Biotech Stocks Rebound in October

Bioterrorism keeps the industry in the limelight

San Francisco, CA - November 01, 2001

Fears about bioterrorism rose dramatically during October as sophisticated forms of anthrax were discovered in letters sent to several members of the media and individuals within branches of the U.S. government. The incidents have sparked tremendous concern, not only regarding anthrax, but also the threat of other bioweapons being released onto the public. The current emphasis on prevention, detection, and potential treatment of illnesses caused by bioterrorist activities has kept the focus on the biotech sector steadily during the month and the overall effect on stocks has been positive.

"Biotech has more than held its own during a 'recovering' month for most of the market," noted G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank. "With consumer confidence worse than it has been in seven years and the economy receding at 1 % annual rate, many segments of the market took a beating, but biotech took center stage as part of the nation’s hope against biowarfare."

The Burrill Biotech Select Index gained 17 % for the month (down 28 % YTD) while the NASDAQ was up nearly 13 % for the month (down 31 % YTD) and the DOW gained just under 3% in October (off nearly 16 % YTD).

"The slight rally we saw early in the month was undermined by a growing sense of insecurity, both global and domestic," said Burrill. "Clearly, though, investors realize that biotech has an increasingly important role to play in today’s unsettled world." Indeed, Cepheid, which makes portable detectors of food and water contaminants, including anthrax and smallpox, has attracted a great deal of interest with stocks soaring nearly 300 % since the September 11 terrorist attacks and up 178 % for the month. Other firms have seen major gains as well. BioReliance, a company that makes a smallpox vaccine, has experienced 117 % increase in share prices since September 10, 2001. Nanogen’s shares rose 86 % during October. The company, which has received over $14.5 million in government funding and commitments to support its biowarfare and human identification efforts, has created and delivered to the U.S. government a prototype portable field-based detection device and is currently developing additional products, including assays, for detecting biowarfare agents and infectious diseases. "…But, there’s more to the rebound than bioterrorism," Burrill commented. "Many biotech stocks were trading at or near cash value at the start of the month, offering investors low cost of entry with a large potential upside since the industry’s fundamentals remain strong," he explained. "Then, too, a number of companies including Affymetrix (up 87%), Calypte Biomedical Corporation (up 60 %), Orchid Biosciences (up 83%), Matritech (up 91 %), and Ariad Pharmaceuticals (up 60 %), had news worthy of sparking major investor interest.

Affymetrix, with its stock up 87% for the month, announced a narrower third-quarter loss ($1.8 million, excluding special charges) than analysts expected and projected 2002 revenue growth of 25 % over an expected total of $190 million this year. In addition, Affymetrix is extending its genetic technology beyond health care into the area of nutraceuticals. Nestle S.A. is using Affymetrix’ gene chips to explore nutrition on a molecular level to develop healthier products.

Affymetrix also announced a co-development agreement with Millennium, whereby the two companies would create a new generation of GeneChip® technology designed to speed the drug development process. Millennium’s shares gained 43 % during the month.

Another huge gainer during October was Odwalla, the maker of Fresh Samantha juices. The world’s number one soft drink company, Coca-Cola, agreed to pay about $181 million—a premium of $50 million over its market cap of $131 million. Odwalla’s stock increased by 143% during the month. "This deal addresses the consumer’s desire for juice and soy-based beverages as an alternative to soft drinks," said Burrill. "The move enables Coca-Cola to migrate further into the health foods arena—a segment that is expected to prosper in our wellness-oriented future," he commented. "Nutraceuticals is once again an attractive place to invest."Fears about bioterrorism rose dramatically during October as sophisticated forms of anthrax were discovered in letters sent to several members of the media and individuals within branches of the U.S. government. The incidents have sparked tremendous concern, not only regarding anthrax, but also the threat of other bioweapons being released onto the public. The current emphasis on prevention, detection, and potential treatment of illnesses caused by bioterrorist activities has kept the focus on the biotech sector steadily during the month and the overall effect on stocks has been positive.

Another area that experienced growth was diagnostics.The Burrill Diagnostic Fund was up nearly 13% for the month (down 19% YTD), with some players doing exceptionally well. Cepheid, Orchid BioSciences, Inc., Myriad, Third Wave Technologies, Inc., Digene Corporation, Quidel Corporation, and Bio-Rad Labs all posted significant double-digit gains. "Calypte has posted third quarter revenues that are 75% higher than the same period last year," explained Burrill. "The sale of the company’s HIV-1 Western Blot serum assay more than doubled and with blood donations across the country reaching record levels, that demand can only increase."

The Burrill Genomics Index grew by almost 30% during the month (down 43% YTD). In addition to stellar performances by Affymetrix, Nanogen, and Millennium, Human Genome Sciences’ stock gained 38% despite a widening third-quarter loss and Caliper Technologies’ stock climbed 27%, after the company posted third-quarter revenues of $6.6 million, compared to $5.5 million a year ago.

The Burrill Large-Cap Index gained 14% (down 18% YTD). Genentech, beating Wall Street’s earning estimates by a penny, saw a 19% increase during the month. Sales of the company’s anti-cancer drug, Rituxan®, which Genentech developed with IDEC Pharmaceuticals, were $212.8 million—a 13% increase over second quarter sales. Genentech also announced increased sales of Herceptin® and Pulmozyme®.

The Burrill Mid-Cap Index was up 19% for the month (down 26% YTD). The majority of the companies posted healthy double-digit growth. In addition to Orchid, EntreMed (up 35%), Ligand Pharmaceuticals (up 47%) and Transkaryotic Therapies (up 40%) all turned in strong performances.

The Burrill Small-Cap Index gained nearly 15% during October (down 14% YTD). Matritech, Inc. experienced a 90% gain on news that a prostate cancer market identified by the company’s scientists detected prostate cancer with greater sensitivity than the prostate specific antigen (PSA) test. Shares of Ariad Pharmaceuticals gained 60% during the month, based largely on the company’s announcement of the discovery of experimental compounds that could potentially be used to fight cancer. Boston Life Sciences also posted gains of 67%.

The Burrill Nutraceuticals Index, bolstered in large measure by the Coca-Cola/Odwalla deal, gained 8%. Cyanotech, the world leader in producing microalgae products posted a 54% increase for the month. While sales were lower, during the first six months of the fiscal year, the company saw sales of its packaged consumer products increase by more than 60%. Integrated Health Technologies (up 21% for the month) has had a healthy upswing in sales. During the fourth quarter, sales increased by 90% for the same period a year ago, signaling what the company believes is the trend for the future.

The Burrill Agbio Index gained only 3% (down 20% year to date). Bionova Holding Corporation (down 56%) and EDEN Bioscience Corporation (down 38%) were the biggest losers.

A review of the Burrill Life Sciences Indices for October 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 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.

If you would like additional information about Burrill & Company, please feel free to contact us:

Burrill & Company
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Suite 2700
San Francisco, CA 94111
Main Phone: 415-591-5400
Fax: 415-591-5401
E-mail: burrill@b-c.com