Biotech got caught up in the general healthcare stock-selling frenzy as a result of this knee-jerk reaction to the budget
plans. There is nothing in Obama's healthcare proposals that is surprising or different from what he articulated during the
campaign and biotech's fundamentals continue to remain strong. As we saw, investors get quickly spooked over uncertainty.
My new book predicts that in the ongoing financial crisis, biotech's elite companies will do just fine—it is the small and
medium-sized public biotech companies that will have more difficulty weathering the storm.
It will be a very painful time for many of them as they are forced to make difficult choices to ensure their survival. Many
company obituaries will be written. When the markets do return in 2010, the industry will look very different than it does
today.
THE CURRENT SITUATION
The Burrill Mid-Cap Biotech Index dropped 15% in February, sharply illustrating the volatile nature of the share prices of
these companies. The share performance of Geron demonstrated just how quickly investor sentiments can change for members of
this group. In January, the company's share price jumped 68%, buoyed by the possibility that President Obama might loosen
restrictions on federal funding for embryonic stem cell research and the FDA clearing Geron's application to conduct early-stage
clinical trials on its stem-cell based therapy, aimed at treating severe spinal-cord injuries. Fast forward one month, and
their shares dropped 43% after reporting fourth-quarter revenues were only $544,000, down from $4.7 million in the year-ago
quarter.
Shares of Idenix Pharmaceuticals suffered a similar fate—plummeting 37% in the month—after reporting a wider-than-expected
fourth-quarter loss. Shares of Questcor Pharmaceuticals fell 25% in February, after it said the regulatory process for expanded
approval of Acthar was taking longer than expected. The drug is currently approved in the US to treat flare-ups of multiple
sclerosis. The company wants to expand the drug's use officially to treat infantile spasms, a potentially life-threatening
disorder that typically begins in the first year of life.
GENENTECH'S MARKET CAP SURPASSES THAT OF PFIZER
The collective market cap of the industry closed February at $369 billion, a drop of 7% for the month. Genentech's market
cap closed the month at $90 billion (up5%). Genentech now has surpassed Pfizer in terms of market cap, which closed February
at $83 billion. Amgen was at $51.2 billion (down 11%) and Gilead Sciences at $40.8 billion (down 12%). According to the Burrill
Report, which tracks the progress of the 360 publicly listed biotech companies, there were 187 companies that had a market
cap of less than $100 million at the end of February.
G. Steven Burrill is chief executive officer at Burrill & Company, San Francisco, CA, 415.591.5400, publications@b-c.com
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