Biotech Writes its New "Play Book" - Business models that were used to create current value are no longer going to be effective going forward. - BioPharm International

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Biotech Writes its New "Play Book"
Business models that were used to create current value are no longer going to be effective going forward.


BioPharm International


WHERE ARE WE TODAY?

We predicted at the beginning of 2010 that the general markets would be choppy and that biotech companies would begin to perform well in the second half of the year.It appears that this scenario has played out now that 2010 is over.


Table 1. The Burrill Biotech Select index almost 11% gain in 2010 has come mainly in the second half of the year.
After surging 6% in October, the biotech industry came down to earth in November with the Burrill Biotech Select Index dropping 1.5%. The capital markets faired no better with Dow Jones Industrial Average closing the month down 1% and the Nasdaq Composite Index down 0.37% (Table 1). Dragging on the markets was a concern that Europe's debt crisis will continue to spread and much of the world's economy continues to sputter.

The Burrill Biotech Select index's almost 11% gain in 2010 has come mainly in the second half of the year. The biotech industry has certainly benefited from a return of investor confidence. However, that confidence has not been distributed evenly across the board. It has been linked to the stellar stock performances of companies such as Genzyme, Dendreon, Illumina, and Pharmasset. Many of biotech's blue-chip companies, in fact, have had sub-par years with Amgen, for example, down 7% year-to-date and Vertex Pharmaceuticals down almost 23% for the same period.

The unevenness in the capital markets also can be seen in biotech's newly minted public companies. This year, 16 new biotech issues have debuted on the US market, but most of them have been plagued by lackluster receptions (selling fewer shares well below the pricing range) and their average market performance at the end of November was down 13.2%.

PUBLIC COMPANY FINANCINGS REMAIN SOFT

Analysis in the Burrill Report shows that the US biotech industry was on track to raise more than $20 billion by the end of 2010, not bad in a year that had its ups and downs. Follow-on financing and IPOs were down quarter-over-quarter and venture capital financing continued to flow with $1.3 billion raised from about 90 deals announced in the third quarter.

Of the partnership deals that disclosed their financial terms, a whopping $9.6 billion was collectively raised in the third quarter of 2010 by U.S. biotech companies–up 8% on the $8.9 billion raised through partnership deals in Q2 of 2010.

We are on pace to equal last year's record-setting total for partnership dollars, an incredible amount given the uncertain economic environment. Big Pharma's appetite for biotech innovation continues unabated.

Going forward, we will see a much stronger industry evolve as companies implement their business strategies in response to the new economic realities.

G. Steven Burrill is chief executive officer at Burrill & Company, San Francisco, CA, 415.591.5400,


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