January is Disappointing for Biotech Stocks

Biotech comes out ahead of NASDAQ and in line with the DOW in 2001

San Francisco, CA - February 01, 2002

After a strong recovery in the final quarter of 2001, biotech got off to a lackluster start in 2002 with the biggest product deal in biotech’s history getting off track (ImClone/Bristol-Myers Squibb) and several of the industry’s potential products failing to make the grade in late-stage testing. The Burrill Select Index fell 15% in January, significantly underperforming both the Dow and Nasdaq, each down 1%. "While late-stage failures happen in the drug development cycle, they can still pack a devastating punch to a company’s stock value," noted G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank.

Indeed, the ImClone debacle made headlines during much of the month. The company began its decline on December 28, 2001 when the FDA rejected the company’s application for approval of Erbitux, a monoclonal antibody to treat cancer. Earlier in 2001, Erbitux was at the center of a $2 billion product deal between Bristol-Myers Squibb and ImClone—hailed as the largest deal of its kind in biotech’s history. After the product failed to get its anticipated approval with the FDA, investors started to question the actions of ImClone’s CEO and COO—the brothers Waksal—who sold more than $150 million of stock on the heels of the deal. By month’s end, the status of Erbitux clinical trials was under serious review and the US Securities and Exchange Commission, the Justice Department, and the US House of Representatives had launched inquiries into ImClone’s business practices.

One event that held the industry’s attention during January was the 20th annual JPMorgan H&Q health care conference held in San Francisco mid-month. "The big story here was the conversion of many of the biotech firms that were founded on genomics and proteomics platforms, morphing into drug discovery and development companies in order to aggressively pursue revenue and profits," said Burrill. For example, J. Craig Venter, Celera’s illustrious CEO stepped down to make way for someone with more experience in drug development. A number of other "platform" biotechs have also shed their CEOs recently including: Cambridge Antibody Technology, Abgenix, Large Scale Biology and Incyte Genomics as they move further up the drug development ladder. "These companies realize that to contend in the highly competitive world of drug discovery and development, they will need to pull in some seasoned pros," explained Burrill. "We saw this last November when Incyte Genomics named Dr. Paul Friedman, a former Dupont Pharmaceuticals executive, to replace co-founder Roy Whitfield as CEO…and we’re going to see similar recruitment activity going on throughout the next year," he added.

The Burrill Select Index was down 15% for the month of January, following a 6% decline in December. Abgenix suffered the greatest fall, declining 29% for the month after the company announced its experimental antibody drug, ABX-IL8, had failed to show efficacy patients suffering rheumatoid arthritis.

The Burrill Genomics Index fell substantially, down 20%. Celera, Millennium, Incyte and Curagen were all off by more than 20%. As mentioned, investors are looking for revenues and profitability, pushing pure-play genomics companies to transition to drug development. Interestingly, each of the five listed companies have done just that. Only time will tell if investors are willing to reward with increased valuations for their efforts.

The Burrill Diagnostic Index lost 9%, due largely to Orchid Biosciences (down 27%) and Sequenom (down 36%). Sequenom suffered an analyst downgrade during the month after gaining 20% in the previous month. On a positive note, Orchid issued guidance on yet to be released 2001 figures and 2002 projections, beating current analyst estimates and targeting $65 million in revenue for 2002.

The Burrill Large-Cap Index lost 12% for the month, on the heels of a 7% loss in December. Genzyme Corporation lost 24% after warning 2001 earning would come it at the lower range of analyst estimates and 2002 projected profits would be lower than originally expected based on the higher marketing costs for drugs such as Renagel, which treats end-stage kidney disease. Not one of the 12 companies that compose the Burrill Large-Cap Index posted an appreciable gain in January.

The Burrill Mid-Cap Index fell significantly in January, down 15%. Dendreon, not a member of this particular index, in January announced Provenge, a therapeutic cancer vaccine, might not be effective, and Dendreon stock lost 39% of its value thereafter. The announcement negatively affected other companies advancing similar therapies, which include Corixa (down 27%) and Cell Genesys (down 27%), both members of the Burrill Mid-Cap Index. Besides the affect of Dendreon, Corixa fell as much as 28% on the day it announced regulators would not have time to review experimental cancer drug Bexxar in February, but may instead review the data in June.

Similar to the Large- and Mid-Cap Indices, the Burrill Small-Cap Index lost 15% during the month. Miravant Medical Technologies led decliners, down 87% percent for the month after reporting SnET2, a drug targeting macular degeneration, failed to perform significantly better then placebo in a Phase III trial. Miravant and Pharmacia Corp. had collaborated to develop SnET2. A number of companies posted significant declines in the absence of adverse news. Some of the largest decliners included Paradigm (down 46%), StemCells (down 13%), Biotransplant (down 20%) and Curis (down 31%).

The Burrill Nutraceuticals Index bucked the trend and posted a 5% gain in January. Martek gained 29% during the month, leading advancers, on announcement Bristol-Myers Squibb and Abbott Laboratories would use ingredients produced by the company in their infant formulas. Specifically, Martek's nutritional docosahexaenoic acid and arachidonic acid oils will be used in formulas marketed in the United States.

The Burrill Agbio Index lost 3% in January, brought down by the poor performance of EDEN Biosciences (down 46%). EDEN, developer of bio-engineered crop protection products, announced its main product Messenger accounted for no revenue in the Q4 2001. Sales in preceding Q3 were $644,000.

A review of the Burrill Life Sciences Indices for December 2001 is as follows:

Burrill Life Sciences Indices Definitions

The Burrill Life Sciences Composite Index is the average of all of the other Burrill Life Sciences indices, except for the Burrill Biotech Select Index and the Burrill Genomics Index.

The Burrill Biotech Select Index is a price-weighted index, representing some of biotech’s best (the biotech "blue chips"). This index tracks 20 companies and is similar to the Dow Jones Industrial Average, which tracks 30 "blue chip" U.S. stocks. The companies tracked through the Burrill Biotech Select Index have been selected on the basis of long-term growth potential—not necessarily on the highest market capitalizations (though many of the highest market cap companies are included in this index).

The Burrill Large-Cap Biotech Index tracks the performance of the top 12 biotech companies with market caps greater than $1 billion.

The Burrill Mid-Cap Biotech Index represents 20 mid-tier biotech companies with market caps between $300 million and $1 billion.

The Burrill Small-Cap Biotech Index is comprised of 75 small biotech companies with market caps less than $300 million.

The Burrill Genomics Index is comprised of 10 biotech companies with technologies spanning the field of genomics.

The Burrill Agbio Index tracks the performance of 15 agbio companies.

The Burrill Animal Health Index tracks 10 public animal health-focused companies.

The Burrill Biomaterials/Bioprocess Index tracks 20 companies, most of which are large chemical companies, that use biotech in their development and product base.

The Burrill Nutraceuticals Index tracks 20 companies in the nutraceuticals, supplements, and medical and functional foods arenas.

The Burrill Diagnostics Index tracks 15 companies whose technologies and products enable clinical and R&D diagnostics.

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 successorуthe 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.

Strategic Partnering
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.

BioStreet™
Burrill & Companyнs 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.

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