Although it will be slow in the first quarter, 2008 will turn out to be a good year for biotech, especially in the second
half. The initiatives that are now in place will continue to drive the industry towards a personalized healthcare world—one
that emphasizes earlier disease detection, more targeted treatments, and adjunctive support through enhanced nutrition.
G. Steven Burrill
Reflecting on the past year, biotech performed well on the capital markets and maintained this momentum into 2008. Fears that
the economy was not only heading towards a recession but also rapidly weakening had investors in a skittish mood during the
early part of the first quarter of 2008. However, biotech held steady with the Burrill Biotech Select Index—a price-weighted
index tracking 20 of biotech's blue-chip companies—closing unchanged and well ahead of the NASDAQ, which posted a January
loss of 9.9%, and the Dow, which closed down 4.6%.
Healthcare stocks are usually able to ride out extremely volatile capital markets with less damage because they are considered
safe in recession periods, and biotech, on a relative basis, performed well because of this.
Helping the cause was the buzz created around JPMorgan's 26th Annual Healthcare Conference held in San Francisco in January.
Many of the 300-plus companies that presented at the event reported updated clinical and year-end results, and the mood was
quite optimistic. The most notable company was Pharmasset, whose shares surged to close January up 87%. The company announced
positive data from a short-term Phase 1 study on its hepatitis C candidate, R7128.
Investors also seemed to be satisfied with biotech fourth-quarter results, although they weren't overgenerous in their rewards
and certainly were quick to penalize any companies falling short of expectations. Amgen, for example, hit its projected numbers,
but its 2008 outlook fell well below forecasts as sales of anemia drug Aranesp continue to slow in the wake of stricter safety
warnings and reimbursement rates. Amgen's shares closed the month unchanged. Genentech reported solid quarterly results and
its shares jumped 5% in January.
BIOTECH IPOS IN HOLDING PATTERN
There were 28 new biotech initial public offerings (IPOs) in 2007 with the total amount raised from these IPOs at just over
$2 billion, double the $920 million raised in 2006. The average amount raised per IPO is also considerably higher—$73 million
versus $50 million in 2006. When January hit, however, the tough economic environment kept new biotech IPO hopefuls grounded
on the runway.
Table 1. The total amount of various types of biotech financings in the year 2005, 2006, and 2007 (in millions of US dollars)
Although valuations will still be problematic and the timing challenging, we will continue to see biotech IPOs this year.
Most of those on file will await better market conditions before beginning their road shows. We expect over 30 IPOs will be
completed in the US in 2008 but most will get done in the second half of the year.
MARKET CAP DIPS IN WAKE OF MERGERS AND ACQUISITIONS
While the industry's collective market cap finished the year at $455 billion, down 8%, there were several mitigating factors
that served to mask how well the industry did. Contributing to the decrease was the loss of several marquee companies being
acquired by Big Pharma, such as MedImmune's acquisition by AstraZeneca for over $15 billion. In fact, since 2005 the market
value of biotech companies that have been acquired by Big Pharma amounts to approximately $49 billion.