Biotech Struggles Again in May

Investors are waiting out the doldrums

San Francisco, CA - June 03, 2002

Against a backdrop of continuing weakness in the capital market and yet more product disappointments, the biotech sector again failed to regain its footing during May. The Burrill Biotech Select Index ended the month down 3%, in line with the NASDAQ (down 3%) and trailing the DJIA (down less than 1%). "Many of the publicly traded biotech companies have seen their stocks drop by 50% or more since the start of the year," said G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank. "Although there was one brief bright moment for the sector this month when an FDA advisory panel voted to recommend Biogen's experimental treatment for psoriasis-Amevive-the enthusiasm was short-lived," he explained. "Investors will need more than just a trickle of positive product information to convince them that the upside is there…and immediate. Public market investors aren't convinced that they need to own these stocks now," commented Burrill. "Investors believe they can wait, still have nearly all the upside and own less of the downside risk," he said. "While the economy is showing signs of recovery, investors are still skeptical about biotech and while it is difficult to predict when when enthusiasm for the sector will return, we're predicting a good 4Q02."

As disappointing as the first five months of 2002 have been for biotech, the industry has been this way before. "Since 1980, biotech has had several bad cycles, only to rise again…we're in the fifth such cycle currently," explained Burrill. "Getting out of the doldrums may be a bit tricky, particularly for small cap companies that are of little interest to the large investment banking conglomerates. Wall Street has underappreciated the impact that bankers like Alex Brown, H&Q, Robertson Stephens, Montgomery Securities and others-now absorbed into bigger entities-had on supporting young entrepreneurial biotech companies," he noted. Indeed, during May, the Burrill Small-Cap Biotech Index took the biggest hit of all the indices, losing nearly 11% of its value compared to the Burrill Large-Cap Index which fell less than 1% in May.

Ironically, while the economy in general seems to be taking a turn for the better with the latest economic reports (released at the end of the month) indicating that both productivity and consumer spending are gaining momentum, the pharmaceutical industry-historically a sound bet-is also having major difficulties. The top 15 pharmaceutical companies have lost over a quarter of their value this year-$396 billion since the end of 2001. Bristol-Myers Squibb (BMY), for example, has seen 39% of its value evaporate. Indeed, Sam Waksal's recent departure from ImClone (IMCL) (announced May 23) and a relatively disappointing report card for Erbitux coming out of the annual meeting of the American Society for Clinical Oncology (ASCO) did little to restore investor confidence in either company. Only rumors of merger talks between Bristol-Myers and Glaxo (GSK) (according to an article that appeared in the New York Times at the end of the month) caused a spark of interest. "Big pharma's blues, which began with the gathering clouds of patent expirations, has been exacerbated by two things-lack of sustainable product pipelines and lack of leadership at the FDA," noted Burrill. "Although pharma and biotech have formed numerous collaborations to move pipelines forward, its clear that these relationships have not yet provided answers to all of pharma's woes."

"The biotech industry has pretty much hit bottom," said Burrill. "But with the fundamentals still in place, and with lots of great science, good clinical development and enhanced business platforms, a rebound should be inevitable. The question remains: what will it take…and when? Today, the market is reactive and volatile. You can see that in the behavior surrounding the news about Amevive," explained Burrill. Not only did Biogen's (BGEN) stock rise on the news, the entire sector rallied…albeit briefly…with the Amex Biotechnology Index (BTK) rising some 7% on the news. As more of biotech's drugs make it through the regulatory process and into the marketplace, investor interest will return…and in a big way," Burrill said.

The Burrill Biotech Select Index was off by 6% in May, compared to a 16% dip the previous month. Corixa (CRXA) posted the biggest gain, up 20% for the month. Corixa and partner GlaxoSmithKline Plc filed to appeal the FDA's request for new trials for their "smart bomb" drug, Bexxar. Other gainers in the segment were Human Genome Sciences (HGSI), which gained 10% and Gilead Sciences (GILD) which was up 15%. Gilead's shares lost 7% on May 28 on the strength (or weakness) of an offhand remark during a conference call which suggested that the company's new AIDS drug, Viread, was causing kidney failure in some patients. After the company clarified the remarks, Gilead's shares rebounded.

The Burrill Biotech Genomics Index, which has shed nearly half its value (-47%) since the beginning of the year, was down by 4% in May. Shares of Millennium (MLNM) fell 24% while Caliper's (CALP) shares lost 31% during the month…and for apparently no big reason. The only gainer in the segment, in fact, was HGSI with its gain of 10%.

The Burrill Diagnostic Index gave back its gains in April, ending May down 2%. Cepheid's (CEPH) spectacular gain of 44% during the month, was due in great measure to its announcement of a $3.7 million pilot program to evaluate the use of DNA-based bio-threat detection technology to protect against future biological hazards. Orchid (ORCH), however, lost 39% of its value in May after announcing a loss of 21 cents per share during Q1 02.

The Burrill Large-Cap Biotech Index experienced a loss of 4% during May, down 30% YTD. Only Biogen and Gilead posted significant gains while Millennium, Genzyme (GENZ), Icos (ICOS), Chiron (CHIR), and Amgen (AMGN) posted double-digit losses and were down by 24%, 22%, 13%, 11% and 10%, respectively.

The Burrill Mid-Cap Biotech Index lost more ground than any other index, sliding more than 12% during May and down 37% YTD. Corixa, Ligand Pharmaceuticals (LGND), and IDEXX Laboratories (IDXX), posted double-digit gains of 20%, 17%, and 11%, respectively. However, most of the other mid-cap companies experienced double-digit losses. The biggest loser, Neose Technologies (NTEC) saw its stocks plunge by $9.26 in a single day to close at $11.56 per share after the company announced that it had abandoned development of its heart attack drug, rPSGL-lg. Shares of Neose closed at $10.56 on May 31-at the low end of the company's 52-week range.

The Burrill Small-Cap Biotech Index lost nearly 12% during may (down 32% YTD). Aside from Cepheid's dramatic gain of 44%, most of the small-cap companies experienced double-digit losses with many companies in the segment off by more than one-third of their value since the start of the month. IntraBiotics' (IBPI) shares lost 68% due to the company's announcement of "disappointing" Phase III trial results for its lead product, iseganan. Large Scale Biology Corporation (LSBC) shed 51% of its value and is now trading at a dollar and change.

The Burrill Nutraceuticals Index was off by less than 1% in May with Natural Alternatives International (NAII) posting a gain of 53%, due in part to the company's receipt of approximately $2.4 million from the partial settlement of pending legislation. The other strong performers in May were Virbac (VBAC) and Nutra Pharma (NUTR), which gained 22% and 18%, respectively, due to healthy sales and strong shareholder return.

The Burrill Agbio Index gained more than 1% in May, mirroring its performance during the previous month. In addition to Large Scale Biology's loss of 51%, Eden (EDEN), Paradigm (PDGM), and Bionova Holdings (BVA) posted losses of 31%, 29%, and 33%, respectively. Seminis, which saw its stock rise by a whopping 114% during April, experienced a further rise of 29%.

A review of the Burrill Life Sciences Indices for May 2002 and YTD is as 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, agricultural technologies, nutraceuticals, and biomaterials/bioprocesses.

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The Burrill family of venture capital funds, with over $350 million under management, includes 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, the Burrill Biomaterials/Bioprocess Capital Fund and the Burrill Life Science Capital Fund, currently under development.

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Burrill & Company assists life science companies to identify, negotiate and close strategic partnerships providing access to resources, technologies or collaborations essential for executing their business plans. We have completed more than 20 strategic partnerships with a value in excess of $1 billion.

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Burrill & Company works with major life science companies to spin-out 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. We also use our extensive network to help companies identify, assess and capture ("spin-in") products and companies strategic to building their businesses.

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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