Except for VC deals, mostly in oncology, neurology, and diagnostics, all other forms of financing have fallen compared to
the first quarter of 2008 and comparative 2007 figures. The public markets have little to offer, and although the number of
private investment in public equity (PIPEs) went up slightly in Q2 2008 as compared to Q1 2008, the total transaction value
was still the lowest in three years. The $511 million raised (Table 2) in Q2 2008 was significantly lower than both Q2 2007
($2.2 billion) and Q2 2006 ($4.5 billion).
Table 2. US biotech financings ($ million). The number of PIPEs went up slightly in Q2 2008 as compared to Q1 2008 but the
total transaction value was lower.
Many companies are resorting to other creative ways of financing in addition to traditional and well-established avenues.
For example, Exelixis obtained a flexible $150-million line of credit from healthcare hedge fund Deerfield Management; and
CV Therapeutics sold half of the North American royalties it is due from partner Astellas for the newly approved drug Lexiscan
to a private investment group, which netted the company $175 million.
Another form of financing that is back in play again in these weak markets is the registered direct offering (RDO). The RDO
is somewhere between a PIPE and a full-fledged underwritten offering. Until public markets become more favorable to allow
follow-on offerings, this unusual form of financing could increase in popularity among public biotech companies looking to
raise much needed capital quickly.
In an RDO, a public company offers a new issue of shares to a limited number of accredited private investors, typically experienced
investors who are already familiar with the company and the industry. In contrast to traditional public offerings, shares
are offered on a "best-effort" basis. The Committed Equity Financing Facility (CEFF) is another financing vehicle that has
become a popular way of financing drug development. The CEFF allows a company to raise capital over a set period at its discretion,
usually to support R&D activities.
Biotech's elite companies have spent most of July pushing higher, benefitting from a series of favorable headlines and merger
fever in the air. This translated into the substantial gain of almost 16% in the Burrill Biotech Large-Cap Index. But even
more remarkable was the performance of the mid-cap companies, with the Burrill Biotech Mid-Cap Index jumping 18% in July.
All year, the market conditions have proved to be tough on these emerging biotech companies.
As the financial markets settle down, we will continue to see biotech benefit from increased M&A activity. I would expect
the next few months to be good ones for the industry and by the end of the fourth quarter of 2008, we will begin to see a
resumption of biotech IPOs. We can expect to see swings in the fortunes of biotech throughout the rest of the year. However,
biotech's performance will improve on its current 10% year-to-date gain in the final four months of 2008.
G. Steven Burrill is chief executive officer at Burrill & Company, San Francisco, CA, 415.591.5400, firstname.lastname@example.org