There are some mistakes in some details here (e.g., MOGN's Irofulven has not been abandoned by any means), but still a worthwhile summary of the miserable year so far:
Wednesday June 12, 6:35 am Eastern Time
Press Release
SOURCE: Burrill & Company
Biotech Flails in 2002 While Investors 'Wait It Out'
The Biotech Industry is Feeling Big Pharma's Pain, but a Turn Around Looms In the Offing ...
SAN FRANCISCO, June 12 /PRNewswire/ -- After a strong finish in 2001, biotech is back in the dumps. The dark shadow of suspicion and caution generated by the ImClone debacle has been exacerbated by a continuing flow of product disappointments and clinical failures. Platform companies have remained in Wall Street's penalty box -- even those like Celera and Incyte who have taken great pains to overhaul their business strategies and management teams. More than one third of the publicly traded biotech companies have seen the value of their stocks shrink by 50% or more since the start of the year and investors are stalled on the sidelines ... waiting. The Burrill Biotech Select Index (down 36% for the year as of May 31, 2002) has trailed the DJIA (down less than 1% during the same period) and NASDAQ (down 17% as of May 31, 2002) for most of the year.
"The first five months of 2002 have delivered no end of headaches to the biotech industry ... and to big pharma," noted G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank. "The top 15 pharma companies have lost over a quarter of their value -- $396 billion -- since the end of 2000. Biotech's market cap (as of May 31, 2002) now stands at $255 billion, a far cry from February 2000 when the industry was valued at nearly $500 billion," said Burrill. "But this is hardly the time to put on the black armbands and write the industry's obituary. On the contrary, there is still money flowing into the segment ($7.2 billion this year as of May 31, 2002, compared with $3.8 billion during the same period of 2001). What's more, biotech has 350+ drugs in later stage clinical trials and despite all the trials and tribulations with the FDA, many of these products are destined for a bright future," he added.
"Biotech has a history of peaks and valleys," Burrill explained. "We've seen some major slumps -- in 1984-1985, 1988, 1994, 1997-1998, and 2001 -- and the industry has always rebounded. In the last two years, we've gone from the elation surrounding the mapping of the human genome early in 2000, through a period of adjustment and correction, the tragedy of 9/11, the birth of biodefense and some record-breaking deals, ImClone, Elan, product setbacks, a stumbling economy, and now we are at a bottom," said Burrill. "Investors have shifted from nervousness to fear, to skepticism, but the end is in sight. The good news is that we are entering into an era of considerable investment opportunity," he continued. "The interest in biotech is tremendous with momentum gathering in Europe, Asia, Australia, Canada, and Latin America," he said. "What the last 30 years has taught us is that biotech is able to finance itself and grow, regardless of the vagaries of the economy and Wall Street's interest levels."
Wall Street: Finicky and Confused
Biotechnology has the advantage and disadvantage of being so revolutionary that it is at the same time both tantalizingly exciting and frighteningly unpredictable. Since the industry began some 30 years ago, the market has been characterized by its volatility. "Wall Street has always had a love/hate relationship with biotechnology," explained Burrill. "In the wake of ImClone, not to mention Enron and Elan, it's a very different world on Wall Street than the elation we saw surrounding the early mapping of the human genome," he said. "Now, Wall Street is grappling with the harsh truth about clinical trials -- failures are many ... successes few. The fact that the pharmaceutical industry has its own serious woes with patent expires looming and products that are stalling out in the approval process certainly doesn't help."
Wall Street has been punishing indeed. The Burrill Genomics Index had lost 46% of its value this year by the end of May. Mid-cap companies have fared worse than their larger and smaller brethren with the Burrill Mid-Cap Index down 37%, the Burrill Small-Cap Index down 32% and the Burrill Large-Cap Index down 30% -- all as of May 31. While biotech outperformed the NASDAQ and DJIA consistently during 2000 and 2001, this has not been the case in 2002. During the first five months of 2002, NASDAQ shed 17% of its value, while the DJIA is off by only 1%. "Public market investors aren't convinced that they need to own these stocks now," commented Burrill. "They believe they can wait, still have nearly all the upside and own less of the downside risk," he said. "But while the economy is showing signs of recovery -- albeit slow -- investors are sitting it out, waiting for momentum to return," he said.
"The interesting paradox here is that biotech's fundamentals are in good shape. The science has never been stronger, the technology has never been more powerful, and the potential for biotech's success has never been greater. But we're in the midst of a power shift between big pharma and biopharma, if you will, and Wall Street is trying to figure out which companies will be tomorrow's Amgen," said Burrill. "The truth is, biotech companies may be the more likely successors to big pharma than big pharma itself. Still, Wall Street, if it behaves as it has in the past, is likely to be late to the party," he noted. "The markets will be back before anyone on Wall Street says it's time to invest. Why? Because on a quieter level, investors are returning to the sector through PIPES and other means ... and there is more interest in biotech on the part of big companies, not just pharmaceutical companies, but informatics companies like IBM who have made life sciences a big focus of their business endeavors. Biotechnology is also being embraced by big players in the food, agriculture, consumer products, materials, and chemical industries," he continued.
"The industry got redefined with the explosion of genomics twenty-five years into its history," said Burrill. "Biotech has been reengineered around a brand new set of sciences and that has caused an explosion both of new companies and public market interest. The capital market environment has been particularly brutal over the last 12 months and now most of the 'Class of 2000, 2001, and 2002' are all under water," he noted. Indeed, since going public InforMax has shed 93% of its value, Ista Pharmaceuticals is down 91%, and Pharsight and Eden Bioscience have both lost 88%. Although biotech companies had an average earnings gain of 11%, the average share price declined by 25%.
IPO Values Then and Now:
Name Ticker Offering 6/3/02 %
Price ($) Close Decrease
Price
Class of 2000:
Eden Bioscience EDEN 15 1.75 88%
Dendreon Corp DNDN 10 2.52 75%
Diax Corp. DYAX 15 4.06 73%
ViroLogic VLGC 7 2.78 60%
Pozen POZN 15 4.96 67%
Ista Pharmaceuticals ISTA 10.5 0.92 91%
Genencor GCOR 18 9.67 46%
Applied Molecular Evolution AMEV 19 5.71 70%
Ciphergen Biosystems CIPH 16 4.52 72%
Orapharma OPHM 18 4.34 76%
Informax INMX 16 1.14 93%
deCODE DCGN 18 4.05 78%
Pharsight PHST 10 1.25 88%
Average Dec. 75%
"Is this a good time to invest? The answer is yes," answered Burrill. "Many stocks are dramatically undervalued, at least against any historical precedent. However, if investors are expecting the market to turn in the next three months, that's an unlikely occurrence. Still, if they invest smartly for a return over the course of the next few years, they'll likely do well," he continued. "The drivers will be a good economy, excitement about technology in general, some good clinical developments where products are getting approved again, increased product sales, some reasonable growth in terms of profitability, and M&A transactions at premiums of 30-50% over current market prices" noted Burrill. "Moreover, the innovation shortfall that has hit big pharma augurs well for the value that biotech can bring. And deals like the recent $480 million dollar transaction between Aventis and Genta show us that this industry is continuing to create real value ... and more of that will be necessary before we see broad scale investor interest return."
The Product Blues
2002 has been a miserable year for product approvals. In addition to ImClone's well publicized problems with Erbitux, ICOS, Corixa, Sepracor and ViroPharma have had products rejected or delayed by the FDA in the last six months. In addition, a number of companies including Dendreon, Vertex, Corvas, Protein Design Labs, Human Genome Sciences, Miravant Medical Technologies, Emisphere Technologies, Abgenix, Cubist Pharmaceuticals, Neotherapeutics, IntraBiotics, and Neose Technologies have had compounds fail in clinical trials. "Product approvals has been few and far between," said Burrill, "and at a time when both pharma and biotech could use a few success stories," he added. "To date, only five biological license applications (BLAs) have received the agency's blessing, and one analyst was quoted recently as saying that some 80% of the products that many expected to come to market this year from both biotech and pharma are, essentially, dead in the water," he noted. "So where is the very necessary FDA commissioner -- still unapproved!"
Ticker Company Price Price News %
Before After Change
March - Bad News
ISTA ISTA $2.83 $0.91 Vitrase, injectable -68%
Pharmaceuticals treatment for vitreous
hemorrhage, fails to
meet primary endpoints
in Phase III studies
GLFD Guilford $9.63 $8.14 Gliadel wafer received -15%
Pharmaceuticals a non-approvable letter
for a supplemental
application for use in
malignant glioma
VPHM Viropharma $13.41 $5.50 Picovir, which reduces -59%
the duration of a cold
only one day, is voted
against in FDA Panel
of experts
CRXA Corixa $9.63 $6.15 Bexxar, for -36%
Hodgkin's-Type
Lymphoma, is notified
by FDA that current data
is insufficient for
approval
March - Good News
ELN Elan Corp. $14.00 $14.20 Avinza, for chronic 1%
moderate to severe pain,
received FDA regulatory
approval
LGND Ligand $16.52 $18.05 Avinza, for chronic 9%
Pharmaceuticals moderate to severe pain,
received FDA regulatory
approval
SRA Serono SA $19.59 $22.21 Rebif, interferon for 13%
treatment of multiple
sclerosis, gains FDA
Approval
April - Bad News
CVAS Corvas $5.98 $3.15 UK-279,276, drug for -47%
International ischemic stroke, failed
to meet primary endpoints
in Phase IIb and was
abandoned
MOGN MGI Pharma $14.75 $8.59 Irofulven, for -42%
gemcitabine-refractory
pancreatic cancer,
Phase III Trial stopped
and drug abandoned
XOMA Xoma Ltd. $7.63 $4.42 Xanelim, a psoriasis drug,-42%
produced poor
pharmacokinetic data in
preparation for market
DNA Genentech $48.99 $44.70 Xanelim, a psoriasis drug, -9%
produced poor
pharmacokinetic data in
preparation for market
April - Good News
TRMS Trimeris $39.25 $50.50 T-20, HIV Fusion Inhibitor,29%
has better than expected
results in a Phase III
trial
ISTA ISTA $0.83 $1.27 Vitrase, injectable for 53%
Pharmaceuticals treatment of vitreous
hemorrhage, gets go-ahead
to submit NDA after new
endpoint is recognized
May - Bad News
IBPI Intrabiotics $3.90 $1.19 Iseganan, designed to -69%
Pharmaceuticals prevent oral mucositis in
radiotherapy patients,
identical to placebo in
Phase III Trial
EMIS Emisphere $10.96 $5.16 Oral Heparin, -53%
Technologies anticoagulant/antithrombotic
agent, fails against
incumbent drug in
Phase III
VPHM ViroPharma $4.25 $3.33 Picovir, which reduces -22%
the duration of a cold
only one day, anticipates
a "Not Approvable" letter
from FDA
PDLI Protein $12.27 $12.28 Zamyl, acute myeloid 0%
Design Labs leukemia treatment,
failed to show
statistical significance
against placebo in
Phase III
EMIS Emisphere $10.96 $5.16 Oral Heparin, -53%
Technologies anticoagulant/antithrombotic
agent, fails against
incumbent drug in
Phase III
May - Good News
BGEN Biogen $40.36 $49.47 Amevive, novel psoriasis 23%
drug, is recommended for
approval by FDA Panel of
experts
UTHR United $13.65 $14.71 Remodulin, for treatment 8%
Therapeutics of pulmonary arterial
hypertension, approved by
FDA after design of
Phase IV
Average effect of good news 19%
Average effect of bad news -40%
Ratio Bad News to Good News 13 to 7 Nearly 2:1 prevalence of bad
to good news
"It's no secret that the pharmaceutical industry desperately needs to replenish its pipeline. Just about every major pharmaceutical company is facing competition for one or more blockbusters in the next several years, and while there are numerous promising products in late stage clinical trials and under review, few are slated to launch this year," said Burrill. "Pharma is willing to pay a big premium for a potential winner, as we saw with Bristol-Myers Squibb's original deal to acquire a 40% stake in ImClone and Erbitux for a $2 billion, but then again, Erbitux' setback is a grim reminder that drug discovery and development is one risky business," he noted. "With Wall Street re-evaluating its surrogates for value and nearly every biotech company scrambling to better position itself for survival, we're experiencing some near term dislocation, but in the not too distant future, we'll see significant acceleration in the drug discovery process and we'll see the fruits of genomics mature ... first perhaps in the diagnostics arena and soon after in a slew of novel therapeutics that are built with the patient's genetic profile in mind. Those drugs will come out of biotechnology," Burrill explained.
[continued in next post] |
