Biotech Heats up in July

San Francisco, CA - August 01, 2003

“The biotech industry had another strong showing in July, outperforming both the DJIA and the NASDAQ for the third month in a row,” noted G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank. “A number of companies reported better than anticipated earnings with sales of newly approved biotech drugs going strong,” he said. “Many of the companies that saw their share prices substantially rise during the first half of the year maintained their gains and are continuing to enjoy a more favourable investment environment,” added Burrill.

“The worst of the industry’s restructuring and reorganization is largely behind us,” said Burrill. “But the companies still have a challenging road ahead,” he noted. “Most need to raise more money to survive and we may yet see a few more casualties, but the likelihood is that many of the biotechs will continue to build value through clinical progress, partnerships, and licensing deals,” Burrill said.

“The Burrill Large-Cap Biotech Index outperformed both the DJIA and the NASDAQ in five of the last seven months,” said Burrill. At the end of 2001, the Burrill Large-Cap Biotech Index stood at 318. By the end of 2002 the Index had fallen over 100 points to 198, down 38%. Since the beginning of 2003, the Index has dramatically risen almost 60% to stand at 312, recovering all but 2% of its value since the close of 2001. “Biotech as a whole has recovered nicely,” noted Burrill. At the end of July, the biotech market capitalization stood at $332 billion, its highest point since the close of 2001 when the industry was capitalized at $382 billion.

But it wasn’t all good news in July. Biogen (BGEN) and partner Elan (ELN) received disappointing results for Antegren, a drug the two companies were co-developing to treat Crohn’s disease. Antegren fell short of its primary effectiveness goal in late-stage patient testing. The drug is perceived to be very important to the proposed $6 billion merger between Biogen and Idec Pharmaceuticals (IDPH) but Biogen’s chief financial officer, Peter Kellogg, denied that Antegren’s setback would affect the blending of the two companies. He also pointed out that late-stage studies of the drug as a potential treatment for multiple sclerosis are continuing and that the MS indication is considered to have the most significant potential. Shares of Elan fell 25% on the news and ended the month down 14%. Biogen’s shares fell nearly 4% when the news broke, as did the shares of IDEC. At month’s end, shares of Biogen were up just 1% for the month while shares of IDEC ended July down a fraction of a percent.

The Burrill Large-Cap Biotech Index experienced the largest gain of any of the indices in July rising 13% for the month and up 57% for the year. In late July, the FDA approved Amgen’s (AMGN) drug, Enbrel, as the first biotechnology drug to treat a type of spinal arthritis called ankylosing spondylitis which afflicts about 350,000 Americans. The drug, which was previously approved to treat rheumatoid arthritis in 1998 and psoriatic arthritis in 2003, showed that 58% of 277 patients treated with Enbrel injections had significant improvement on measures of pain, function and inflammation. Genentech’s (DNA) stock price also jumped in July, up 12%. Genentech posted a profit increase of 29% in Q2 03 over Q2 02 due in large measure to strong sales of its leading cancer drugs—Herceptin and Rituxan. Genentech’s stock value has more than doubled since the first of May when the company announced positive trial results for Avastin, its experimental cancer drug which is on track for FDA approval later this year. In addition, Genentech’s newest drug, Xolair, the first biotech product for the treatment of asthma, began sales in mid-July. Genzyme’s (GENZ) stock value rose 21% in July based on news that revenues had increased in the second quarter by 30% over a year ago. Genzyme is also on a roll with the recent FDA approval for Fabrazyme, a treatment for Fabry’s disease and Aldurazyme a treatment for MPS I—a disease that can cause organ dysfunction. Both drugs have been granted orphan status which means that Genzyme can market them exclusively for seven years. Investment ratings for the company’s subordinated debt also improved in July reflecting the company’s strong financial performance. Gilead Sciences (GILD) also had a good July. Shares of the company’s stock rose 23% in July after the company said that sales of its HIV treatment, Viread were strong. Gilead now expects second quarter revenues of $236-$239 million, compared to the Street’s median estimate of $179 million.

The Burrill Mid-Cap Biotech Index was up nearly 10% in July and up 29% for the year. Leading the pack was Abgenix, Inc. (ABGX) which saw its share price rise 23% in July. On July 16, the company announced the receipt of a milestone payment from Pfizer resulting from the filing of an IND by Pfizer to begin clinical trials with a second antibody licensed from Abgenix as part of an ongoing research alliance to generate fully human antibodies for various diseases. Exelixis, Inc (EXEL) also had a good month with shares up 20% for the month. Cell Genesys Inc.’s (CEGE) value rose by 31% driven in great measure by the announcement of a strategic global alliance with Novartis for oncolytic virus therapy products. Kos Pharmaceuticals’ (KOSP) shares rose 46% with Naispan—the company’s flagship product for treating cholesterol problems—receiving marketing approval in the U.K. On the negative side Elan Corp Plc (ELN) again experienced a significant drop in value—20%—when the company announced that their experimental drug, Antegren, produced disappointing results in a study on patients with Crohn’s disease. Share prices then picked up when the company was given a reprieve by its bondholders to file its 2002 U.S. accounts and avert a possible immediate run on the firm’s debts. Shares of Elan ended the month down 14%, closing at $4.85 per share, but still up an impressive 97% year-to-date.

The Burrill Small-Cap Index gained 5% for the month, up 35% for the year. Among the big winners was Discovery Partners International, Inc. (DPII), up 33% in part on the news of its strong second quarter results. an increase in revenue of 34%, and on the news of a significant multi-year strategic alliance with Bruker AXS to integrate systems for protein crystallization and X-ray crystallography to conduct structural proteomics. Kosan Biosciences (KOSN) also saw its shares rise 36% in July on the announcement of a 4.5x increase in year-to-date revenue over the prior year. The company also announced that it had achieved a major goal in the production of KOS-862, its cancer cell inhibitor which is being co-developed with Roche. Onyx Pharmaceuticals (ONXX) raised $71 million in a public offering of 5 million shares which drove the company’s value up 30% in July. Introgen Therapeutics, Inc (INGN) saw its shares rise 13% for the month on good news about its INGN 241 drug for cancer which provides multiple routes to cancer cell death. On the downside, shares of Cellergy Pharmaceuticals Inc. (CLGY) plunged 54% after the FDA rejected the company’s new-drug application for Fortigel, its leading drug candidate.

The Burrill Genomics Index rose only 3% for the month but is up 24% for the year. Investors seemed to like the news coming out of Caliper Technologies in July (CALP) with shares of Caliper rising 26%. The company announced the completion of its acquisition of Zymark Corporation, a leading provider of laboratory automation systems, and announced that Serono (SRA) had purchased the Caliper 250 drug discovery system to develop kinase assays. There was positive news from Affymetrix (AFFX) in July as well. The company reported a profitable second quarter—$5.2 million in net profit versus a loss of $1.6 million one year earlier. The value of the company’s shares jumped 22% on the news of stronger sales and lower expenses. The big loser in the group was Millennium Pharmaceuticals (MLNM) which dropped 20% in value on the announcement that the company’s loss for the full year would be larger than expected. Still, sales of its breakthrough cancer treatment, Velcade, are apparently off to a strong start.

The Burrill Diagnostics Index was up 2% for the month and up nearly 27% year-to-date. Exact Sciences (EXAS) turned in the best performance with a gain of 56% in value for the month with Thomas Weisel Partners bestowing its five-star rating on the company in July. IDEXX Laboratories (IDXX) also saw its shares rise by 21% due in part to higher second quarter earnings, boosted by sales of the company’s new hemotology system for analyzing animal blood. Shares of Orchid Biosciences (ORCH) jumped 26% in July in part on the deal the company struck with the Norwegian government to provide DNA testing services to confirm the identity of individuals immigrating to Norway. The contract follows Orchid’s 2002 three-year contract award from the UK government to provide DNA relationship testing services to the UKVisas department.

The Burrill Agbio Index rose 6% in July, up 11% year-to-date. Dow Chemical (DOW), with share value up 14% for the month, reported that its Q2 03 profit rose 65% on higher sales and cost-cutting measures, beating Wall Street expectations. Shares of Large Scale Biology Corporation (LSBC) gained 16% in July on improved financial results for the second quarter of 2003 which were due to restructuring, expense reductions and a commercial product focus. Fresh Del Monte Produce (FDP) reported a 22% rise in quarterly earnings sending its stock up 8% in July. Still, more than one third of the companies in the index experienced losses in share value during July.

The Burrill Nutraceuticals Index rose 4% in July, up 47% year-to-date. Shares of NBTY, Inc. (NBTY) rose 17% after the company reported that its third quarter sales had increased by 22% compared to the year previous. NATROL Inc.’s (NTOL) stock continued its upward climb with the price of shares gaining 50% in July. Martek Biosciences (MATK) also had a strong month with shares gaining 13% in value to close at $48.53 per share at the end of the month. Martek’s current popularity is due in part to the company’s intent to acquire FermPro Manufacturing which already produces Martek’s DHA. Adding to the excitement were the results of a study published in the July 2003 issue of Archives of Neurology which indicated that DHA consumption reduces the risk of Alzheimers’ disease by 60%.

The Burrill Biomaterials/Bioprocess Index was up 7% in July and 11% year-to-date. Shares of Invitrogen (IVGN) soared 35% during the month when the company announced that its second-quarter profit doubled on higher sales of its tool kits for genetic research and favourable foreign exchange rates. Although Rohm and Haas (ROH) posted a second quarter loss and announced more job cuts, mostly from European operations, stock value jumped 14% in July based on the company’s announcement that it expects full-year earnings of $1.20 to $1.30 per share compared to the 95 cent profit posted a year earlier. Reports of a drop in second quarter profits for the W.R. Grace Company (GRA) pulled that company’s value down by 29% in July. The company also is in the throws of Chapter 11 bankruptcy due to asbestos-related legal claims.

A review of the Burrill Life Sciences Indices for July 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 biomaterials/bioprocesses.

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The Burrill family of venture capital funds, with over $450 million under management, includes the Burrill Life Sciences Capital Fund, the Burrill Biotechnology Capital Fund, the Burrill Diagnostics Fund, the Burrill Agbio Capital Fund and its successor—the Burrill Agbio Capital Fund II, the Burrill Nutraceuticals Capital Fund, and the Burrill Biomaterials/Bioprocess Capital Fund.

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