G. Steven Burrill
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First the good news: my 23rd annual report on the biotechnology industry—Biotech 2009–Life Sciences: Navigating the Sea Change—officially records that after 40-plus years since the industry began, it finally turned a profit in 2008. Yet, this good
news has been overshadowed by the financial events that continue to affect the industry.
Financing and investor confidence in biotech's hopes and dreams helped spawn many of today's world-class biotech powerhouses,
such as Amgen and Genentech. The product successes of these companies are a major reason why the industry turned a profit
in 2008. But the majority of the industry's biotech companies still remain a work in progress.
Biotech 2009 shows how quickly the financial crisis affected the 357 publicly listed biotechnology companies. Almost 60% have seen their
market cap fall to well below $100 million. In addition, over 100 North American public and private biotech/pharmaceutical
companies to date have announced a corporate restructuring by slashing staff and putting promising projects on ice.
As of the end of February 2009, there was no evidence that the restructuring and refocusing strategies of the majority of
biotech companies was slowing down. The more mature and blue-chip biotech companies have so far weathered this period quite
well because they have plenty of cash, product revenue streams, strong pipelines, and Big Pharma partners. Investors view
these large-cap companies as safe havens. However, even these companies are not immune to the macroeconomic environment in
which they operate.
BUDGET PROPOSALS
Many of biotech's elite companies took a major hit to their share values in the wake of President Barack Obama's call to expand
healthcare coverage and curb costs by providing access to cheaper generic versions of biotechnology drugs, cutting Medicare
payments to private insurers, allowing consumers to buy cheaper medicines from overseas, and preventing drug companies from
making deals that block generics competition. The budget plan, released on February 26, seeks massive savings to pay for a
major healthcare overhaul.
It was high on President Obama's agenda during his presidential campaign and so it should not have come as a surprise to anyone
that the budget plans of his administration put healthcare costs directly in its cross-hairs. However, it appears it did and
during the last two trading days of February, investors sold off healthcare shares big time on fears that the proposal would
sap industry profits.
Figure 1
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The Burrill Biotech Select Index (Table 1) closed the month of February, down 7% compared to the Dow and NASDAQ, both falling
11.7% and 6.6% respectively. Up until the budget announcement, biotech had been holding firm against the market uncertainties
that raged around it. However, the final two days of the month saw the Index fall 8.5%. Genentech's share value held steady,
however, closing up 5% for the month at $85.55 per share even in the face of Roche's hostile takeover offer of $86.50 per
share for the outstanding shares it doesn't already own. Biotech's other blue-chip stocks—Amgen (down 11% for the month),
Gilead (down 11%), Celgene (down 15%), and Genzyme (down 12%)—took it on the chin, with most of these losses coming at the
end of February.
