Tuesday April 1 8:04 AM EDT
Biotech Financings in First Quarter 1997
3.2 Percent Ahead of Previous Quarter
SAN FRANCISCO, April 1 /PRNewswire/ -- The biotechnology industry continued its momentum
from the last quarter of 1996, reports private merchant bank Burrill & Company, raising
approximately $1.4 billion in financings (including public offerings and venture funding), up nearly
$46 million compared to 4Q96 figures. (This represents an increase of 3.2 percent; see table
following.) According to Burrill & Company's analysis, public offerings alone accounted for $914
million in funds in the first quarter of 1997. Partnering agreements were $393 million (disclosed
amounts), compared to $422 million in the previous quarter.
"The first quarter held strong for biotech in almost all categories; this is especially encouraging since
we believe that Wall Street is still in the process of 'digesting' the record amount of offerings
completed in 1996. Many shareholders are continuing to seek performance from the companies
they own before they are willing to dip back into the market, and yet we are seeing significant
activity in follow-on public offerings and in the private markets," commented G. Steven Burrill.
"One additional trend we've seen is that companies with higher market capitalization, such as those
represented in the AMEX Biotech Index, are viewed very differently from earlier-stage firms," Mr.
Burrill added. "Negative R&D news from the smaller firms no longer greatly impacts the trading in
top-tier companies, which themselves are being judged more by business and operating results."
Since the first quarter of 1996, the AMEX Biotech Index, consisting of 15 companies, has risen 3.5
percent.
"We've also seen the re-emergence of innovative, non-traditional financings, such as Cephalon's
recent $30 million private placement in senior convertible notes, and the $25 million equity line for
Connetics Corp.," continued Mr. Burrill. "The re-emergence of these creative funding methods, as
were the so-called 'SWORD' or 'SWORD'-like deals we saw in the early 90's will grow in
popularity during the next several years." SWORD financings are off-balance sheet research and
development arrangements which first came to public attention in the late 80's when Alza pioneered
the concept in biotech. (They were then followed by numerous transactions by Genentech,
Genzyme, Centocor and others.)
Based on its analysis of the industry's performance to date in 1997, Burrill & Company projects:
-- More product approvals in the next 6 months (expected approvals are Cephalon's Myotropin for
the treatment of ALS and IDEC's C2B8 for the treatment of non-Hodgkin's lymphoma) continuing
to fuel investor excitement.
-- Volatility in market performance, especially driven by broader market trends.
-- Selectivity in the financing markets with the public being more discriminating and more
participation by the private investor.
-- More strategic partnering around the enabling technology toolbox.
-- Continued consolidation within the large pharmaceutical arena in response to the need for new
and innovative products.
First Quarter '97 Alliances and Acquisitions Wrap-Up
Mergers and acquisitions this quarter were often spurred by the need to expand companies'
"enabling toolbox," the technology base -- ranging from genomics to drug delivery -- that provided a
foundation for program portfolios and product R&D. Similarly, alliances were driven by promising
development platforms, especially those that provided greater access to disease gene databases.
Significant deals included:
-- Agouron Pharmaceuticals Inc and Japan Tobacco sold the European and non-US, non-Asian
marketing rights for the AIDS drug Viracept to Hoffman-La Roche for up to $40 million. Within the
same week, Agouron reported pivotal data demonstrating that Viracept was most effective in
combination with two currently marketed drugs, AZT and 3TC. (See below for additional news.)
-- Allelix Pharmaceuticals allied with Aurora Biosciences in a deal valued up to $47 million to gain
access to the latter's high-throughput capabilities. Allelix is focused on central nervous system and
hormone- and gene-related diseases, with one lead product in a Phase II trial for osteoporosis.
-- ALZA Corp purchased roughly 5% of shares of U.S. Bioscience (AMEX: UBS), whose lead
product, the chemoprotective agent Ethyol, was introduced to the market in 1996 and is being
co-promoted by the two companies. Alza also took a roughly 10% stake in Alkermes Inc . Both of
these companies develop sustained-release drug delivery systems; while Alkermes is a
development-stage firm, Alza's products on the market include Procardia XL, and the transdermal
patch used in Nicoderm CQ.
-- Ariad Pharmaceuticals Inc and Hoechst Marion Roussel committed to a potential $85 million
joint venture to identify new therapeutic proteins and other genetic disease targets for regulation with
small molecule compounds.
-- Biomatrix Inc signed a potential $23 million deal with American Home Products for marketing
rights in select markets for Synvisc, Biomatrix' osteoarthritis knee treatment. Biomatrix' other
Synvisc marketing partners include Rhone-Poulenc Rorer, Roche Holding Ltd., and Boehringer
Ingleheim GmbH.
-- A deal worth up to $68 million brought together Cadus Pharmaceuticals' functional genomics
capabilities with SmithKline Beecham's own gene sequencing platforms. SmithKline is also working
with genomics partner Human Genome Sciences Inc to sequence G protein-coupled receptors, the
primary focus of Cadus' R&D programs.
-- Corvas International Inc initiated a potential $31 million collaboration with Pfizer Inc. to develop
Corvas' neutrophil inhibitory factor (NIF) to prevent brain damage associated with ischemic stroke.
Corvas is also working with Schering-Plough Corp. on two oral anti-coagulants.
-- Oral delivery of two undisclosed endocrine proteins was the subject of a potential $60 million
deal between Emisphere Technologies Inc and Eli Lilly. Emisphere is also working with Elan
Corporation PLC for oral delivery of heparin; Lilly's other drug delivery partners are Theratech Inc
(Utah) and Inhale Therapeutic Systems .
-- GenPharm International and Centocor Inc signed a deal worth up to $57 million to develop
completely human antibodies against several unnamed antigens. These efforts will be based on
GenPharm's HuMAb-Mouse strain, which contains functional human antibody genes.
-- A controlling interest (68%) in Innovir Laboratories Inc was acquired by VIMRX
Pharmaceuticals Inc . Both companies focus on gene expression technologies, in particular, the
development of enzymes (oligozymes) that can inhibit RNA molecules associated with disease.
Later in the quarter, VIMRx formed a new subsidiary with Columbia University in an estimated $30
million collaboration to discover genes believed to be factors in select cancers.
-- Magainin Pharmaceuticals Inc partnered with SmithKline Beecham in a potential $32 million deal
for Magainin's Cytolex, a treatment for diabetic foot ulcers. Magainin announced successful results
from a second pivotal trial for Cytolex and is preparing the submission of a New Drug Application
to the FDA.
-- Medicis Pharmaceutical Corp completed an up to $31 million acquisition of two products for
inflammatory skin disease from Roche Holding's subsidiary Syntex.
-- Millennium Pharmaceuticals Inc acquired privately held ChemGenics Pharmaceuticals in a stock
swap of nearly $90 million. The merger combined Millennium's human disease gene discovery with
ChemGenics' microbial genomics capabilities and technologies for selecting drug candidates and
analyzing their effects on gene expression.
-- Progenitor acquired Mercator Genetics, combining the latter's human disease gene discovery
techniques with the former's functional genomics capabilities. Progenitor subsequently revived its
filing for an initial public offering in March (proposed Nasdaq: PGEN)
-- Somatix Therapy was acquired for $83 million by Cell Genesys Inc , which is focused on
developing treatments for AIDS and cancer.
-- The remaining 27 percent of SyStemix was acquired by Novartis AG, which also owns the
former Genetic Therapy, Inc. SyStemix' focus is on cell-based therapies for cancer, infectious and
autoimmune diseases.
The Quarter's Product News
Product news for the quarter hit both highs and lows. A Tufts University study showed that review
time to approve drugs by the U.S. Food & Drug Administration dropped a full year from the early
'90's to mid-decade. However, during this same period, time spent on clinical trials by companies
increased more than one year, to an average of 7.2 years.
Similarly, reports on clinical and regulatory progress were mixed. In January, Regeneron
Pharmaceuticals Inc lead product, called brain-derived neurotrophic factor (BDNF), failed to show
efficacy in a Phase III trial for treating amyotrophic lateral sclerosis (ALS). Immediately following
the news, Regeneron shares fell more than 40 percent, but there was significantly less stock slippage
for marketing partner Amgen Inc . This is Regeneron's second lead product to fail in Phase III, but
the company's pipeline still remains substantial, with products including neurotrophin 3 for peripheral
neuropathy and interleukin-6 for cancer.
The following month, Genetics Institute received its first marketing license from the FDA, for its
hemophilia B drug, BeneFix (recombinant Factor IX protein). The company, a recently acquired
subsidiary of American Home Products, has developed two additional products -- erythropoietin
(EPO) and granulocyte-macrophage-colony-stimulating factor (GM-CSF) -- which are now on the
market but were commercialized by other partners.
The most widely publicized industry news was the success of British-based PPL Therapeutics'
(LSE: PTH) efforts to clone a fully developed adult animal, in this case, a sheep named "Dolly". Dr.
Ian Wilmut, of the Roslin Institute, became an instant celebrity, and the House Subcommittee on
Technology was spurred to open discussions on the regulation of cloning research, especially with
regard to potential human cloning. (Prior to these discussions, President Clinton issued a directive
banning the use of federal funds for research into cloning humans.) Meanwhile, initial excitement bid
up not only PPL stock, increasing roughly 1/3 since the news of "Dolly" but also shares of Genzyme
Transgenics Corp , also working on genetically engineered animals. Excitement will subside
regarding these two companies but genetic cloning and its application to protein production in animal
and plant systems will remain a significant issue.
In March, the Cardiovascular and Renal Drugs Advisory Committee to the FDA decided that the
data in support of Cor Therapeutics Inc INTEGRILIN(TM) product to inhibit platelet aggregation
was insufficient to recommend approval. COR's stock dropped less than one-third immediately
following the Panel meeting. Later in the month, Agouron received a marketing license for Viracept,
an HIV protease inhibitor for treatment of adults and children. Viracept, and Abbott Laboratories'
HIV protease inhibitor, Norvir, which was cleared at the same time, became the first two products
on the market specifically licensed for children with this infection. Near the end of the month,
Oravax Inc stock dropped nearly 50 percent following news of Phase III results of the company's
monoclonal antibody against respiratory syncytial virus (RSV) infection in children. This product,
designated HNK20, was found not to achieve its primary endpoint, reduction of hospitalizations.
Burrill & Company
Burrill & Company is a private merchant bank investing in and advising private and public life
sciences companies. Burrill & Company, through its seasoned management team and board of
scientific and business advisors, offers a unique blend of financial, managerial, scientific and
operational experience to the sector.
Burrill & Company's current portfolio includes major international pharmaceutical and life sciences
companies.
Burrill & Company co-sponsors The Biotech Meeting at Laguna Niguel (with Kleiner Perkins
Caufield & Byers) and the annual International Life Sciences Partnering Conference (with Brobeck,
Phleger & Harrison, Ernst & Young, Health Science Capital Partners, and Vector Securities
International). G. Steven Burrill also co-authors Ernst & Young's annual U.S. and European
biotechnology surveys (most recently, Biotech 97: Alignment and European Biotech 96: Volatility &
Value).
Biotech Industry Fundraising
($ in Millions)
IPO Secondary Private Partnering* Venture Other Total
Public Capital
1st Quarter
1997 $192 $722 $295 $124 $23 $119 $1,475
1st Quarter
1996 $304 $896 $216 $414 $51 $147 $2,028
4th Quarter
1996 $192 $457 $139 $422 $9 $210 $1,429
* Partnering figures based on upfront payments and equity investments only. Burrill & Company
Press Announcement SOURCE Burrill & Company |
