Thursday August 1, 6:02 am Eastern Time
Press Release
SOURCE: Burrill & Company
July Brings a Little Relief to Biotech
Biotech Outperformed the DJIA and Nasdaq
SAN FRANCISCO, Aug. 1 /PRNewswire/ -- July was a brutal month on Wall Street with more announcements of corporate fraud fueling investor fears. The Conference Board's monthly index of consumer confidence dropped to 97.1 in July from 106.3 in June-the largest decline since last October following the 9/11 attacks. Even though President Bush signed the corporate reform bill (the Sarbanes-Oxley Act) into law on July 30, 2002, the tougher criminal penalties for corporate wrongdoers have come a little too late to effect a significant turnaround in investor sentiment. The Burrill Biotech Select Index gained nearly 2% during the month, outperforming both the Nasdaq (down 9%) and the DJIA (down 5%). "July certainly hasn't been a month for the faint of heart," said G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank. "The market has gone from bad to worse and although we've experienced a few bounces during the month, concern about whether the market has bottomed is keeping investors at bay," he said.
"There's no question that biotech is being dragged down with the rest of the market," Burrill continued. "Investors have punished biotech companies far more severely for product delays and withdrawals from clinical trials than they have rewarded them when the news on the product front has been good," he said. "Look at Amgen (AMGN). The company's stock value rose by 9% during July ending the month at $45.64 per share, still way off from its 52-week high of $69 per share," Burrill added, "One could argue that Amgen is now in a far superior position today with its $11.1 billion acquisition of Immunex Corporation (IMNX) complete and a drug pipeline that now includes blockbusters such as Epogen, Neupogen and Enbrel, as well as the more recently marketed Aransep, Neulasta and Kineret. On top of all that, Amgen's second quarter earnings, announced on July 24, were up a whopping 28%," said Burrill. "Clearly, even a winning strategy, positive earnings results, a very impressive roster of products, and a healthy outlook aren't enough to stimulate a dramatic recovery in value," he added.
"While investors have downgraded the price-to-earnings-growth (PEG) ratios for profitable biotechs from an average of 2.4 to an average of 1.5 (compared to pharma's current PEG average of 1.7), it's not entirely clear why," said Burrill. Seven of the 11 profitable biotechs have thus far beaten analysts' predictions and three others made their numbers. In contrast, only three of the 12 largest pharmaceutical companies beat their numbers. "Regardless of how biotech is being treated by Wall Street, the industry is making significant progress. While in past bear markets biotech's resurgence has followed that of big pharma, we may see a different scenario unfold this time around," Burrill said. "If investors are savvy enough to distinguish the two segments and judge them separately, the appetite for biotech could well return first," he said. "There's a 50/50 chance that Medimmune's (MEDI) FluMist will be available for the upcoming flu season and Vevesca (Zavesca in Europe), Oxford Glycosciences' (OGS) drug for Gaucher's disease just received approval from the European Agency for the Evaluation of Medicinal Products. Cailis, the investigational PDE5 inhibitor for the treatment of erectile dysfunction developed by ICOS Corporation (ICOS) and Eli Lilly (LLY) also just received a positive opinion from the European Commission on Proprietary Medicinal Products," he noted.
One possible shot in the arm for the ailing pharmaceutical sector is Pfizer's (PFE) proposed $53 billion acquisition of Pharmacia (PHA). Once approved, the all-stock deal will create a mega pharma giant with an estimated 11% market share. "This acquisition may spark more consolidation within big pharma which might well have a positive impact on the value equation for the industry and might help to bring stock prices up- for pharma and biotech alike," Burrill remarked. "Wall Street seems to like the notion with stock prices on the rise for both companies."
The biotech industry's market cap, $205 billion, compared to the June figure of $228 billion, is way off from where the industry started at the beginning of the year with a market cap of $382 billion. "While there are plenty of dour forecasts in the media these days and much talk of a continuing bear market, some of us are far more confident," explained Burrill. "It's not simply optimism that prompts me to believe that we'll see some upward momentum in the sector before the year is over, it's progress. Biotech is making enormous strides on multiple fronts including drug discovery, the development of improved crops and more nutritious food, and the creation of bio-based fuels and plastics. With stock prices hovering at or near cash value per share, the upside potential is tremendous," he added. "Investors aren't going to leave their money on the table forever."
"For now, though, investors are eschewing the opportunity to reenter the fray," said Burrill. "The genomics sector, in particular, is trading at a fraction of its former value. Consider Affymetrix (AFFY)-the company announced on July 24 that its loss narrowed in the second quarter amid rising demand for its chips. Revenues totaled $58.6 million for the second quarter, up from $42 million in the same period in 2001. By anyone's standards, that's good news, but Affymetrix stock took a dive in July, ending the month off by 26%," he noted. The Burrill Genomics Index fell 14% in July, experiencing a slight rally on the last day of the month. In addition to Affymetrix, Nanogen (NGEN), Gene Logic (GLGC), and Caliper (CALP) sustained major declines in value with shares down by 40%, 37%, and 41%, respectively. "Gene Logic announced an earnings shortfall on July 29 and Nanogen which saw its share price soar in the aftermath of the anthrax scare is now trading at all time lows," Burrill noted.
The Burrill Select Index was up 2% for the month and down 42% YTD. ICOS (ICOS) which shed 25% of its value in June, regained that and then some in July, with share prices increasing by 44%. At the heart of the company's recovery was the good news about Cialis from European regulators along with the company's expectation of winning US approval in the second half of next year. Human Genome Sciences (HGSI), , Geron (GERN), and Protein Design Labs (PDLI) also reclaimed lost ground with gains of 29%, 14%, and 25%, respectively. However, Maxygen (MAXY), the only company in the index to experience an uptick in June (up 19%) saw the value of its shares decline by 25% in July.
The Burrill Diagnostics Index which, until June, was up by slightly more than 1% since the start of 2002, fell for the second month in a row ending July down by 14%, and off 22% YTD. Only Idexx Laboratories (IDXX) posted significant gains. The company's share price increased by 14% during July, based largely on its mid-month announcement of a 30% rise in quarterly profits. Exact Sciences (EXAS), which gained 21% in value during June, saw share prices tumble 23% in July. Cepheid (CPHD), another popular biodefense play in the post-anthrax era, experienced a 49% drop in share prices after posting a second quarter net loss of $5.5 million compared to a loss of $4.1 million a year earlier. Shares of Digene (DIGE) continued their free-fall, dropping 45% on the heels of its souring deal with Cytyc and its announcement of missing revenue targets. As if that weren't enough, the company said that it expected to receive a non-approvable letter for its TriPath SurePath Test Pack.
The Burrill Large-Cap Biotech Index gained a fraction of a percent in July, down 39% YTD. Genzyme (GENZ), which was hammered in June (down 40%) gained back 18% of its value in July, based largely on meeting analysts' reduced expectations regarding the company's second quarter earnings. In addition, Human Genome Sciences (up 29%) and Icos (up 30%) were winners this month. Biogen (BGEN) continued its slippery slide in July losing 13% in share value. The company's second quarter profit, announced mid-month, was off by 40% from the previous year.
The Burrill Mid-Cap Biotech Index fell by nearly 2% in July with Ligand Pharmaceuticals (LGND) leading the losers in the segment. Ligand's shares were down 38% in July, closing at $8.96-a four-year low for the company. Weak orders and lower demand for its cancer drugs were two reasons cited for lower than expected second quarter revenues. Exelixis (EXEL) saw the value of their shares decrease by 8% and several other companies including Orchid Biosciences (ORCH) saw share prices slide for no particular reason. Shares of Orchid slipped 27% during July. Shares of Kos Pharmaceuticals (KOSP) also took a beating and were down by 26% in July, despite the release of a positive study linking the company's Niaspan medication to a reduction in the risk of heart disease among people with late onset diabetes.
The Burrill Small-Cap Index shed nearly 19% of its value during July and is down 49% YTD. "The small cap companies are barely treading water," Burrill said. "Well over half of these companies are trading under $3 per share and several are valued at less than a dollar a share. The losses keep mounting and some of these companies may run out of steam pretty soon," warned Burrill. Nearly every company in the index saw share values diminish. Many sustained losses of 30% or more. Tripos (TRPS) took a mighty slam (down a whopping 70%) although its second quarter results were in line with the company's guidance.
The Burrill Agbio Index fell by 3% in July-the segment's first major dip since the start of the year. Large Scale Biology, which had such a stellar performance in June (up 66%) gave back some of its ground in July, ending the month off by 31%. The lower share price was due, in part, to the company's announcement of a second quarter net loss of $9.6 million, compared to a net loss of $3.9 million for the second quarter of 2001. Paradigm Genetics (PDGM) which sustained another drop in value in July (down 33%) announced the appointment of its new President and CEO, Dr. Heinrich Gugger. "This is clearly the next step for Paradigm Genetics-to bring in a seasoned business leader with commercial experience to lead the company," said Burrill. Dr. Gugger led the merger integration between Norvartis Crop Protection and Zeneca Agrochemicals while he served as Syngenta's first president.
The Burrill Nutraceuticals Index fell 9% in July and is down 11% YTD. Martek Biosciences (MATK) took the biggest hit in July with share prices declining by 31% despite the fact that the company received a favorable ruling from the European Patent Office for its DHA-enriched oil. All but two of the rest of the companies in the index also posted losses. The exceptions-Twinlab (TWLB) and Cyanotech Corporation (CYAN) posted gains of 23% and 11%, respectively.
A review of the Burrill Life Sciences Indices for July 2002 is as follows:
Index 12/31/01 6/28/02 7/31/02 Percent Percent
Value Value Value Change Change
for YTD
Month
Burrill Biotech
Select Index 313.32 178.69 182.16 1.94% -41.86%
Burrill LARGE-CAP
Biotech Index 317.87 191.43 192.58 0.60% -39.42%
Burrill MID-CAP
Biotech Index 232.91 135.71 133.51 -1.62% -42.68%
Burrill SMALL-CAP
Biotech Index 174.65 108.95 88.27 -18.98% -49.46%
Burrill Agbio
Index 75.69 75.29 72.93 -3.13% -3.64%
Burrill Genomics
Index 253.49 123.22 106.25 -13.77% -58.08%
Burrill Biomaterials/
Bioprocess
Index 109.34 97.66 86.55 -11.38% -20.85%
Burrill Diagnostic
Index 84.92 77.03 65.86 -14.49% -22.44%
Burrill
Nutraceuticals
Index 127.62 125.12 113.46 -9.31% -11.09%
Burrill Life
Science Composite
Index 167.40 122.43 113.67 -7.15% -32.10%
Index 12/31/01 6/28/02 7/31/02 Percent Percent
Value Value Value Change Change
for YTD
Month
Burrill Biotech
Select Index 313.32 178.69 182.16 1.94% -41.86%
NASDAQ 1950.42 1464.9 1328.3 -9.33% -31.90%
DJIA 10021.57 9243.3 8736.6 -5.48% -12.82%
Russell 2000 488.50 462.7 392.4 -15.18% -19.67%
Burrill & Company
Burrill & Company is a life sciences merchant bank, focused exclusively on companies involved in biotechnology, pharmaceuticals, diagnostics, human healthcare and
related medical technologies, agricultural technologies, nutraceuticals, and biomaterials/bioprocesses.
Venture Capital
The Burrill family of venture capital funds, with over $350 million under management, includes the Burrill Biotechnology Capital Fund, the Burrill Diagnostics Fund, the Burrill Agbio Capital Fund and its successor-the Burrill Agbio Capital Fund II, the Burrill Nutraceuticals Capital Fund, the Burrill Biomaterials/Bioprocess Capital Fund and the Burrill Life Science Capital Fund, currently under development.
Strategic Partnering
Burrill & Company assists life science companies to identify, negotiate and close strategic partnerships providing access to resources, technologies or collaborations essential for executing their business plans. We have completed more than 20 strategic partnerships with a value in excess of $1 billion.
Spin-outs/Spin-ins
Burrill & Company works with major life science companies to spin-out internal assets and capitalize on their value, ranging from the outright sale of products or businesses to creation of new companies to exploit these assets. We also use our extensive network to help companies identify, assess and capture ("spin-in") products and companies strategic to building their businesses.
BioStreet(TM)
Burrill & Company's BioStreet(TM) is an internet-based life sciences transaction service which enhances dealmaking capabilities by offering a broad range of services designed to streamline and facilitate deals. BioStreet combines the efficient distribution power of the worldwide web with the scientific skills and strategic relationships necessary for concluding successful transactions.
For more information, please visit Burrill & Company's website at www.burrillandco.com.
SOURCE: Burrill & Company |
