Capital Market's Woes Weigh Heavily on Biotech

After a bright start to the year, some of biotech's blue chip companies have seen their early gains turn into losses.
Jul 01, 2010
Volume 23, Issue 7

The Burrill Biotech Select Index recorded a 10% drop in May to close below 300 for the first time in almost 18 months. For the most part, the Index was dragged down by the volatile capital markets that saw the Dow dip below 10,000 heading into June. The downturn has been fueled by ongoing concerns that the Euro-zone debt woes would escalate into a global financial crisis. The Dow Jones industrial average closed down 8% for the month, its worst May performance since 1962, and the NASDAQ suffered a similar monthly drop.

G. Steven Burrill
The Burrill Biotech Select Index is now down almost 5% in value year-to-date (YTD) while the Dow is down 3% and the NASDAQ 0.6%. At one time, in periods of economic uncertainty, like the climate we are facing today, investors would move into the relative safety of biotech and pharma stocks. However, this is no longer the case and for the foreseeable future, biotech's fortunes will be linked with the performance of the broader capital markets.

After a bright start to the year, some of biotech's blue chip companies have seen their early gains turn into losses YTD. By the end of May, for example, Amgen's share price was down 9% despite reporting that its new drug Prolia (denosumab) had been approved by the US Food and Drug Administration to help prevent fractures in postmenopausal women. This decision came close on the heels of its approval in Europe.

Another company that has seen its shares fall 30% YTD is Exelixis. In March it announced that it would eliminate about 270 jobs, or around 40% of its staff, to conserve its cash resources and continue development of cancer drugs with Sanofi-Aventis SA and Bristol-Myers Squibb Co. Exelixis said it will save about $90 million per year from the moves, starting in 2011.

Other drug companies to be hit by the market conditions include Vertex Pharmaceuticals (down 19%) and Gilead Sciences (down 17%). Interestingly, it has been the tools companies that have been resistant to the volatile market conditions. Illumina's shares are up 37% YTD. The FDA recently granted 510(k) market clearance for its VeraCode Genotyping Test for Factor V (Leiden) and Factor II (Prothrombin). The VeraCode Genotyping test comprises the company's VeraCode digital microbead technology and proprietary assay chemistry. Affymetrix (up 11% YTD), which makes genetic testing technology, reported a narrower first-quarter loss as revenue improved and it cut back on costs.

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