Reflecting on the past year, biotech performed well on the capital markets and maintained this momentum into 2008. Fears that the economy was not only heading towards a recession but also rapidly weakening had investors in a skittish mood during the early part of the first quarter of 2008. However, biotech held steady with the Burrill Biotech Select Index—a price-weighted index tracking 20 of biotech's blue-chip companies—closing unchanged and well ahead of the NASDAQ, which posted a January loss of 9.9%, and the Dow, which closed down 4.6%.
Healthcare stocks are usually able to ride out extremely volatile capital markets with less damage because they are considered safe in recession periods, and biotech, on a relative basis, performed well because of this.Helping the cause was the buzz created around JPMorgan's 26th Annual Healthcare Conference held in San Francisco in January. Many of the 300-plus companies that presented at the event reported updated clinical and year-end results, and the mood was quite optimistic. The most notable company was Pharmasset, whose shares surged to close January up 87%. The company announced positive data from a short-term Phase 1 study on its hepatitis C candidate, R7128.
Investors also seemed to be satisfied with biotech fourth-quarter results, although they weren't overgenerous in their rewards and certainly were quick to penalize any companies falling short of expectations. Amgen, for example, hit its projected numbers, but its 2008 outlook fell well below forecasts as sales of anemia drug Aranesp continue to slow in the wake of stricter safety warnings and reimbursement rates. Amgen's shares closed the month unchanged. Genentech reported solid quarterly results and its shares jumped 5% in January.
BIOTECH IPOS IN HOLDING PATTERN
Although valuations will still be problematic and the timing challenging, we will continue to see biotech IPOs this year. Most of those on file will await better market conditions before beginning their road shows. We expect over 30 IPOs will be completed in the US in 2008 but most will get done in the second half of the year.
MARKET CAP DIPS IN WAKE OF MERGERS AND ACQUISITIONS
While the industry's collective market cap finished the year at $455 billion, down 8%, there were several mitigating factors that served to mask how well the industry did. Contributing to the decrease was the loss of several marquee companies being acquired by Big Pharma, such as MedImmune's acquisition by AstraZeneca for over $15 billion. In fact, since 2005 the market value of biotech companies that have been acquired by Big Pharma amounts to approximately $49 billion.