Heading into the final month of the third quarter, the Burrill Biotech Select Index remained in negative territory, down 1.6%
year-to-date (YTD). The sector gave back some of its strong July gains when continuing developments relating to Sanofi Aventis's
interest in acquiring Genzyme and strong second quarter financial results helped put a spark back into biotech pushing the
Select Index up 7.8%. Unfortunately, August turned out to be a choppy month on the capital markets, with the Dow Jones Industrial
Average briefly dipping below 10,000 before rebounding to close the month down 4.3%, as mixed economic data did little to
convince investors about the strength of the economic recovery. This uncertainty spilled over to biotech and the Select Index
closed down 2.75%. August is traditionally a quiet month for biotech but overall the sector held its own relative to the general
G. Steven Burrill
The Burrill Biotech Mid-Cap Index took a beating in August, falling 10% (Table 1). Among the decliners in the group was Momenta
Pharmaceuticals whose share value reversed direction after vaulting 81% in July, dropping 35% in the wake of a court challenge,
which was subsequently denied from Sanofi-Aventis over the approval of the abbreviated new drug application filed by Momenta's
collaboration partner, Sandoz, for enoxaparin sodium injection USP, a generic version of Lovenox. The decision is subject
to appeal. Shares of ImmunoGen also sank 43% after the company said the US Food and Drug Administration declined to accept
an application for accelerated approval from its partner Roche, for the potential breast cancer treatment T-DM1.
Table 1. The Burrill Biotech Mid-Cap Index took a beating in August, falling 10%
BIOTECH IPO ACTIVITY
Two biotech companies completed their public offerings (IPOs) in August. The antibiotic developer Trius Therapeutics slashed
its expected share price by 62%, selling 10 million shares at $5 per share. The San Diego biotech plans to begin a late-stage
trial to evaluate torezolid, its lead next-generation antibiotic, against Pfizer's Zyvox linezolid to treat acute bacterial
skin and skin structure infections.
Specialty pharmaceutical company NuPathe raised $50 million after trimming its offering price to $10 from its original $14
to $16 range. NuPathe is focused on treatments for diseases of the central nervous system.
YTD, there have been 10 completed biotech IPOs but their post-IPO performances have not been good, with their average market
performance at the end of August down 31% (Table 2).
Table 2. Year-to-date, there have been 10 completed biotech initial public offerings (IPOs) but their post-IPO performances
have not been good with their average market performance as of the end of August down 31%
There are many companies in the IPO queue and waiting for the right market conditions to make their move. Some of these are
- Complete Genomics: The company has already sequenced more than 200 complete human genomes since the beginning of the year, according to its
filing, and has a backlog of more than 500 genomes. In 2009, the company posted $623,000 in revenues and a net loss of $35.9
- Horizon Pharma filed with the SEC to raise up to $86.3 million. The company has a product on the market in Europe-Lodotra, a proprietary
low-dose formulation of prednisone, for the treatment of rheumatoid arthritis. Horizon plans to submit it to US regulators
later this year.
- Aegerion Pharmaceuticals is focused on the development and commercialization of pharmaceuticals to treat cardiovascular and metabolic diseases.
- Cutanea Life Sciences is a development stage specialty pharmaceutical company whose mission is to strategically in-license novel, mid-stage candidates
to treat diseased and aging skin conditions.
- Endocyte is a biopharmaceutical company developing targeted therapies for the treatment of cancer and other serious diseases. It uses
proprietary technology to create small-molecule drug conjugates and companion imaging diagnostics.
- Pacific Biosciences has developed its single-molecule, real-time technology, which enables analysis of biomolecules with single-molecule resolution.
The technology has the potential to transform the understanding of biological systems by providing a window into these systems
that has not previously been open for scientific study.
Although all the biotech companies that have completed their IPOs this year have performed poorly, we believe there will be
at least another five getting out before the end of the year. Investor interest will be fueled by two high profile genomics
companies—Complete Genomics and Pacific Biosciences—coupled with the traditional bullish trend for biotech in the fourth quarter.
The past few months have proven difficult for small biotechs to get any traction in these uncertain economic times. However,
on a positive note, we are seeing biotech's elite companies positioning themselves for growth through strategic acquisitions.
For example, both Gilead Sciences and Celgene have made important acquisitions, and Canada-based Biovail announced that it
will merge with US-based Valeant Pharmaceuticals.
Gilead Sciences said that it would acquire the privately held CGI Pharmaceuticals for up to $120 million with most of the
money paid upfront and a portion to be paid based on clinical development progress. Celgene has agreed to acquire Abraxis
BioScience for $2.9 billion. Abraxis's only approved drug is its breast cancer treatment Abraxane. Celgene is hoping it will
be able to "re-energize" sales of Abraxis and also win approval for Abraxane as a treatment for skin, lung, and pancreatic
It also was an excellent quarter in terms of fundraising with $14 billion generated by US biotechs by public and private financings
and partnering deals. Financing remains available for emerging biotech companies but, as our analysis clearly shows, the current
environment still favors risk-mitigated companies and this situation is likely to continue for the time being. The US biotech
industry is still, however, on track to raise a predicted $35 billion by the end of the year.
G. Steven Burrill is chief executive officer at Burrill & Company, San Francisco, CA, 415.591.5400, email@example.com