Burrill continued:
Progress on PDUFA, But Still No Commissioner...
Nestled within The Public Health Security and Bioterrorism Preparedness and Response Act, which passed Congress on May 23, was the renewal of the Prescription Drug User Fee Act (PDUFA) III. The five-year renewal of PDUFA retains all of the deadlines and commitments from the previous iteration and gives the FDA more funding for reviewing candidates in a more consistent and timely fashion. The hope is that the additional money will enable the agency to complete reviews in the first cycle instead of stalling applications to buy more time. "In addition, small biotech companies will be able to request the use of independent experts from outside the agency to assist in the approval process early on," said Burrill. "This will help companies to better focus and assess such things as product efficacy and clinical trial design before they go too far down what can be a very expensive path."
The reauthorization of PDUFA is not the only issue that has had both the biotechnology and pharmaceutical industries concerned. "The FDA still has no Commissioner and that has everyone concerned," said Burrill. "Here we are in the midst of the most challenging and exciting time in the history of drug development with tremendous pressure upon the industry to deliver predictive, preventive and personalized therapies, and there is no one at the helm," he commented. The Biotech Industry Organization (BIO) requested in May that the president install a new commissioner with vision and experience in science, medicine, and administration to turn around the slow down in agency review times, take the lead on bioterrorism issues, and get additional appropriations through Congress.
Stem Cells, Cloning, and Patents
The scientific research community is still holding its collective breath to see whether the federal government will decide to ban not only the cloning of a human being, but also the cloning of therapeutic stem cell lines that could be beneficial in treating numerous life-threatening illnesses including Type 1 diabetes, Parkinson's Disease, and spinal chord or brain injuries. Meanwhile six states have already banned cloning in one form or another and this year 38 anti-cloning measures were introduced in 22 states. "Legislation such as that introduced by Senator Brownback (R-KS) which would shut down the legitimate use of nuclear transplantation technology for research or therapeutic purposes, will cripple the US in the race to find the cure to these devastating illnesses," Burrill commented. "The UK, which is unencumbered by such limitations is likely to bound ahead while we remain entangled in a political battle which could be devastating for US biotech over the long run. At least there is plenty of dialogue going on with the issue garnering attention on prime time TV," noted Burrill. "It will be very interesting to see how this story unfolds."
Patent issues also have been in the news recently. Late in May, the Supreme Court (in the "Festo" decision) reversed a lower court ruling that had stripped inventors of the right to sue infringers under a law called the doctrine of equivalents. However, while restoring the rights of all patent holders to use the doctrine, the high court set up new requirements which, at the end of the day, restrict the scope of patents because it presumes that the appeals court decision (which says that inventors who made amendments could not use the doctrine of equivalents because their amendments had narrowed the description of the invention) is still in effect and the new opinion simply gives some patent holders the opportunity to prove otherwise.
Financings
IPOs in 2002 have been scarce in 2002. During the first quarter of the year, only one company, ZymoGenetics, managed to squeak through an IPO window that shut directly afterwards. In April, two more companies went public, Ribapharm and DOV Pharmaceuticals. "The 'Class of 2002' is having a rough and tumble time of it," said Burrill. "DOV Pharmaceuticals' stock tanked on its debut, falling from its opening price of $13 a share to $8.70 a share on the first day of trading, and several of the underwriters are refunding the purchase price to the buyers," he noted. "And this is a company with three product candidates in late stage clinical trials." Indeed, as of May 31, 2002, only Ribapharm was trading above its IPO price and, by early June, that stock too had slipped below its offering price of $10 to $9 and change.
"While at the start of the year, we were pretty bullish on our IPO outlook, once the ImClone debacle hit, we quickly revised our thinking," explained Burrill. "This time a year ago, there were just three IPOs out the door which raised a total of $187.5 million -- Exact Sciences (raising $56 million), Third Wave Technologies (raising $82.5 million), and Seattle Genetics (raising $49 million). The money raised through this year's IPOs is $345 million -- nearly twice as much," he said. "Barring any major setbacks with the economy, national security, or the FDA, we're likely to get back on a roll by 4Q 02, and some, though not all, of the biotechs lining up on the IPO runway will manage lift-off. But this situation does underscore the impact of consolidation in the investment banking industry. Bankers like Alex Brown, H&Q, Robertson Stephens, Montgomery Securities and others -- now absorbed into bigger entities, were very supportive of young entrepreneurial biotech companies, but now with each of them absorbed into larger Wall Street investment banks, the bar has been raised much higher," Burrill said.
By far the most popular financing vehicles du jour are convertible debt (which by the end of May, accounted for $4.5 billion of the $7.2 billion that the industry raised in the first five months of 2002) and PIPEs. In 1Q 02, Amgen was able to raise $2.5 billion through zero-coupon senior convertible notes yielding 1.125%. The largest PIPE was $69 million raised for Ligand Pharmaceuticals (April) and the largest follow-on was $111 million raised by InterMune. "The skittish mood on Wall Street is reflected here with investors preferring to be paid to wait for their rewards (convertible debt) rather than to take a high-flying risk. Then again, VC investment is at about the same level as it's been in the two years previous, proving that there are still some of us who are willing to back the entrepreneurs," noted Burrill.
IPOs during the first five months of 2002:
Amount
IPO Offering Raised Price %
Company Ticker Date Price ($) (in $M) 6/7/02 Change
ZymoGenetics ZGEN Feb-02 12.00 120 7.25 -40%
Ribapharm RNA Apr-02 10.00 260 9.05 -9%
Dov Pharmaceutical DOVP Apr-02 13.00 65 4.87 -63%
----
445
Convertible debt offerings during the first five months of 2002:
Company Ticker Symbol Value ($US M)
Amgen AMGN Feb 2,500
Idec Pharmaceuticals IDPH Apr 675
Biovail BVF Mar 400
Charles River Laboratories CRL Jan 215
Abgenix ABGX Feb 200
OSI Pharmaceuticals OSIP Jan 200
Isis Pharmaceuticals ISIS Apr 125
Follow-ons during the first five months of 2002:
Amount
Ticker Raised Price at Price at %
Company Symbol ($US M) Secondary 5/31/02 Change
InterMune ITMN 111 $37.0 $26.8 -28%
Amylin Pharmaceuticals AMLN 97 8.0 9.0 13%
SangStat Medical SANG 78 17.3 22.0 28%
Salix Pharmaceuticals SLXP 62 13.4 15.2 14%
Antigenics AGEN 60 15.0 10.1 -33%
Array BioPharma ARRY 35 10.0 9.8 -2%
Orchid BioSciences ORCH 23 2.5 1.4 -43%
Cygnus CYGN 14 3.5 2.5 -30%
Private placements during the first five months of 2002:
Amt Raised
Company Month ($M)
Epix Medical Jan 32
La Jolla Pharmaceutical Jan 52
Rigel Pharmaceuticals Jan 32
AVI BioPharma Mar 22
Igen International Mar 37
Biopure Apr 21
Ligand Pharmaceuticals Apr 69
Lynx Therapeutics Apr 23
Versicor Apr 45
Agennix May 20
Deltagen May 25
Onyx Pharmaceuticals May 20
M&A and Alliances
On March 21, Alkermes, Inc (ALKS) and Reliant Pharmaceuticals LLC announced a definitive merger valued at $847 million. The merger unites Reliant's three marketed products (Lescol®, DynaCirc®, and Axid®) as well as its promising pipeline with the advanced drug discovery and development capabilities of Alkermes. The combined entity will have an extensive portfolio of partnerships with leading pharmaceutical and biotech companies including, Eli Lilly (LLY), Genentech (DNA), GlaxoSmithKline (GSK), Novartis (NVS), and Serono (SRA).
Digene Corporation (DIGE) and Cytyc (CYTC) are still in negotiations regarding their proposed $553 million buyout. Under the terms of the deal, Digene shareholders will receive $4 per share in cash plus common stock. Cytyc, which markets systems to detect cervical cancer, says the acquisition will expand its products for the diagnosis of infectious diseases and cancer in women. On May 31, Digene provided US regulators with the additional material they requested about the proposed acquisition.
J&J purchased Tibotec-Virco for $320 million in cash and assumed the debt. The acquisition provides J&J with the Belgian firm's expertise in developing potential treatments for infectious diseases and HIV. Schering's acquisition of Collateral Therapeutics (CLTX) in a $140 million stock-for-stock transaction will strengthen the pharmaceutical company's prowess in gene therapy products to treat cardiovascular diseases. Collateral's lead products, Generx, now in Phase IIb/III trials, and Genvascor, in Phase I/II are expected to reach the FDA's doorstep in 3-5 years.
A summary of the major M&A in the first quarter included:
Acquirer Acquired Value($US M)
Alkermes Inc. Reliant Pharmaceuticals $847
Cytyc Digene 554
Johnson & Johnson Tibotec-Virco NV 320
Schering AG Collateral Therapeutics 140
Martek Biosciences OmegaTech 90
Chiron Matrix Pharmaceutical 61
deCode MediChem Life Sciences 49
Genencor International Enzyme Bio-Systems 30
Deltagen Bristol-Myers Squibb
Pharma Research Labs 24
Lion NetGenics 16
Argonaut Technologies Jones Chromatography 16
Selected biotech alliances in the first five months of 2002 included:
Acquirer Acquired Value($US M)
Berna Biotech Rhein Biotech 257
Martek Biosciences OmegaTech 53
Inwest Investments Drug Royalty Corp. 84
Qiagen Xeragon 9
What Can We Expect in the Second Half of the Year?
Burrill's predictions:
-- We will see more collaboration and M&A activity as the industry
continues to bridge technological gaps and achieve more integration
in an effort to move towards a more automated and efficient approach
to drug discovery and development. We'll also see more success
stories in the personalized medicine arena as companies grasp the
benefits of parallel drug discovery (where the diagnostic and
therapeutic are developed synergistically) and are able to design
more effective clinical trails by stratifying patient populations
according to their genetic predisposition.
-- The debate over stem cell and cloning technologies will continue and
we may very well experience a setback in this important area if
emotion and misunderstanding win over sound scientific reasoning.
-- Although PDUFA III has been hammered out to the industry and the
government's liking, there is still no commissioner at the FDA -- a
situation that is, according to nearly every pharmaceutical and
biotech company, topping their list of problems with the agency.
-- With bioterrorism legislation and funding in place, we will see more
and more contracts doled out to biotech companies working on new
vaccines and therapeutics to treat infectious diseases and we'll see
improved diagnostics, especially those that are quick, effective,
and inexpensive. We'll also see improvements in the medical and
public health infrastructure in many states in the US ... in fact,
these efforts are already underway.
-- Diagnostics will continue to gain in importance. Indeed, the
Burrill Diagnostics Index has consistently outperformed the NASDAQ
and DJIA since the start of the year and had gained 1.2% by the end
of May. The recent announcement (June 5) from LabCorp to offer
Myriad Genetics' predictive medicine products to 200,000 LabCorp US
physician clients underscores the growing importance of the
molecular diagnostics industry ... increasing evidence of our march
toward personalized medicine.
-- Some areas of biotech, most notably the platform toolbox companies,
will keep on struggling and morphing their business models into ones
that have more appeal on Wall Street ... but chasing Wall Street's
value model is always dangerous.
-- Agbio will continue its upward trend as GMO's gain further
acceptance among farmers and consumers. We will see more recovery
and investment in this area as agbio companies continue to explore
the use of transgenic plants for therapeutic protein production and
turning crops into biofuels.
-- We're going to see interest in biotech grow on the international
front. The new biotechnology strategy coming from the European
Commission will stimulate the industry, and we'll see an increase in
US/International collaborations and acquisitions.
-- Asia will also emerge as a more powerful global players, using
Asia's strengths -- strong capital markets, large unmet medical
needs, rapidly growing populations-both to deploy the world's
technology at home and to invest in the global arena. In addition,
the introduction of traditional Chinese medicine (TCM) to the world
stage (and particularly to the United States) has fostered new
science and new tools to elucidate active ingredients. Asia is
eager for the technology and business opportunities in the Western
world offers and vice-versa. Now that China has jointed the WTO,
one of the biggest stumbling blocks for Western business investment
-- the potential threat to IP protection -- will have (hopefully)
been removed.
-- And, as for the capital markets, we are likely, despite our slow
start, to see a dozen or more IPOs before year end. We'll see PIPEs
continuing to be a popular form of financing and we'll also see a
flurry of secondaries. Although convertible debt has been a popular
vehicle so far, we may see less of this activity as the capital
markets gain strength and biotech's popularity resurges. We'll see
a $15-$20 billion financing year and we'll see biotech once again
outperforming the NASDAQ and the DJIA by the fourth quarter ... that
is, barring another terrorist attack or an intensification of our
military presence in the volatile Middle East.
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.
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