Biotech Stocks Take a Hit in September

After the free-fall, biotech stocks are still struggling

San Francisco, CA - October 01, 2001

Considering the magnitude of the September 11, 2001 terrorist attacks and the subsequent general stock market volatility, it is hardly surprising that the biotech sector also had a tough month. Despite the efforts made by the Federal Reserve, which lopped a half-point off its short-term interest rates just an hour before the markets’ re-opening, the DOW fell by 14 percent and NASDAQ lost 17 percent of its value in the post-attack trading before rebounding slightly to a loss of 11 and 17 percent, respectively, by month-end. "Prior to the attack, biotech consistently outperformed the DOW and NASDAQ," noted G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank, "...and that trend of biotech outperforming NASDAQ held in the post-attack world. But, with Wall Street’s flight to quality and high liquidity stocks, the DOW slightly outperformed biotech in the latter period of the month."

The Burrill Life Sciences Composite Index fell 12 percent for the month (off 19 percent for the quarter and down almost 24 percent YTD) while the NASDAQ was down by almost 17 percent for the month (off 30 percent for the quarter and down 39 percent YTD) and the DOW lost 11 percent in September (off nearly 16 percent for the quarter and down just under 18 percent YTD).

"Everyone wants to know if we’ve hit bottom yet," commented Burrill. "While volatility still characterizes the market, much of the economic dislocation that is happening is now factored into the market and biotech’s fundamentals remain in place. The industry’s report card has never been better," added Burrill, "but we are in tough economic times and, as a nation, we have received a stunning emotional and financial blow."

Indeed, the market cap for the industry came in at $305 billion at the end of September (the lowest it has been since April 2000), compared to a market cap of $447 billion one year earlier (down 32 percent), with many companies trading at or near cash value. "This is particularly true for ‘toolbox’ companies where the market’s perception of the technology value has diminished," explained Burrill. On the other end of the spectrum are the biotech companies involved in drug discovery. "As we’ve seen with the recent deal between Bristol-Myers Squibb and ImClone, potential blockbusters like ImClone’s IMC-C225 for the treatment of colon, head, and neck cancers are highly coveted by the pipeline-poor pharmaceutical companies," he explained. "More deals of this nature are likely to be forthcoming and that’s good news for the growing number of biotech companies that have promising compounds in late stage clinical trials."

Although hugely mitigated by the September 11 catastrophe, there was other good news for biotech during the month. The FDA approved the sale of Amgen’s Aranesp, a longer-acting version of the company’s top-selling anemia medicine, Epogen, and a product that is expected to give Amgen entry to some markets held by Johnson & Johnson. Still, Amgen’s stock is off from its closing price on September 10 of $64.13…at month’s end, the price was $58.77 (down 8 percent). The FDA’s advisory panel also issued a positive recommendation for the sale of Zevalin—a new medication from Idec Pharmaceuticals for non-Hodgkin’s lymphoma—on the very day of the attack. The day prior to the announcement, Idec’s shares were trading at $56.15. At the end of September, the company’s stocks closed at $49.57 (down 12 percent).

"The short-term weakness in biotech is likely to give way to longer term strength," said Burrill. "In times of disaster, the market’s first reaction is to sell and to move to less risky/higher quality investments. We saw this in the days immediately following the resumption of trading. However, in tough economic times like we’re in now, healthcare stocks generally perform better, relative to other market indicators," noted Burrill. "And the nation’s immediate and intense concern regarding bioterrorism and its future prevention will also have a positive impact on biotech’s recovery and long-term outlook," he added.

The Burrill Select Index fell by 14 percent during the month (down 24 percent for the quarter and -38 percent YTD). Even companies with historically stellar performance records took a huge beating. In fact, the only company within the segment to escape major losses was Immunex whose stock jumped 7 percent. Geron, which gained 11 percent during August on the strength of the President’s decision on stem cell research funding, fell by 40 percent. Onyx Pharmaceuticals, which reported a net loss of $5.9 million at the end of the Q2 01, lost 45 percent of its value.

The Large-Cap Index lost 12 percent during the month (down 15 percent for the quarter and -29 YTD). Amgen and Genentech lost 9 and 4 percent, respectively, of their value during September, while Millennium Pharmaceuticals and Human Genome Sciences lost 35 percent and 31 percent, respectively. Again, only Immunex ended the month better than it began with a gain of 7 percent.

The Genomics Index also took a significant hit, losing 25 percent during the month (down 44 percent for the quarter and 56 percent YTD). Poor performances from Lynx Therapeutics, Inc. (off 60 percent for the month), Millennium, Human Genome Sciences, Nanogen (off 20 percent), Affymetrix (off 26 percent), and Incyte Genomics (off 23 percent) were major contributors to the loss.

The Burrill Mid-Cap Index was down 18 percent for the month (-33 percent for the quarter and –38 percent YTD). The big loser in the category was Lynx Therapeutics. Other companies suffering serious losses included Orchid BioSciences (-45 percent for the month), Geron (-40 percent for the month), Exelixis (-32 percent for the month), and EntreMed (-27 percent for the month).

The Burrill Small-Cap Index although faring better than some of the other indices, lost 15 percent for the month (down 28 for the quarter and -25 YTD). Although some of the players such as Lynx Therapeutics (-60 percent for the month), Onyx Pharmaceuticals (-45 percent) Curis (-42 percent), Targeted Genetics (-39 percent) and Calypte (-50 percent) saw significant losses, other companies including BioTime (+12 percent), Cohesion Technologies (+18 percent), and Cellegy Corporation (+20 percent) showed gains. BioTime is one of several companies developing artificial human blood substitutes that have traded higher since the terrorist attack.

The Burrill Agbio Index fell 8 percent with the biggest percentage drop coming from Ecogen (down 40 percent), a small-cap company with very little volume.

The Burrill Nutraceutical Index also took a dive, falling 12 percent for the month (down 9 percent for the quarter and -2 percent YTD). Household names such as Odwalla (-21 percent for the month), Hain (-18 percent), and TwinLab (-34 percent) all slid. Only General Mills (+3 percent) saw a gain.

A review of the Burrill Life Sciences Indices for August 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 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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Main Phone: 415-591-5400
Fax: 415-591-5401
E-mail: burrill@b-c.com