Biotech Industry Reports a Profit but Many Companies Still Struggle for Survival - Big biotechs will do just fine in the ongoing financial crisis, but the smaller companies will have more difficulty w

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Biotech Industry Reports a Profit but Many Companies Still Struggle for Survival
Big biotechs will do just fine in the ongoing financial crisis, but the smaller companies will have more difficulty weathering the storm.


BioPharm International
Volume 22, Issue 4

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,


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