Biotech Recovers Slightly in March

The worst may be over, but the going is still rough

San Francisco, CA - April 02, 2002

Amid disappointing earnings reports and more bad news from the FDA, biotech nonetheless regained its footing in March ending the month in line with the DOW. The Burrill Select Index gained nearly 3%, as did the DOW. The NASDAQ rose by slightly more than 6% in step with the Burrill Composite Index, which rose by nearly 6%. "It looks like biotech has hit its bottom for the year and is, at last, in recovery," noted G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank.

"Wall Street is still skittish and the FDA is still unpredictable," explained Burrill, "but there is no shortage of momentum in the product development arena and as we move through the next few quarters, we're going to see more approvals," he said. "But, we're in the midst of earnings reporting season, and in the eyes of the investment community, that's when the rubber hits the road and we all get to see whether biotech is delivering on its promises," he added. "It's typical at this time of year to have some added volatility," he said. "But the biotech industry's fundamentals are still in place, despite all the skepticism aroused by Enron, ImClone, and Elan…there is reason for long term optimism."

There was mixed news on the product front. Corixa's (CRXA) "smart bomb" cancer drug, Bexxar, received a setback on March 13 when the FDA demanded further proof that the product is safe and effective in treating non-Hodgkins lymphoma. The company's share price plunged 36% and fell another percent to end the month down 37% at $6.17. Bad news for Corixa and the new class of "smart bomb" drugs that target cancer cells with their radioactive payloads leaving healthy cells untouched. Good news, though, for Idec Pharmaceuticals which received FDA approval for its Hodgkin's lymphoma drug, Zevalin, last month. On the day of the announcement, Idec's (IDPH) stock rose 4% to $69.31.

Organogenesis Inc. (ORG) which was granted 510(k) marketing clearance for its rotator cuff repair product by the FDA on March 26, finally saw a ripple of change in its lackluster stock performance of late, gaining 26% for the month and closing at $1.39. Organogenisis, the first company to have developed and gained approval for a mass-produced product containing living human cells, Apligraf, also recently restructured and realigned its resources to focus on two core areas-living skin substitutes and bioengineered surgical products.

Elan (ELN), pummeled by investors during February, also received good news from the FDA on March 21 when it was granted marketing approval for Elan's AVINZA capsules for the once-daily treatment of moderate-to-severe chronic pain. Although Elan licensed the U.S. and Canadian marketing rights to Ligand Pharmaceuticals Inc. (LGND) in 1998, the company has retained marketing rights for the rest of the world where regulatory filings are pending. Elan's stock, which was trading in the $40 range before the accounting woes, saw only modest gains ending the month at $13.91.

"It can be tough to get back on the good side of investors, even when the news is positive," commented Burrill. "And then there's ImClone (IMCL), where the news is all over the map," he said. "Just as things were looking up on the Erbitux trials front, the brothers Waksal were again called on the carpet by the SEC…and still the stock rose 81% to nearly $25 since its February 8 low of less than $14 per share," noted Burrill. "But that's still way off from ImClone's $75.45 high on December 6, 2001 and the Waksals still have some explaining to do."

One company that did exceptionally well in March was Cepheid, Inc. (CPHD) which saw its shares jump 59% during the month on the strength of its decision to develop anthrax-detecting systems for use on US Postal Service mail sorting. On March 11, Cepheid announced that it would be collaborating with defense contractor, Northrop Grumman (NOC) to adapt its DNA-based bio-threat detection technology for the new postal service systems. The companies plan to use polymerase chain reaction technology to analyze air samples taken from the sorting systems and then detect trace levels of DNA from biological agents, such as anthrax. According to Postal Service chief engineer, Tom Day, the agency expects to spend $200 million on this kind of technology.

"We're seeing the early manifestation of this nation's commitment to biosecurity," said Burrill. "The government is throwing some $37 billion into biodefense and we'll see not only established companies, but also a number of new start-ups addressing therapeutic, diagnostic, and bio-agent detection needs. We're in the midst of the most innovative time in our history and while the market might not reflect the strength of the biotech industry, it's there," he said.

The Burrill Select Index was up 3% for the month of March, following a 6% decline in February. In addition to Corixa's 37% drop in value, Invitrogen's (IVGN) stock price fell by 25% to $34.32, hitting a two-year low. After reporting 4th quarter earning results, the company issued a profit warning for the first quarter saying that its pro-forma earnings would fall four to six cents short of what it had predicted back in September. This, coupled with a rejection by a federal appeals court for an injection against Stratagene (STGN) gave rise to a flurry of downgrades for the biotech toolbox company. On the brighter side, Millennium (MLNM) (+19%), Affymetrix (AFFX) (+18%), and Onyx (ONXX) (+19) all showed solid recovery.

The Burrill Genomics Index was among the strongest performers for the month, gaining 9%. Gene Logic (GLGC), which saw share prices rise by 20% led the pack. The company announced a slew of new subscriptions for its GeneExpress(R) Suite of products and services. Among the takers were Daiichi Pharmaceuticals and Takeda (Japan), and Morphochem AG (Germany). Lynx Therapeutics (LYNX) was the big loser of the group with its stock price falling by 18 percent. On March 6, the company announced the sale of its amidate oligonucleotide patent estate to Geron for $2.5 million - a move that didn't go down well with investors.

The Burrill Diagnostic Index turned in the best performance in March gaining almost 11%. Cepheid with its 59% gain was the big winner, but Sequenom (SQNM), up 21% and Diagnostic Products (DP), up 26% had good runs as well. Sequenom announced its formal relationship with CuraGen for the purpose of rapidly determining the biological context of disease-associated genes through the application of population genetics and proteomics. In addition, Sequenom introduced its new ultra-high throughput genotyping systems, the MassARRAY(TM) 200K. Diagnostic Products was buoyed by its announcement of record fourth quarter sales of $75 million, an increase of 16% over $64.5 million a year ago.

The Burrill Large-Cap Index gained a modest 1% for the month, on the heels of a 2% slide in February and 12% deficit in January. Invitrogen's loss of 25% weighed down the index which otherwise saw strong gains from Millennium (+19) and Affymetrix (+18) and single digit gains for the majority of the rest of the companies within the index.

The Burrill Mid-Cap Index gained 9% in March but was off by 14% for the quarter. Offsetting Corixa's 37% loss was the 37% gain in share prices for Ligand (LGND) which has had a strong market performance since the 9/11 aftermath. On March 11, Ligand reported record financial results, with revenues up 59%. That, coupled with the recent approval of AVINZA, for which Ligand holds the U.S. and Canadian marketing rights, set the stage for a strong month and quarter. But the big winner in the category with a 45% gain in share prices was Scios (SCIO). Scios received strong endorsement for its flagship product, Natrecor(R) for the treatment of acutely decompensated congestive heart failure from the lead article and editorial published in the March 25 issue of the Journal of the American Medical Association (read potential blockbuster). In addition, Scios announced on March 11, the addition of a new drug candidate that could become the first oral inhibitor of transforming growth factor (TGF)-beta - a multifunctional cytokine that is produced in a broad range of diseases.

The Burrill Small-Cap Index gained 6% in March, having had losses of 3% in February and 3% in January. Collateral Technologies (CLTX) saw its share price jump by 131% based on the Schering acquisition. Other big gainers were SciClone (SCLN) (+89%), which received positive news on its Phase III Hepatitis B trial in Japan using Zadaxin as a monotherapy treatment for the diseases, Cepheid (+59%) and Ariad Pharmaceuticals (+41), which announced positive Q401 and total year results.

The Burrill Nutraceuticals Index posted a 10% gain for the month and a 6% gain for the quarter. Gum Tech International (GUMM), up 24%, reported a 49% growth in sales and an improved net income of $1.4 million over last year. In addition, its Zicam(R) Allergy Relief product has been found to reduce the duration of the common cold by an average of 75% when taken at the onset of symptoms. Other movers were Martek (MATK), up 17%, Nature's Bounty (NBTY), up 15%, and Nutraceuticals International Corp. (NUTR), up 15%.

The Burrill Agbio Index gained 3% in March, ending the quarter down by less than one percent. Only one company, Scotts Company (SMG) posted a loss (-3%). Shares of Bionova Holding Corporation (BVA) gained 38% during the month and shares of Eden Bioscience (EDEN), badly battered since 9/11, finally saw a gain of 30%.

A review of the Burrill Life Sciences Indices for March 2002 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.

Venture Capital
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.

Spin-outs/Spin-ins
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.