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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 |
