Biotech Cruises On Despite a Turbulent Economic Climate

As the financial markets settle down, we will continue to see the biotech industry benefit from increase M&A activity.
Oct 01, 2008
Volume 21, Issue 10

G. Steven Burrill
The biotech industry's report card for the year-to-date contains surprisingly good grades for its performance on the capital markets and for partnering and venture capital (VC) deal-making, but other forms of financing haven't faired as well, particularly biotech IPOs. Macroeconomic factors such as inflation, recession, credit-market turmoil, and escalating oil prices have taken their toll and just one company, Bioheart, managed to eke out an IPO, raising $50 million.

Table 1. Biotech has outperformed the broader stock market indices through August
Biotech has outperformed the broader stock market indices through August (Table 1). The Burrill Biotech Select Index was up almost 10% in contrast to the Dow and NASDAQ—both down a whopping 13% and 11% respectively. In these times of economic uncertainty, investors have clearly gravitated to biotech's elite companies and away from the traditional "safe havens" of Big Pharma. Even during the traditional slow summer months of July and August, investors were fascinated by biotech. Their attention was grabbed by the announcement that Roche had made a bid of almost $44 billion for the 44% remaining shares of Genentech it didn't already own.

The biotech product "land grab" by Big Pharma, which intensified when they started feeling the pain of their own blockbuster products coming off patent and facing the specter of increasing generics competition, has reached fever pitch. One or two marquee biotech company acquisitions per year have been part of the biotech scene for at least 15 years but it looks like the floodgates have opened and big takeover deals will be prominent in the second half of the year.

Our analysis has shown that since 2005, more than $60 billion has been invested in biotech acquisitions by the pharmaceutical industry, taking into account the market cap of each company at the time of its acquisition. The potential acquisitions of Genentech and ImClone could potentially add a further $106 billion in biotech value.


The industry's market cap closed in August at $507 billion, easing back from a record setting $520-billion mark posted mid-month. Genentech's market cap closed at $104.2 billion; Amgen remained in the second spot at $66.5 billion; and Gilead Sciences was at $48.5 billion.


After a slow first quarter, partnering deals picked up pace in the second quarter of 2008 to bring in more than $4.1 billion for US biotech companies. Notable deals in the quarter included a potential $770-million partnership between Astellas and CoMentis to develop products from CoMentis's beta-secretase inhibitor program, including the lead compound CTS-21166, which is being developed as a disease-modifying treatment for Alzheimer's disease.

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