Despite a 10% fall in value during October, The Burrill Biotech Select Index clawed back almost half this amount in November
and is on track to close in positive territory by the end of 2009.
G. Steven Burrill
In recent months, we have seen a gradual recovery for the biotech sector and the capital markets as the worst of the global
economic recession seems to have been put behind us. For example, from the end of the first quarter of 2009, the markets have
gained about 60%. Both the Dow and the S&P 500 hit 13-month closing highs post Thanksgiving, as economic data pointed to hopes
of stabilization in the labor and housing markets and provided reinforcement to analysts' predictions that the economy is
finally in recovery mode.
The Burrill Biotech Select index (up 14% since it hit its lowest point in March) still lags the general markets' performance
to date. However, with the comparative stabilization of the capital markets, we are seeing some encouraging signs of good
things to come. The total that US biotechs have raised through follow-on financings is up over 100% on the total raised in
EMERGING COMPANIES PERFORM WELL
It has not only been the blue chip biotech companies that have seen their values increase in the second half of the year:
the Burrill Large Cap Biotech index is up 20% year-to-date (YTD), but the emerging companies also have performed well, with
the Burrill Mid-Cap Biotech index up 13% YTD and the Burrill Small-Cap Biotech index up 10% YTD (Table 1). The companies that
have survived the financial markets' meltdown are well placed to adapt to the new environment that we now are entering.
Table 1. Year-to-date (YTD), the Burrill Large Cap Biotech Index was up 20%
BIOTECH IPO WINDOW OPENS—A CRACK
Follow-on financing is generally a harbinger of the opening of the initial public offering (IPO) window and already we have
witnessed three biotech IPOs—two specialty pharmaceuticals and one biotech company. In August, Cumberland Pharmaceuticals
raised $85 million by offering five million shares at $17, below the expected range of $19 to $21. The specialty pharmaceuticals
company has products on the market, including a new injectable treatment for pain and fever. Talecris Biotherapeutics, a manufacturer
of plasma-based proteins, raised a whopping $950 million with its IPO. Like Cumberland, the company has products on the market
and its 2008 sales were $1.4 billion.
In early October, Omeros Corporation became the first venture-backed biotech to go public. It priced its IPO of 6.82 million
shares at $10 per share, but then saw its shares drop almost immediately, closing down 13% on its first day of trading (and
closing November down 28%). The company is using the funding to complete Phase 3 trials of its lead drug candidate, which
is being evaluated for use during arthroscopic surgery.
Omeros's opening and subsequent share price performance shows the difficulty that will exist for many biotech companies that
are not yet profitable and are thinking about raising money in the public markets. We are likely to see up to 15 companies
add themselves to the IPO runway shortly with the hope that around the time of the JP Morgan Healthcare Conference in early
January 2010, the markets will be receptive enough to invest in new biotech issues. The first biotech IPO movers of 2010 will
have to perform well for the IPO window to open wider.
In the final quarter, four biotech companies already added themselves to the IPO runway:
Ironwood Pharmaceuticals hopes to raise up to $173 million in an IPO. Linaclotide, the company's first-in-class compound, is being evaluated in a confirmatory
Phase 3 program for the treatment of irritable bowel syndrome with constipation and chronic constipation. Ironwood has already
raised $306 million in private equity financing and recently announced that it had partnered with Japanese pharmaceutical
powerhouse Astellas, granting them exclusive rights to develop and commercialize linaclotide in Japan, Indonesia, Korea, the
Philippines, Taiwan, and Thailand.
Trius Therapeutics, which focuses on the discovery, development, and commercialization of antibiotics for serious infections, filed to raise up
to $86 million. The company is planning two Phase 3 trials of the second-generation oxazolidinone that inhibits bacterial
protein biosynthesis to treat serious Gram-positive bacterial infections.
Alimera Sciences, developing products that treat retina-related diseases, filed to raise up to $80 million. Currently, the company is focused
on diseases affecting the retina. Its most advanced product candidate is Iluvien, which is being developed for the treatment
of diabetic macular edema.
Aldagen also took its place in the queue of companies hoping to go public in the coming months as the IPO window begins to open. The
company, which develops regenerative cell therapies, had initially filed to go public in May 2008 but withdrew those plans
in October 2009, when the stock market melted down. The company hopes to raise an estimated $80.5 million to fund a Phase
3 trial of its most advanced therapy for the treatment of critical limb ischemia.