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Biotech impressed investors with positive drug data, strong drug sales and earnings, and partnering deals.
Traditionally, the summer months tend to be quiet for the biotech sector. However, the general markets experienced three solid months of gains as investors started to believe that the worst of the economic woes were over. This upbeat mood spilled over to biotech with the Burrill Biotech Select Index posting a solid gain of almost 11% from the June to August period, staying pace with the Dow, up 11.7% and NASDAQ, up 13.23% during the same period.
G. Steven Burrill
Adding to the favorable capital markets, biotech impressed investors with positive drug data, strong drug sales and earnings, and partnering and M&A deals. Shares of Human Genome Sciences, for example, jumped a whopping 690% after the company announced that its drug candidate Benlysta reduced lupus symptoms. Some of the share price increase was also driven on rumors that GlaxoSmithKline (GSK) could acquire Human Genome Sciences because GSK has collaborated on Benlysta development.
Investors also rewarded Savient Pharmaceuticals whose shares soared 119% after the FDA said its drug Krystexxa appeared to successfully relieve swollen joints and pain flare ups associated with gout. Other major biotech movers in the June to August period included:
In addition, we did see an IPO get out the door in August. Cumberland Pharmaceuticals raised $85 million by offering 5,000,000 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.
The Cumberland IPO will not open the biotech IPO window just yet, but companies on the runway with products already on the market, or close to it, might be tempted to test the waters. Early-stage biotechs, however, are unlikely to find favor in a climate that still has no tolerance for risk.
An international IPO was also completed during August. Israeli biotech company, D-Pharm, listed on the Tel Aviv Stock Exchange, raised $7.6 million in an oversubscribed offering. The offering price of approximately $4.50 per share was higher than D-Pharm's original minimum goal, but still considered a bargain considering the company's pre-IPO valuation of about $32 million. D-Pharm also raised $15.4 million in a rights offering at the same time and at the same terms. The company will use most of the proceeds to fund a late-stage clinical trial of its lead drug DP-b99 in moderate to severe ischemic stroke for which the only currently approved drug is tissue-plasminogen activator (t-PA), marketed by Genentech as Activase.
Our Burrill Report recorded a significant 25% increase in total financings and partnering in Q2 '09 compared to Q1 '09 (Table 1). Although financings were down quarter over quarter, the amount US biotech firms raised in partnering deals was up 68%.
Table 1. Quarter comparisons of US biotech financings (USD)
This increase shows that in a tight fiscal environment, companies are devoting their energies on finding pharmaceutical and biotech partners to help build value of their lead product programs. It has become increasingly difficult to attract venture capital (VC) and this is reflected by the fact that the amount raised by biotechs in the US in the second quarter was 43% down from the total raised in the first quarter.
Table 2. Year-to-date (YTD), the Burrill Biotech Select Index was up 3%
At the end of August, the group of public biotech companies had an aggregate market cap of $340 billion (Table 2). Statistics also show that:
Biotech is not yet fully back on track because many companies are still struggling to find the necessary funding to maintain their operations. Almost half of US public biotechs have market caps below $100 million and we are seeing companies still shutting shop. It is important to remind ourselves that the biotech industry is undergoing a major transition, a process that will likely continue for many months.
This is because we do not know how President Barack Obama's proposal for healthcare reform will fully impact the biotechnology industry and the status of biosimiliar legislation is also still unresolved. There are fears that these issues will drive the prices of innovative drugs lower and eat away at biotech company profits.
Going into the final quarter of the year, which is traditionally one of biotech's best, we will likely see the industry continue to build on its momentum gained during the past several months.
G. Steven Burrill is chief executive officer at Burrill & Company, San Francisco, CA, 415.591.5400, email@example.com