OR WAIT 15 SECS
Chief Executive Officer at Burrill & Company
Despite the rising fears about a slowing economy, the biotech industry will continue to maintain its momentum this year.
Although it will be slow in the first quarter, 2008 will turn out to be a good year for biotech, especially in the second half. The initiatives that are now in place will continue to drive the industry towards a personalized healthcare world—one that emphasizes earlier disease detection, more targeted treatments, and adjunctive support through enhanced nutrition.
G. Steven Burrill
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.
There were 28 new biotech initial public offerings (IPOs) in 2007 with the total amount raised from these IPOs at just over $2 billion, double the $920 million raised in 2006. The average amount raised per IPO is also considerably higher—$73 million versus $50 million in 2006. When January hit, however, the tough economic environment kept new biotech IPO hopefuls grounded on the runway.
Table 1. The total amount of various types of biotech financings in the year 2005, 2006, and 2007 (in millions of US dollars)
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.
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.
The cost of healthcare in the US continues to spiral upwards. The debate has begun to change the focus of healthcare delivery from a more reactive, sporadic, disease-oriented system to one that is personalized, predictive, preventative, and strategic. There is no doubt that after a slow start, personalized medicine is gathering momentum.
In the last few years, personalized medicine has emerged as a powerful new tool for healthcare. Personalized therapies are on the horizon for diseases such as cancer, diabetes, heart disease, and other deadly disorders.
Investors are warming to the fact that the transition to a more personalized medicine world is taking hold; the value of the Burrill Personalized Medicine Index jumping 30% in 2007. Personalized medicine is creating the need for tools like molecular diagnostics and biomarkers, and therefore companies specializing in these areas have received positive investor attention.
Financings and partnering deals collectively brought in almost $45 billion for US companies in 2007 with over $22 billion through financings and a record-setting $22 billion in partnering capital. Partnering deals will remain at record levels and a significant portion of the $25 billion raised will be directed at gaining access to technology at an earlier stage in its development as companies strengthen their product indication franchises.
The M&A trends that have been hot in biotech land during the past three years will not slow down. Big Pharma has come to rely on biotech to access pipeline and innovation. Both Big Pharma and Big Biotech will continue to compete for companies with advanced product pipelines, as well as important land grabs of technology.
The capital markets in the US will remain turbulent during the first half of 2008 as investors digest year-end earnings and Q1 results, as a function of overall US market concerns about the continuing credit crisis and its impact on the economy. Biotechelite companies will continue to impress with their financial returns and mid-cap and small-cap biotech companies will also keep pace. By year end 2008, the Burrill Biotech Select Index will have again outperformed the general markets and the DJIA and NASDAQ.
The presidential campaign in 2008 will keep healthcare issues at the top of the political agenda. Drug safety and the costs of medicines will continue to be major issues. In the wake of PDUFA IV, drug approvals will remain slow and pharmacovigilance will be the story.
G. Steven Burrill is the chief executive officer of Burrill & Company, San Francisco, CA, 415.591.5400, firstname.lastname@example.org