G. Steven Burrill
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These pressures not only hampered companies' ability to raise capital in the second half of the year, but also raised the
specter of cuts to governments' expenditures on healthcare and biomedical research. With capital scarce and expensive, companies
will need to focus their investments on clear paths to revenues. They will also have to develop products that push beyond
incremental improvements, and concentrate on disruptive solutions that make healthcare costs more sustainable.
A total of 16 life-sciences companies managed to go public in the US through the end of November, 2011, raising a total of
$1.4 billion, compared with with 18 initial public offerings (IPOs) in the first 11 months of 2010 that raised a total of
nearly $1.3 billion. As a group, the life sciences IPOs of 2011 fell 14.2% from their initial offering prices as of the end
of November. Ten of these companies went public below their target prices and, as a group, these companies sold nearly 28%
more shares than they set out to sell while raising about 14% fewer shares than they had hoped.
Therapeutics developer Endocyte, which went public at less than half its target price, was the biggest gainer through the
end of November, closing up 71.3% to $10.30*. The medical-device company Kips Bay Medical was the steepest decliner, falling
80.1% to finish in November at $1.60. Public-market volatility weighed on public financings overall. US follow-ons fell 20.4%
and private investment in public equity offerings dropped 33.1% from year-ago levels through the first 11 months of 2011.
The nearly $7 billion invested in the sector through venture capital reflected a 13.5% increase over last year through the
first 11 months. But there are growing concerns about the future role traditional venture investors will play in funding biotech.
Scale Venture Partners will exit the life sciences altogether, while the life-sciences practices at Morgenthaler and Advanced
Technology Ventures are breaking off from their information technology counterparts to form a new firm. Meanwhile, Prospect
Ventures said in October 2011 it would not raise a fourth healthcare fund and will return committed capital to limited partners.
In fact, a survey from the National Venture Capital Association has found that nearly 40% of life-sciences venture-capital
firms plan to invest less in the sector during the next three years. That reduction reflects both frustration with regulatory
barriers and the weak market for IPOs that have made it difficult for venture investors to cash out of their investments.
These are troubling developments that could constrain the availability of capital to promising young companies in the years
ahead. It is vital that regulatory barriers and capital market constraints be addressed that ultimately may be choking off
important sources of innovative medicines and new jobs.
On the mergers and acquistions front, 2011 saw a conclusion to the long negotiation between Sanofi and Genzyme. Divergent
views on the value of the pioneering rare-disease biotech were closed with the use of contingent-value rights. Those rights
could add as much to $3.8 billion to the agreed on $20.1 billion deal. Other notable deals included generic-drug giant Teva
buying the biotech Cephalon for $13 billion; Japanese drug giant Takeda buying Switzerland's Nycomed for $13.7 billion to
broaden its access to Europe and emerging markets; and Gilead's planned $11 billion purchase of hepatitis C drug-developer
Pharmasset*.
Through the end of November 2011, FDA approved 30 new drugs, more than the 21 it approved in 2010. Among the notable drugs
that won approval were Vertex Pharmaceutical's oral hepatitis C drug Incivek, Bristol-Myers Squibb's melanoma drug Yervoy;
the first new melanoma drug in 13 years and the first to extend the lives of patients with late-stage disease; and Human Genome
Sciences' Benlysta, the first new lupus drug in 50 years.
Personalized medicine also emerged as a bright spot for the sector with FDA's approval of Roche's melanoma drug Zelboraf and
Pfizer's non-small-cell lung cancer drug Xalkori. Both drugs were approved with companion diagnostics to determine which patients
would benefit from their use. FDA also approved Seattle Genetics' lymphoma drug Adcetris, a drug that marries an antibody
to a toxic chemotherapeutic payload to deliver a targeted therapy to a certain subgroup of lymphoma patients.
While the industry continues to raise a substantial amount of capital, much of it is going to fund large, well-established
companies. The numbers don't tell the full story. Smart companies will raise money when they can, rather than waiting until
they need to raise money. Nevertheless, the pace of life-sciences IPOs is likely to accelerate in 2012.
Despite the increase in FDA approvals of new drugs in 2011, regulatory uncertainty continues to plague the industry. Increasingly
we will see FDA move away from being a gold standard for the world to seeing it be a late adopter as companies move to win
approval for innovative therapies in other countries first.
Though the US Supreme Court has said it will rule on the constitutionality of the Patient Protection and Affordable Care Act,
the healthcare reform legislation passed in 2010 has already set in motion significant change. Regardless of the court's ruling,
meaningful reform will be driven by payers, physicians, patients and technology. The pace of that reform will only accelerate.
The end of 2011 also saw the expiration of Pfizer's patent on its statin Lipitor, the best-selling drug of all time. In many
ways the expiration of the patent marks an end to the blockbuster era of drugs. The future will be defined by targeted therapies
informed by an understanding of a patient's individual genetics. It's a future in which we'll be able to determine whether
and for whom drugs such as Lipitor will provide any benefit. That is what patients and payers will both demand going forward.
* Burrill & Company is an investor in Endocyte and Pharmasset
G. Steven Burrill is chief executive officer at Burrill & Company, San Francisco, CA, 415.591.5400, publications@b-c.com
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