Biotech Survives Difficult Opening to 2008

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BioPharm International, BioPharm International-06-01-2008, Volume 21, Issue 6

Following the market crisis of the first quarter of 2008, biotech IPOs and financing are down, but partnering continues, and mergers and acquisitions (M&As) remain hot.

The past four months have been tough. Investors have been shell shocked in the wake of not only surging oil prices (compounded by the declining dollar) and the housing slump, but also near chaos in the financial markets as Wall Street almost imploded in the wake of a massive global liquidity crisis. The biotech industry, however, has come through this turbulent period relatively unscathed, with the Burrill Biotech Select Index, a price-weighted index tracking 20 of biotech's "blue chip" companies, finishing unchanged compared to the Dow, which closed down 3% and the NASDAQ, whose value dropped 9% in this period.

G. Steven Burrill

Companies with broader-based product portfolios have so far been able to ride out uncertain markets. Interestingly enough, investors have been choosing biotech's elite companies over Big Pharma companies in this tough economic climate. This is reflected in the fact that the Amex Pharmaceutical Index is down 11% since the beginning of the year. Although biotech's elite companies have so far weathered the market downturn, emerging companies have been less fortunate because they are perceived by investors as more risky. The Burrill Mid-Cap Biotech Index, for example, has dropped more than 21% since the beginning of the year and the Burrill Small Cap Biotech Index dropped 18% in April.


The prevailing tough economic environment also took its toll on biotech IPO hopefuls; Biolex, Light Sciences Oncology, and Archemix all cancelled their planned offerings because of the market conditions. Only one company braved the market—Bioheart, a biotechnology company focused on using autologous cells to treat heart damage. It priced its revised offering of 1.1 million shares at $5.25; the company had originally filed for an offering of 3.6 million shares at a range of $14–$16.


Several companies, however, did file for an IPO in order to get in line and be ready to respond rapidly to complete their IPOs when the market improves. Examples include:

  • Bayhill Therapeutics, a clinical-stage biopharmaceutical company developing products to treat autoimmune diseases

  • CyDex Pharmaceuticals, a specialty pharmaceutical company developing and commercializing drugs specifically designed to address the limitations of current therapies in selected established markets

  • Omeros, which is developing drugs to treat focused inflammation and disorders of the central nervous system

  • Zogenix, which is developing treatments for central nervous system disorders and pain.

With only one biotech IPO completed since the beginning of the year and none in April, the window for biotech, while remaining open, is not finding any companies ready to go through it right now. The first half of this year will continue to be dominated by macroeconomic factors such as inflation, recession, and credit market turmoil. In the second half of the year, conditions will improve and we will see biotech offerings re-emerging.


The industry's market cap closed at $446 billion, virtually unchanged for April and down about 1.4% since the start of the year. Genentech's market cap closed the month at $71.8 billion; Gilead Sciences was at $48 billion, and Amgen remained in third place at $45.5 billion.

Table 1. Biotech indices through April 2008 ($M). Biotech's elites are weathering the market downturn, with the Burrill Biotech Select unchanged, but the situation is tougher for emerging companies, with the mid-cap and small-cap indices down.


Financing and partnering deals tracked by Burrill & Company collectively brought in approximately $6.6 billion for US companies in Q1, with more than $3.5 billion through financing and $3 billion in partnering capital. This total was the lowest raised in any quarter since 2004.

Table 2. Selected venture capital deals in Q1 2008

The largest partnering deal in the quarter belonged to Genzyme and Isis Pharmaceuticals. Through their alliance, Genzyme will develop and commercialize mipomersen, Isis's lipid-lowering treatment for high-risk cardiovascular patients. Deal terms could add more than $1.1 billion. Genzyme will pay Isis $150 million to purchase five million shares of Isis common stock and a $175 million upfront mipomersen license fee. In addition to this initial $325 million, Isis has the potential to receive significant milestone payments for mipomersen, which is currently in Phase 3 trials. Once the product is launched, the two companies will share profits.

Table 3. US biotech financing ($M) in Q1 2008

Although deal flow continued at roughly the same pace as in the past several quarters, financing was slow in the first quarter of 2008. The $837 million raised was the lowest since 2003. Topping the financing list was EKR Therapeutics, Inc., (Cedar Knolls, NJ) a specialty pharmaceutical company focused on acquiring, commercializing, and maximizing the potential of proprietary acute-care products, which completed a private placement of $50 million in Series D equity and $95 million in senior debt.


Takeda Pharmaceuticals' announced $8.8 billion acquisition of Millen-nium Pharmaceuticals, which helped Millennium's share price to close April up a whopping 60%, highlighted the fact that the M&A trends that have been hot in biotech land during the past three years are not slowing down. We will continue to see these deals throughout the year. Pharma has come to rely on biotech for innovation. Both Big Pharma and Big Biotech will continue to compete for companies with advanced product pipelines and important technologies.

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