (WNI) is riding the crest of the wave with a 43% surge in the value of its shares in October. PacificHealth Laboratories (PHLI) saw its shares climb 40% on the announcement of the first clinical results of a new improved form of its patented appetite control technology, SATIETROL. USANA Health Sciences Inc. (USNA) also saw shares rise 36% as it reported Q3 net income of $6.06 million compared to $2.34 million in last year's quarter due to strong sales both domestically and overseas.

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

Index	12/31/02 Value	9/30/03 Value	10/31/03 Value	Percent Change For Month	Percent Change For Year
Burrill Biotech Select Index	159.52	241.99	251.82	4.07%	57.86%
Burrill LARGE-CAP Biotech Index	198.68	302.91	316.43	4.47%	59.27%
Burrill MID-CAP Biotech Index	121.39	162.85	162.27	-0.36%	33.68%
Burrill SMALL-CAP Biotech Index	84.58	133.81	134.74	0.70%	59.30%
Burrill Agbio Index	68.57	73.23	77.44	5.74%	12.93%
Burrill Genomics Index	84.54	108.04	117.73	8.98%	39.27%
Burrill Biomaterials/ Bioprocess Index	80.12	90.10	95.31	5.78%	18.95%
Burrill Diagnostic Index	65.31	79.66	82.73	3.85%	26.67%
Burrill Nutraceuticals Index	135.13	222.21	250.08	12.54%	85.06%
Burrill Life Science Composite Index	115.31	161.80	162.07	0.17%	40.55%

Index	12/31/02 Value	9/30/03 Value	10/31/03 Value	Percent Change For Month	Percent Change For Year
Burrill Biotech Select Index	159.52	241.99	251.82	4.07%	57.86%
NASDAQ	1335.51	1786.94	1932.21	8.13%	44.68%
DJIA	8341.63	9275.06	9801.12	5.67%	17.50%
Russell 2000	383.09	487.68	528.22	8.31%	37.88%

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.

For more information, please visit Burrill & Company's website at www.burrillandco.com

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