Another Good Month for Biotech in December

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

San Francisco, CA - January 02, 2002

December was full of big news for biotech—the two largest biotech/biotech mergers in the industry’s history, the reopening of the IPO window after two dry quarters, and clear indications that the newly minted biodefense industry is here to stay. Biotech stayed the course, maintaining most of the ground it gained during the previous two months. "Since its post 9/11 lows, biotech has made a strong and steady recovery," noted G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank. "With another good showing in December, the industry’s overall stock performance for the year was in line with the DOW and far better than the NASDAQ," he explained.

"Biotech, entering 2001 cash-rich, has accomplished a great deal and is on much stronger footing than many had anticipated," said Burrill. "Increased visibility for the industry, brought about in great measure by the public’s heightened concern over bioterrorism, is one reason for the continued momentum," Burrill continued. "But there’s more to it than the birth of a new subindustry...biotech has its fundamentals in place and its assets at work," he explained. "The year ahead is ripe with potential for new companies, new products, and more technological breakthroughs...and investor enthusiasm is growing."

The Burrill Biotech Composite Index was down nearly 2% for the month (down 8% YTD), while the NASDAQ and DOW both gained 1% for the month (down 20% and 7%, respectively YTD). "The year 2000 was spectacular for biotech...and a very hard act to follow in the grim economic environment that persisted during 2001," remarked Burrill. "That the industry ended the year within reach of where it began is a testimony to biotech’s endurance and increasing productivity," noted Burrill. "But biotech’s performance for the quarter, reflected by the 4Q01 20% gain for the Biotech Composite Index, tells a story of revitalization...and we expect that to continue with biotech gaining an estimated 25% in 2002, NASDAQ rising as much as 20%, and the DOW advancing about 15%, " noted Burrill. Indeed, the general economy rebounded slightly during the month, with the Conference Board reporting that the U.S. index of leading economic indicators rose 0.5% in November (compared to a 0.1% gain in October) making it the largest rise since a 0.6% increase in May.

A sudden surge in M&A activity in the beginning of the month reached a crescendo on December 18 with Amgen’s (AMGN) announcement of its acquisition of Immunex (IMNX) for $16 billion, the largest biotech/biotech merger in the industry's history. The deal gives Amgen Enbrel, Immunex' drug for rheumatoid arthritis with current sales of $750 million and projected sales of $1 billion in 2002. On December 6, Millennium Pharmaceuticals (MLNM) made public its intent to acquire Cor Therapeutics (CORR) for $2 billion and on December 3, Medimmune (MEDI) announced its plan to purchase Aviron (AVIR) in a $1.3 billion stock transaction while Cephalon (CEPH) announced its $450 million purchase of the privately held French company, Group Lafon (a deal that closed on December 28, 2001). "The words, "industry consolidation" were on just about everyone's lips," said Burrill. "This isn't the first time that a flurry of M&A activity has gotten that response, but it's important to remember that each deal happens for a specific reason and even a spate of mergers doesn't signal wholesale consolidation," he explained. "We'll see more M&A activity in 2002 and another marquee transaction or two is likely with 50 lesser deals in short, the same pattern we've seen over the past several years. "Still," continued Burrill, "the mergers signify an attempt by big biotech and pharma companies to strengthen product portfolios and pipelines—a strategy that these companies are counting on to deliver much needed profits."

Wall Street’s response to the mergers was up and down. On the day the Amgen/Immunex deal was announced (December 18), Amgenнs stock immediately dropped 7% to $56.03 and ended the year at $58.44, down 15% from November 30. Shares of Immunex also dropped 5% on the news to $25.62, but the stock recuperated by year-end trading at $27.71, a 3% gain over the previous month. Millennium’s shares also took a bath on the announcement of its acquisition of Cor Therapeutics, losing $5.89 or 17%. By year-end, shares closed at $24.51, down 28% from November 30, 2001. Cor’s shares skyrocketed, gaining $8.46 or 43% in heavy trading on the day of the announcement. Since then, activity has died off and Cor shares closed at $28.93, up 14% from its close on November 30.

Shares of Aviron stock also shot up $4.37 or 12% to $41.42 on the day of the announcement and maintained investor interest gaining another 22% by year-end and closing at $49.73. Medimmune did not share Wall Street’s enthusiasm, losing $5.27 per share or 12% on the news. By December 31, 2001, the company’s shares had rebounded to $46.35, a 5 % increase over its November 30 close. Cephalon experienced a drop in share prices on its announcement to purchase Group Lafon, with shares falling $2.71 on the day the news broke. But by year-end, Wall Street had warmed to the idea and Cephalon closed at $75.59, a 4% gain over the previous month.

December also saw the reopening of the IPO window with the announcements of IPOs for Bruker AXS (BAXS) on December 13 and Northwest Biotherapeutics, Inc. (NWBT) on December 14. Shares of Bruker AXS were sold for $6.50 and by month-end, shares had inched up by 4 cents, closing at $6.54. Shares of Northwest Biotherapeutics remained the same, closing on December 31 at the $5.00 opening price. "We are seeing the beginning of a renewed appetite for IPOs," stated Burrill. "The venture capital community has billions of dollars earmarked for biotech in 2002 and biotech, which garnered $12.9 billion in financing in 2001—the second biggest year for financing in biotech’s 30-year history—is hot...we’re predicting as many as 30 IPOs in the next 12 months," he concluded.

Although there were no major new product announcements nor recalls, both Pharmacyclics Inc. (PCYC) and Human Genome Sciences (HGSI) received disappointing clinical trial results that sent share prices tumbling. On December 13, Pharmacyclics released the news that its lead cancer drug, Xycytrin, failed to prove effective in the treatment of brain metastases and its stock plunged from $21.70 a share to $10.20 within hours and ended the month at $9.84, down a whopping 61% from its November 30 closing price of $25.52. Human Genome Sciences’ stock fell 8.5% to $36.60 on December 7 when the company announced disappointing results for its experimental wound-healing drug, repifermin. Shares for Human Genome Sciences closed at $33.72, down 21% from the end of the previous month.

And while the incredible enthusiasm for biodefense stocks eased this month, companies such as Cepheid (CPHD), closing at $4.20 was up 2% since November 30, but down 48% from its mid-October peak of $8.00. Nanogen (NGEN), closing the year at $5.77 was off 9% from the previous month and down 32% from its mid-October high of $8.50. "We’re seeing some corrections in valuations right now, but the biodefense industry has only just emerged and we'll be seeing plenty of activity as the government doles out contracts in 2002," said Burrill. "It's not just the government funding that will stimulate the sector...we’ll see a spillover into human health that will boost the diagnostics segment in particular," he noted.

The Burrill Select Index was down 6% for the month of December and up 24% for the quarter, ending 2001 down by 24%. Several companies within the sector, most notably Millennium (down 25%), Human Genome Sciences (down 21%), Amgen (down 15%) and Geron (GERN) (down 14%) suffered double-digit losses, bringing down the aggregate during December.

The Burrill Diagnostic Index was up 3% for the month and 19% for the quarter, ending the year down by 15%. Orchid BioSciences (ORCH), up 33% from its November 30 close, ended the year at $5.50 per share. The company’s performance was due in great measure to its announcement on December 14 that its 4Q01 revenues would come in at $10 million—some 30% above previous forecasts. SEQUENOM (SQNM) also had a good run, gaining 20% over the previous month. Investor interest was rekindled when, on December 19, the company announced that its scientists, in partnership with non-profit Human BioMolecular Research Institute, had discovered important new information about the mechanism of population differences in the susceptibility to abnormal metabolism or adverse drug reactions for chemicals metabolized by the flavin-containing monoxygenase, called FMOs.

The Burrill Genomics Index lost 7% for the month of December, however its 4Q01 gains were significant at nearly 38%, off almost 40% YTD. There were only two significant gainers during the month—Lynx (LYNX), up 24% over November and Caliper Technologies (CALP), which gained 30%. Earlier in the quarter, Lynx reported revenues of $5.8 million for 3Q01уa 68% increase over third quarter 2000 revenues of $3.4 million. Caliper also reported good 3Q01 results (for the quarter ended September 30, 2001, total revenues were $6.6 million as compared to $5.5 million in the same period in 2000, representing a 21% increase) and the company has seen its stock climb slowly and steadily from its nadir of $8.40 in the wake of 9/11.

The Burrill Large-Cap Index lost 7% for the month and gained 15% for the quarter, ending 2001 down by 18%. The only company posting a significant gain was Genzyme Corporation (GENZ), which gained 10% during the month and ended the year at $59.88 and was just added to the S&P 500 on December 13.

The Burrill Mid-Cap Index also slipped during December (down 5%), but was up by 32% for the quarter, ending the year down by 18%. In addition to the gains posted by Orchid and Lynx, Ligand Pharmaceuticals’(LGND) shares gained 8% during December.

The Burrill Small-Cap Index gained nearly 3% for the month and 25% for the quarter, ending 2001 down 7%. Many of the companies within the index experienced high double-digit gains for the month including Compugen (CGEN) (up 49%) and Versicor Inc. (VERS) up 36%. Compugen announced on December 26 that it would begin trading on the Tel Aviv Stock Exchange on January 7, 2002, and Versicor reported on December 17 that its Phase I trial results for the use of Dalbavancin as a once-weekly injectable antibiotic were favorable.

The Burrill Nutraceuticals Index gained 6% for the month, 26% for the quarter and 22% for the year. The big gainers were Nutraceutical International Corporation (NUTR) (up 40%) and Cyanotech (CYAN) (up 54%) which recently announced that it would be expanding its astaxanthin production capacity by approximately 60% as a result of current and projected future demand for its NatuRoseЖ and BioAstinЖ natural astaxanthin products.

The Burrill Agbio Index remained at nearly the same levels in December as in November (down 0.3%), but gained 12% for the quarter ending the year down by 14%. Leading the segment were EDEN Bioscience Corporation (EDEN) and Paradigm Genetics (PDGM). On December 4, Paradigm and Celera (CRA) announced a strategic alliance in agriculture-genomics. Under the terms of the arrangement, Paradigm will acquire Celera's AgGen plant genomics and genotyping business and become the exclusive marketing partner to provide Celera services to the plant-based agriculture industries. Paradigm's new business unit will be named ParaGen.

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

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.

TheBurrill 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.

TheBurrill 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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