Biotech has Positive Year Despite Weak Fourth Quarter Performance



    
    Burrill looks back at 2007 and predicts what's ahead for 2008
    

    SAN FRANCISCO, Jan. 2 /CNW/ -- "The biotech industry finished the year in
good shape with the Burrill Biotech Select Index, a price-weighted index
tracking 20 of biotech's "blue chip" companies, gaining 9% in 2007 ahead of
the Dow, which finished up 6.4% and on par with the Nasdaq, which closed up
9.8%," said G. Steven Burrill, CEO, Burrill & Company, a San Francisco based
global leader in life sciences with activities in Private Equity, Venture
Capital, Merchant Banking and Media. "It could have been an even better year
were it not for a sub-par final quarter of 2007, one that is usually one of
biotech's best."
    The Burrill Biotech Select Index dropped over 6% in December (down 5% in
the quarter) on the heels of a tough month for Neurocrine Biosciences (down
65%), Celgene (down 25%), Amgen (down 16%) and Genentech (down 12%). It was
"deja vu all over again" for Neurocrine. In 2006, the company's share price
lost almost 80% of its value. While it did recover during 2007, the company's
shares lost more than half their value in December, plunging to an eight-year
low, after the Food and Drug Administration asked the company for additional
data on Indiplon -- its insomnia treatment drug candidate. Celgene stumbled
over concerns of weak November sales for its leading cancer drug Revlimid,
which it markets as a treatment for two cancers of the blood -- multiple
myeloma and myelodysplastic syndrome. Onyx Pharmaceuticals Inc. had a much
more positive story ... while down 62% in 2006 following a Phase III product
trial stumble ...  the company recovered nicely and has been one of Wall
Street's "darlings" all year long with its stock value finishing the year up a
massive 426% on positive clinical trials data.
    "In 2006 the Burrill Biotech Select Index suffered a 14% loss," noted
Burrill. "The claw back of a substantial portion of that drop in 2007 is
thanks to the stellar annual gains from companies other than Amgen and
Genentech, who traditionally lead the way, with Onyx Pharmaceuticals, Incyte
(up 72%) and Gilead Sciences (up 42%) leading the pack in 2007."
    It certainly was an unusually tough year for industry giants Amgen and
Genentech. Amgen, whose share price closed December at a five-year low, never
really recovered from some bad news about its key anemia-fighting drugs,
Epogen and Aranesp, which together account for 46% of sales and 60% of
profits. Clinical trial data earlier this year raised safety concerns about
the whole class of similar drugs when prescribed in high doses or for
unapproved indications. Genentech became a victim of its own outstanding
success of two years ago and has suffered from two straight years of negative
stock price returns with investors believing that its growth had reached a
peak.
    
    Biotech IPOs finish strongly
    
    "Six biotech IPOs were completed in Q4 07," commented Burrill, "bringing
the number of new biotech IPOs in 2007 to 28 just about the number we
predicted would get done in the year (30). The total amount raised from these
IPOs was $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.
    The post IPO performance of these newly minted public companies was not
great with 60% of them closing the year below their opening share price.
Bucking that trend were notable gainers: Genoptix, Pharmasset and WuXi
PharmaTech. WuXi, a China-based biotechnology R&D outsourcing company raised
$212 million on the NYSE offering 15.1 million ADSs, at $14 per ADS, a 16.6%
premium to the midpoint of its proposed $11 to $13 range. The company's shares
closed the year up 121%. Genoptix provides specialized laboratory services to
hematologists and oncologists, raised $85 million pricing its 5 million share
offering at $17, above its proposed $14-$16 range. Investors liked the
company's prospects and the company's share price closed the year up 79%.
Pharmasset also fared well after raising $45 million in April with its IPO. It
is developing and commercializing novel drugs to treat viral infections and
buoyed by a partnership with Roche, the company's share value rose 50% by the
end of the year.

    "Investors are warming to the fact that the transition to a more
personalized medicine world is taking hold and companies such as Genoptix are
benefiting from this new reality," said Burrill. "We saw a 38% jump in the
value of our newly created Burrill Personalized Medicine Index and a 30%
annual jump in the Burrill Diagnostic Index. "Investors are taking a keen
interest in tools and platform companies once again. Personalized medicine is
creating the need for molecular diagnostics, biomarkers, genotyping assays,
etc. and so companies specializing in these areas have received positive
investor attention."



    Biotech Indices

    
                                                       %         %         %
                12/29     9/28    11/30    12/31    change    change    change
    Index        2006     2007     2007     2007     Month      Qtr      Year
    Burrill
     Biotech
     Select    303.96   348.75    354.62   331.52     -6.51%   -4.94%    9.07%
    Burrill
     Large
     Cap
     Biotech   424.56   450.85    479.27   437.71     -8.67%   -2.91%    3.10%
    Burrill
     Mid-Cap
     Biotech   171.55   199.75    200.94   201.89      0.47%    1.07%   17.69%
    Burrill
     Small
     Cap
     Biotech    143.6   137.03    130.92   137.60      5.10%    0.42%   -4.18%
    Burrill
     Genomics  101.69    96.62     98.88   104.29      5.47%    7.94%    2.56%
    Burrill
     AgBio     124.52   179.11    182.88   198.83      8.72%   11.01%   59.68%
    Burrill
     Indu-
     strial    150.85   157.54    158.03   158.66      0.40%    0.71%    5.18%
    Burrill
     Diag-
     nostic    122.79   169.72    158.37   159.43      0.67%   -6.06%   29.84%
    Burrill
     Nutra-
     ceutical  629.56   677.58    606.23   593.04     -2.18%  -12.48%   -5.80%
    NASDAQ    2415.29   2701.5   2660.96  2652.28     -0.33%   -1.82%    9.81%
    DJIA     12463.15 13895.63  13371.72 13264.82     -0.80%   -4.54%    6.43%
    Russell
     2000      787.66   805.45    767.77   766.03     -0.23%   -4.89%   -2.75%
    Amex
     Bio-tech  754.25   821.72    828.69   786.50     -5.09%   -4.29%    4.28%
    Amex
     Pharma    345.06   346.44    355.88   338.52     -4.88%   -2.29%   -1.90%
    Partnering still on a tear in 4Q
    
    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.
    US biotech companies followed up a stellar third quarter, where $7.6
billion was raised through partnering with another equally impressive $7
billion raised as big pharma continued its relentless drive to fill its
pipeline with biotech's innovation.
    New Product approvals way down in 2007

    "The disappointment this year is that the prevailing safety-conscious
attitude at the FDA is taking its toll on new drug approvals," noted Burrill,
'the total number of NMEs approved for the market was the lowest in almost a
decade. While this fact hasn't had a negative effect so far in terms of the
overall valuation of the biotech industry, investors have been harsh on a
number of individual companies that had their lead products receive a failing
grade from the FDA."



    
    Financings
                    2005                         2006
                    Total       Q1          Q2       Q3       Q4       Total
    Public
    IPO             $819       $252        $269     $49      $350       $920
    Follow-ons    $4,194     $1,522      $1,091    $419    $2,734     $5,766
    PIPEs         $2,376     $1,042        $295    $480      $210     $2,027
    Debt          $5,565     $5,421      $6,447    $373    $1,737    $13,978
    

    
    Private
    VC            $3,518       $734      $1,352  $1,100    $1,050     $4,236
    

    Other         $1,114       $115         $98     $90      $122       $425

    Total        $17,586     $9,086      $9,552  $2,511    $6,203    $27,352

    Partnering   $17,268     $6,436      $1,809  $4,218    $7,333    $19,796

    Total        $34,854    $15,522     $11,361  $6,729   $13,536    $47,148


    2007

    
                      Q1        Q2       Q3          Q4      Total
    Public
    IPO              $527      $900     $243        $371     $2,041
    Follow-ons     $1,055    $1,675     $453      $3,128     $6,311
    PIPEs            $370      $576     $515        $357     $1,618
    Debt             $862    $5,387     $440         $60     $6,749
    

    
    Private
    VC             $1,401    $1,130     $951        $963     $4,425
    

    Other            $267       $98      $75        $171       $611

    Total          $4,482    $9,766   $2,662      $1,915    $21,975

    Partnering      $4915    $3,783   $7,655      $7,012    $22,365

    
    Total          $9,397   $13,549  $10,317     $13,977    $44,340
    
    "Overall, biotech performed well on the capital markets but this did not
translate into an increase in value with the industry's collective market cap
finishing the year at $455 billion, down 8%. Contributing to the decrease was
the loss of several marquee companies being acquired by big pharma companies,
such as MedImmune's acquisition for over $15 billion by AstraZeneca, and
lackluster performances from Genentech and Amgen whose drop in share values of
17% and 31% respectively, lopped over $42 billion from the industry's market
cap.
    "All of our predictions for the industry's 2007 performance were right on
the mark," said Burrill. "The biotech industry has now reached a level of
maturity where even in tough years we will see approximately 30 IPOs getting
done -- collectively raising about $2 billion -- and about $50 billion being
raised annually, equally split between various forms of financing and
partnering.


    Burrill's Predictions for Biotech in 2008

    
    -- Capital markets in the US will remain turbulent during the first half
       of 2008 as investors "digest" year end earnings and Q1 results,
       especially a function of overall US market concerns about the
       continuing credit crisis and its impact on the economy. Biotech's elite
       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 once again
       outperformed the general markets and the DJIA and Nasdaq.
    

    
    -- We will see biotech IPOs continuing to get done, although
       valuations will still be problematic. Over 30 IPOs will be completed in
       the US in 2008 (the same as 2007), but mostly in the second half of the
       year.
    

    
    -- $50 billion will be raised by the US biotechs; and the industry's
       market cap will increase to $500B, despite continuing attrition as
       valuation is "lost" through M&As.
    

    
    -- Much the same as we have seen in 2007, the M&A trends that have been
       hot in biotech land during the past three years will not slow down.
       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.
    

    
    -- Partnering deals will remain at record levels and a significant portion
       of the $25 billion raised in "bioworld" dollars will be directed at
       gaining access to technology at an earlier stage in its development as
       companies strengthen their product indication franchises.
    

    
    -- We will continue to see US biotechs accessing capital
       overseas...especially on the public side...with Euronext and AIM
       leading the pack.
    

    
    -- The presidential campaign in 2008, will keep healthcare issues at the
       top of the political agenda. Along the campaign trail 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
       pharmacovigilence will be the story.
    

    
    -- Sales of products will continue to increase and more biotech companies
       will become profitable for the first time.
    

    
    -- Stem cell progress will continue, with more funding emanating from both
       public and private sources. There will be increased activity at the
       state level as they encourage stem cell development locally. However,
       during election year we will continue to see discord driven by opposing
       views on the morality of embryonic stem-cell research.
    

    
    -- Biosimilars will become more prevalent in Europe and pressure to
       approve biogeneric pharmaceuticals will increase in the US although
       establishing a legislative and regulatory path for the approval of
       biosimilars will have a hard time gaining any traction during 2008.
    

    
    -- Progress in biofuels will continue, as will the use of biotech in
       industrialized settings. The Energy Independence and Security Act will
       help catapult the US biofuels industry to the next level of commercial
       development.
    

    
    -- Biotech will continue to become more global as companies, particularly
       in the US, look to India and China for their manufacturing needs and to
       conduct clinical trials ... and ultimately for access to large markets.
    

    
    -- Overall, biotechnology in 2008 will be a good one for biotech,
       especially in the second half of the year. 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.
    


    
    A look back at Burrill's Predictions about 2007
    The Capital Markets
    
    Prediction: Capital markets in the US will be more robust than 2006 and
biotech's elite companies will outperform the DJIA and Nasdaq.
    Outcome: The Burrill Biotech Select Index out performed (+14%) both the
NASDAQ (+10%) and the Dow (+ 7%)
    Prediction: Biotech IPOs will pick up and improve on their lackluster
numbers during the past two years and over 30 IPOs will be completed in the
US.
    Outcome: 29 IPOs were completed in 2007 -- a 42% increase over 2006 --
collectively raising $2 billion (126% up over the 2006 total).
    Prediction: $40+ billion will be raised by the US biotechs; and the
industry's market cap will reach an all time high of $575B (a 15% year-over-
year increase)
    Outcome: Over $45B was raised in 2007; $22 billion in financings and $23
billion in partnering. The industry's market will close the year at around
$450 billion (Acquisitions shaved $30B).
    
    M&A/Partnering
    
    Prediction: The M&A trends, that have been hot in 2005 and 2006 in
biotech land, will not slow down with pharma desperate to access pipeline and
innovation. Both big pharma and big biotech will be competing for companies
with advanced product pipelines, as well as important land grabs of technology
such as the $1.1B acquisition of Sirna by Merck announced in November 2006.
    Outcome: Pharma/biotech and biotech/biotech consolidation continued to be
red-hot as pharmas looked increasingly outside for pipeline and access to
innovation ... Major deals in the year included:
    
        Big pharma/biotech:
        AstraZeneca/MedImmune $15.6 billion
        Eisai/MGI Pharma $3.3 billion
        GSK/Reliant Pharmaceuticals $1.65 billion
    

    
        Biotech/biotech:
        Celgene/Pharmion $2.68 billion
        Shire/New River Pharmaceuticals $2.6 billion
        Inverness Medical/Biosite $2 billion
    
    Prediction: There will be no slow down in partnering deals and a
significant portion of the $15 billion raised will be directed at gaining
access to technology at an earlier stage in its development as companies
strengthen their product indication franchises.
    Outcome: Partnering generated approximately $25 billion for US biotechs
-- a record. Strategic partnering is now recognized as a key ingredient for
the lifeblood of the biotech industry, and has become essential to maintaining
a competitive edge.
    Prediction:  We will see US biotechs accessing capital
overseas...especially on the public side...with Euronext and AIM leading the
pack...but also new structures will appear, which allow companies to float in
Japan (on Mothers) and other regional exchanges (Singapore, SWX, etc.).
    Outcome: The increasing costs of listing on US markets due to Sarbanes
Oxley compliance, as well as the relative ease of listing on Euronext and AIM
has started to attract US biotech companies to list on these foreign
exchanges.
    Prediction: Issues that will dominate the 2007 political agenda include:
FDA reauthorization and NIH spending levels. We will see heated debate on
healthcare during the early campaign trail for the 2008 presidential election
and this could have negative repercussions on the industry in general.
    Outcome: On September 27, 2007, President Bush signed into law the Food
and Drug Administration Amendments Act of 2007 which includes the
reauthorization and expansion of the Prescription Drug User Fee Act. The
reauthorization of PDUFA will significantly broaden and upgrade the agency's
drug safety program, increase resources for review of television drug
advertising, and facilitate more efficient development of safe and effective
new medications for the American public.
    Prediction: Stem cell progress will continue, with more funding emanating
from both public and private sources. There will be increased activity at the
state level as they encourage stem cell development locally.
    Outcome: In the early part of 2007 the subject of stem cells dominated
both the science and the political agenda. Technology advanced on all
continents while US politics served to create a not so ideal environment for
research and investment community domestically.
    Prediction: Biosimilars will become more prevalent in Europe and pressure
to approve biogeneric pharmaceuticals will increase in the US ... and the
industry's protection through the manufacturing process will be whittled away.
    Outcome: The drive for cost savings by healthcare providers is increasing
the focus on boosting the biosimilar market. With a regulatory approval
pathway in place in Europe and substantial guidelines to support biosimilar
development, the European biosimilars market is significantly more advanced
than the US, where plans for a biosimilar regulatory approval pathway have
stalled. Supporters of a follow-on biologics approval pathway have not given
up, even though biosimilar legislation was not included in the FDA Amendments
Act that was passed in September.
    Prediction: Progress in biofuels will continue, as will the use of
biotech in industrialized settings, and significantly more capital will be
raised along with more immediate commercialization.
    Outcome: The debate on energy security and climate change has placed
biofuels back at the top of political agendas around the world. The Energy
Independence and Security Act will catapult the US biofuels industry to the
next level of commercial development. It will accelerate the creation of a
U.S. biobased economy built on sustainable and renewable resources instead of
petroleum.
    Prediction: Biotech will continue to become more global as companies,
particularly in the US, look to India and China for their manufacturing needs
and to conduct clinical trials.
    Outcome: The predicted increase in the growth of biotech internationally
continued to take place in 2007 with China and India leading the way. Other
countries such as Taiwan, which plans to invest $1 billion to attract foreign
biotech companies, Singapore, Malaysia, Korea, Vietnam, Chile, and Brazil have
put their hats in the ring and plan to lever their biotech assets to help grow
their economies.
    Prediction: More pressure from payers (managed care, CMS, various country
health ministries) resulting in more product bundling, more personalized
medicine, less "blockbusterology" (fewer "one size fits all" drugs).
    Outcome: The debate on a government price controls system on the drug
industry as a whole is a major issue. Payers have become more demanding of
drug companies to justify the cost of a drug with true clinical utility.
    
    About Burrill & Company
    
    Founded in 1994, Burrill & Company is a San Francisco-based global leader
in life sciences with activities in Private Equity, Venture Capital, Merchant
Banking and Media. The Burrill family of venture capital funds has over $950
million under management and its merchant banking business is one of the
industry leaders in life sciences transactions. The company's 60 person
scientific and business team, supported by its 40-person Advisory Boards, the
strategic and financial network of its limited partners, and the close
relationships developed with numerous life sciences companies and management,
provide Burrill with unparalleled access and insight.
    Burrill is the creator, sponsor and facilitator of over a dozen leading
industry conferences worldwide and publishes a wide range of bio-intelligence
reports including: The Personalized Medicine Report, The Stem Cell Report, and
periodic newsletters covering Canada, China, Europe, India, Japan and
Partnering/M&A. In association with the California Healthcare Institute,
Burrill publishes The Journal of Life Sciences -- a bimonthly magazine.
Burrill's flagship publication is its annual "State of the Industry" report,
the most recent 21st Edition being Biotech 2007: Life Sciences - A Global
Transformation. The 22nd Edition is entitled Biotech 2008: Life Sciences - A
20/20 Vision to 2020, available 1Q '08. These publications provide the latest
insight, intelligence and information on the life sciences industry.




For further information:

For further information: Peter Winter, Editorial Director of Burrill & 
Company, +1-415-591-5474, pwinter@b-c.com Web Site:
http://www.burrillandco.com

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