Biotechs Rebound Continues in November

Despite a soft economy, biotech is gaining ground

San Francisco, CA - December 03, 2001

Despite nationwide downsizing, revenue and earnings shortfalls, budget deficits, and other woes about the economy in general, biotech stocks performed well throughout the month of November across all sectors. "November has been another good month for the biotech industry, bolstered by momentum in new products and technologies as well as renewed interest in biotech by the investment community," noted G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank.

"Even though we are in a recession and the general economic malaise is likely to continue through year end, ‘healthcare’ continues to perform well on Wall Street... and venture capitalists and other financial institutions are not paid to sit on their cash," Burrill explained. "So investment is returning to the sector... and biotech stocks are performing well."

"Two medical technology IPOs have been completed since 9/11 plus very successful secondaries, and the near-term looks brighter for financing," Burrill added. Given Imaging (GIVN), a company with a unique technology for scanning the intestines with a tiny wireless device, has seen its stock go from the offering price of $12 on October 4, 2001 to $14.56 at the end of November, up 23%. Another recent IPO, biomedical kit company TheraSense (THER), has fared similarly. Offered at $19 a share on October 12, 2001, the stock closed at $23.20 at November’s end, up 22%. Icos (ICOS) completed a very successful $300+ million secondary at $57.00 per share on November 8, and, at month end, the stock was subsequently up 6%. "This kind of action breeds investor interest and we are likely to see as many as a dozen IPOs in the sector in the next twelve months," Burrill said.

The Burrill Biotech Select Index gained 12% for the month (down 19% YTD), outperforming the DOW which rose 9% (down nearly 9% YTD). The NASDAQ rose by nearly 14% at month’s end (down 22% YTD). "Wall Street seems to have cooled slightly on the darlings of the new ‘biodefense’ industry, particularly Cepheid (CPHD) and Nanogen (NGEN)," Burrill pointed out. Cepheid’s stock was up 178% for the month of October, with shares trading at $6.45 at the month’s end. By the end of November, shares had dropped by 36% to $4.10 (still up 168% from its pre-September 11 close). Similarly, Nanogen’s share price, which had risen 86% during October, fell by 30% during November to $6.32 (but also up 33% from its pre-September 11 close). "But this newly minted industry is no flash in the pan," he emphasized. "A number of companies are swiftly adapting their platform and human therapeutics technologies to address the urgent and growing needs of our battle against terrorism."

In early November, BIO President Carl Feldbaum delivered the results of BIO’s survey on national security applications of biotech research to federal officials at the Departments of Defense, Health and Human Services, the office of Vice President Dick Cheney and to Josh Bolton, White House Deputy Chief of Staff for Policy. The survey, which was distributed shortly after the September 11 attacks, elicited more than 400 responses from member companies. "Remarkable work is already underway in attenuated vaccine technology, edible vaccine technology, and monoclonal antibody-based diagnostic technology. Researchers at The Institute for Genomic Research just announced that they have sequenced the anthrax genome...and the biotech industry is just beginning its search for answers to bioterrorism," commented Burrill.

Stem cell company stocks were buoyed, at least temporarily, by the stunning announcement on November 24 of the successful cloning of a human embryo by researchers at Advanced Cell Technologies. In afternoon trading on Monday, November 26, Geron’s (GERN) stock rose 8% and shares of StemCells Inc. (STEM) and Aastrom (ASTM) both rose 9%. By month end, these stocks had moved -13%, +4%, and +6%, respectively.

Two days later, shares of Nexell Therapeutics (NEXL) shot up more than 200% on the news that the company had received orphan drug status for its experimental treatment for the blood disorder, chronic granulomatous disease. The FDA’s designation translates to seven years of market exclusivity for the therapeutic, if it is approved. "This therapy is based on stem cell technology," explained Burrill. "The agency’s decision underscores the importance of sustaining strong R&D in the stem cell arena."

The Burrill Genomics Index grew by almost 14% for the month of November (down 35% YTD) during the month. Both Incyte (INCY) and Celera (CRA) saw positive gains of 28% and 22%, respectively. As the two morph into drug discovery companies, they are gaining value in Wall Street’s eyes. Millennium (MLNM) shares rose steadily and gained 34%, due largely to two deals, both announced November 26. One is a collaboration with Xoma (XOMA) to have the latter develop two of Millennium’s biotherapeutic agents for cardiovascular inflammation indications. Under the agreement, Xoma is to develop the products through Phase II, at which point Millennium has the right to commercialize the products. The second, with Targeted Diagnostics and Therapeutics Inc., grants Millennium the intellectual property surrounding guanylyl cylase C, a protein uniquely expressed on the cell surface of colorectal tumors.

The Burrill Large-Cap Index was up 8% for the month (down 12% YTD) in November. Amgen (AMGN), still the nation’s number one biotech company, gained 17% during the month, based on investor excitement about Amgen’s growth prospects, especially around Aranesp (TM), its next generation product that provides anemia therapy for patients on dialysis, and Kineret (TM) the company’s new treatment option for patients suffering from rheumatoid arthritis. Affymetrix (AFFY) maintained its upward climb garnering another 21% gain, due in great measure to the industry’s rapid acceptance of the company’s chip technology.

The Burrill Mid-Cap Index rose 16% (down 14% YTD) during the month. CV Therapeutics, Inc. (CVTX) posted the most dramatic increase, rising 40%. The company’s stock has surged since it’s November 14 announcement regarding positive late-stage patient testing for its angina treatment, ranolazine—a product that could generate as much as $640 million annually, according to industry estimates. Gene Logic, Inc. (GLGC) also experienced significant gains, posting a 37% increase at month’s end. With reports of narrowing losses in 2002 and a track record of meeting or exceeding analysts’ expectations during the last five quarters, Gene Logic is on a roll.

The Burrill Small-Cap Index increased just 5% in November (down 10% YTD). Pharsight Corporation (PHST), a provider of solutions for drug development and commercialization, experienced an 119% gain for the month. This was due in large measure to the company’s recent announcement to reduce expenses by $5 million and reduce the workforce by 15%—moves the company believes will help it achieve profitability by Q2 ‘02. Another company on the rise is Telik, Inc. (TELK), the small molecule drug discovery company which gained 60% during the month. One key reason for the company’s current rise is that it owns both of its most advanced drug candidates and is handling its own clinical trials.

The Burrill Nutraceuticals Index gained 10% during the month (up 16% YTD) with the majority of the companies posting gains. Integrated Health Technologies (IHTC) had the highest increase— 47% at month’s end. The company—a grouping of companies serving the nutraceuticals industry—has been on a slide since the beginning of the year, but stocks have perked up since the company’s Q1 ‘02 results were reported mid-month. Revenues increased a whopping 109% from the same period a year ago.

The Burrill Agbio Index gained nearly 8% in November, compared to its 3% increase the prior month (down 14% YTD). Although there was a great deal of excitement over Advanced Cell Technology’s successful cloning of 24 cows—all of them perfect, according to researchers who have put them through exhaustive testing—only a handful of companies in the agbio sector posted gains in the mid teens and only one company, Large Scale Biology (LSBC), garnered a significant increase. At month’s end, the company’s shares were up by 24%. The company has had a lackluster performance until quite recently when Large Scale Biology announced that the US PTO had awarded it nine strategically important patents to assist in their quest for gene functions and traits for the agricultural chemical and seed markets.

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

Burrill & Company

Burrill & Company is a San Francisco-based life sciences merchant bank. Burrill & Company’s core business is venture capital investing across the entire spectrum of life sciences including human healthcare biotechnology, agricultural biotechnology, nutraceuticals, human healthcare diagnostics, biomaterials and bioprocesses. Supportive activities include strategic partnering for life science companies, sponsorship of industry conferences and publication of industry reports, and maintenance of an online marketplace for biopharmaceutical deal making.

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