Here's the year-in-review from Burrill:
Press Release
Source: Burrill & Company
Biotech Survives Its Toughest Year Ever
Friday January 3, 4:08 pm ET
Despite a Corporate Scandal, Clinical Disappointments, and Product Setbacks, Biotech Still Managed to Raise More Than $10 Billion in 2002
SAN FRANCISCO, Jan. 3 /PRNewswire/ -- "2002 was fraught with nerve-shredding events that tumbled forth one after the other -- the ImClone debacle, unexpected clinical setbacks, no end of politics surrounding Medicare, stem cells and cloning, a ferocious bear stock market environment, and war drums beating in the background all the while," stated G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based life sciences merchant bank. "The biotech industry nonetheless managed to raise $10.4 billion in financing and generate nearly $7.5 billion through partnering transactions during 2002 bringing the total amount of money raised by the US biotech industry to nearly $18 billion," he said. "Considering the cascade of faith eroding episodes that took place this past year ... this is a remarkably good report card," he added.ADVERTISEMENT
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"Venture capital was biotech's savior," noted Burrill. "Total VC investment in 2002 came to nearly $2.7 billion, compared to nearly $2.4 billion in 2001. The industry also scored a little higher in terms of partnering transactions as well, bringing in $10 million more in 2002 than in 2001," he said. "But there were no IPOs in Q4 02, nor were there any in Q3 02 ... although the total for IPOs in 2002 was $445 million, slightly above the 2001 total of $440 million," he continued. "Over the last six months the bankers that are still in this business have been treading lightly. Spin-outs from major pharmaceutical companies have been about as numerous as IPOs and have garnered a fair amount of attention from the VC community in 2002. In all likelihood, this lackluster attitude towards new public companies will continue until the issues surrounding Iraq are resolved by the second half of 2003," said Burrill.
"When the financing window reopens, we will see some very attractive offerings," predicted Burrill. "The best of the private companies have honed their skills, focused their energies, and matured over the past year. When investor appetite returns, we may see more than a dozen IPOs take flight before 2003 ends. However, all bets are off until the wild card of Iraq has played out," he added.
The public markets were brutal for biotech in 2003 -- with the Burrill Biotech Select Index down 49% since the start of the year and the Burrill Genomics Index off by a whopping 67% for 2002. Not surprisingly, tax loss selling defined the month of December in 2002 with many investors gaining more by writing off their investment as a loss than by holding on to it as an "asset." "And so the revaluation and the restructuring continued during Q4 02 with dozens upon dozens of companies announcing plans to retrench, refocus, and revamp management teams," said Burrill. Applied Biosystems which traded at over $90 a share in February 2001 and was trading at about $19 a share at the end of 2002 when it announced on December 27 that it intended to cut about 400 regular positions and 100 contract and temporary jobs in light of the current economic conditions. ArQule also announced that it was cutting 128 jobs -- nearly one third of its work force -- and closing two plants to reduce its operating costs by $12 million in 2003.
"December was bleak -- a sputtering economy with sluggish holiday spending, thoughts of war, remembrances of Enron, ImClone, Elan ... no wonder the beams of good news couldn't penetrate the fog," Burrill remarked. "And there were plenty of positive announcements in December: products got nods of approval, clinical trials of key compounds moved forward, and lots of deals got done. The big Pfizer/Pharmacia merger was approved by shareholders and two other major mergers were announced -- Labcorp/Dianon and Gilead/Triangle," he said. "Yet, the biotech stock market was off by 9% in December."
There also was quite a lot of positive activity at the FDA during Q4 02 with the installation of Dr. Mark B. McClellan as the new commissioner, as well as the appointment of Dr. Jesse Goodman to replace Dr. Kathryn Zoon as director of FDA's Center for Biologics Evaluation and Research (CBER). Dr. Zoon, who had directed CBER since 1992, now returns to the National Institutes of Health (NIH) as Principal Deputy Director for Research in the Center for Cancer Research, at NCI. "Dr. McClellan has gotten off to a good start with a pledge both to accelerate the drug approval process and to put the brakes on exaggerated product claims for prescription drugs," noted Burrill.
In addition to staff changes, the FDA approved a number of new drugs in Q4 02 including Celera Diagnostics' ViroSeq HIV-1 genotyping system, Pfizer's Relpax for migraines, Abbott Labs' Humira for rheumatoid arthritis, and Roche's Pegasys for treatment of chronic hepatitis C. FDA advisory panels also recommended approval for Medimmune's FluMist intranasal influenza virus vaccine and Corixa's Bexxar, a radioimmunotherapy for non-Hodgkin's lymphoma. The FDA also endorsed the use of Gleevec as a first line treatment for all stages of chronic myeloid leukemia and approved Novartis' Clozaril as the first and only drug to cut the risk of suicide in people with schizophrenia.
Vaccines were also much in the news in Q4 02. VaxGen reported on December 16 that its AIDS vaccine would get an accelerated review at the FDA once the applications are filed. The company currently is testing its vaccine for preventing HIV infection in a Phase III clinical trail involving 5,400 people in the US, Canada, the Netherlands and Puerto Rico. Preliminary trial results are expected in the first quarter of 2003. VaxGen also announced in December that it had entered into an initial agreement with Japan's Chemo-Sero-Therapeutic Institute. The new arrangement will enable VaxGen to make a vaccine for smallpox called LC 16-Kaketsuken. The vaccine has been administered to some 50,000 Japanese children in whom no serious side effects have been observed.
Dendreon reported progress with its Provenge investigational cancer vaccine stating that a Phase III trail had shown that the vaccine delayed the onset of disease-related pain in patients with a certain level of hormone resistant prostate cancer. In addition, Merck reported on December 10 that it plans to file three vaccines by the end of 2006 -- one designed to prevent cervical cancer, one that addresses shingles (a later-in-life reactivation of the chicken pox virus) and a vaccine for a rotavirus that causes severe diarrhea in babies and is responsible for more than 800,000 infant deaths in the developing world each year. "There's been a great deal more emphasis on pandemic diseases and global health in 2002," stated Burrill. "GlaxoSmithKline's J.P. Garnier and Microsoft's Bill Gates have really energized this global challenge of improving healthcare in the developing world ... and they are but two individuals in a movement that is gaining momentum rapidly," he said. Another huge step forward in this area was achieved at the beginning of Q4 02 with the unveiling of the genome sequences of the deadly malaria parasite, Plasmodium falciparum, and the most common mosquito host, Anopheles gambiae. The new data is expected to help researchers discover antimalarial drugs and vaccines that will be more effective against the disease which now causes more than 3 million deaths each year.
Stem cells and cloning also made headlines in Q4 02. Although the Congress failed to pass any kind of ban on cloning or stem cells last summer, cloning embryos to create stem cell lines for research is still a very controversial topic. Nonetheless, on December 11 Stanford University announced that it would be setting up a privately funded institute to create customized stem-cell therapies using nuclear transfer technology. Similar institutes were established by Johns Hopkins University and the University of California at San Francisco earlier in 2002. Because all three institutes receive funding from private sources, the research organizations are able to get past the limitations imposed by President Bush in August 2001.
"But what really caught the media's attention was the announcement of the birth of a 'cloned' baby girl by Clonaid, born on December 26 and named, Eve," noted Burrill. "The announcement has met with enormous scientific skepticism since no compelling scientific proof of the cloning has been delivered ... yet," he noted. "If the claim proves to true, and there is some likelihood of that, the concept is chilling -- even to those of us who are supportive of the underlying nuclear transfer technology and its potential for curing intractable diseases. No responsible scientist is keen on having this technology misunderstood, let alone misused for human cloning," he said. "Unfortunately, experimentation with human cloning like this only galvanizes the critics of cloning and takes support away from legitimate and much needed stem cell technology development."
Financings
There were no IPOs for biotech during the last six months, with DiaDexus withdrawing its planned IPO in December due to market conditions. LipoScience also canceled its IPO in September for similar reasons. Five new companies did join the public biotech ranks in 2002, however. In February, ZymoGenetics went public followed by Dov Pharmaceuticals and Ribapharm in April. Then in Q3 02, ProSkelia was spun out of Aventis and Gen Probe spun off from Chugai Pharmaceutical. "As industry consolidation continues, we'll see more spin-offs as well as some spin-ins-mostly to further integration goals, to fill in technology gaps, and to beef up pipelines," commented Burrill.
Follow ons in Q4 02 were quite modest, coming in at $180 million -- about the same level as in Q3 02. Secondary public financing for all of 2002 came in at $979 million, considerably less than was garnered in Q4 01 ($1.2 billion). PIPES accounted for a mere $77 million in Q4 02, compared to $136 million in the previous quarter. Total PIPE investment in 2002 came to $907 million -- a far cry from the previous year's total of $1.7 billion. The appetite for PIPES dwindled considerably in the last several months with more investor appetite for convertible debt, which totaled nearly $5.3 billion in 2002. "You can see the erosion of faith in the market just by looking at these numbers," said Burrill.
Gilead Sciences managed the largest debt transaction in Q4 02. The company singed an agreement for the sale of $300 million of convertible notes bearing an interest rate at 2% per annum with a $45 million over-allotment option. "Gilead has had a pretty good year with the FDA approvals of Hepsera for chronic hepatitis B in September 2002, so investors were relatively eager to be 'paid to wait' for their return. But, the big convertible for 2002 was Amgen's $2.5 zero-coupon senior convertible notes yielding 1.125% in Q1 02. One of the largest sales of its kind and the biggest in biotech's history, the offering reflected Amgen's overall strength in the market," said Burrill.
M&A and Alliances
Gilead also announced in December that it would acquire Triangle Pharmaceuticals for $464 million in cash via a tender offer. The company's $6 per share purchase price provided a 33% premium to Triangle Pharmaceuticals' shareholders over the closing share price the day before the transaction was announced ($4.50). The largest M&A announced in Q4 02 was Labcorp's proposed acquisition of Dianon Systems. Labcorp is the first national clinical laboratory to fully embrace genomic testing and the company has pioneered new diagnostic techniques. Dianon provides a full line of anatomic and molecular pathology testing services. Shareholders of Dianon are expected to vote on the deal on January 17, 2003. The transaction has been valued at $598 million. "Both of these acquisitions are very synergistic in nature, therefore the higher valuations," noted Burrill.
There were several sizeable partnerships announced in Q4 02. Leading the pack was the $745 million collaboration between Pfizer and Eyetech Pharmaceuticals. The companies entered into an agreement to jointly develop and commercialize Eyetech's Macugen(TM), a potential treatment for age-related macular degeneration and diabetic macular edema, both leading causes of blindness. Under the terms, Pfizer will make initial payments of $100 million, with the potential for an additional $195 million in milestone payments based on worldwide regulatory submission and approvals. Privately-held Eyetech, which has only been doing business since 2001, also has the potential to garner another $450 million in milestone payments contingent on successful commercialization of the product. The FDA has already granted the product "fast track" approval status.
Other major deals included Pfizer striking an interesting partnership with Neurocrine Biosciences valued at $575 million. The pharma giant entered into a global agreement with the small San Diego-based biotech for the exclusive rights to indiplon for insomnia, currently in Phase III studies. Pfizer also will create a sales force at Neurocrine that eventually will sell indiplon and Pfizer's antidepressant drug, Zoloft. Glaxo SmithKline paid a premium to Exelixis to collaborate on the discovery and development of small molecules to treat vacular and inflammatory disease and cancer ... valued at $219 million. Syngenta also struck a deal with Diversa for $118 million over the next seven years to develop plant science applications, antibodies and other products using a shared biotechnology platform. Syngenta will be closing its Torrey Mesa Research Institute and moving researchers to the Diversa campus and to the Syngenta Biotechnology Inc in Research Triangle Park, NC. "Each of these collaborations is about moving products closer to commercialization," explained Burrill. "These deals all signal that innovative biotech still has a lot to offer to the larger, more established players," he said.
A Brighter Tomorrow
"Although the current global situation is not to be minimized -- nor is the continuing economic slump, nor the bear market -- the longer term outlook for biotech is excellent," said Burrill. "This has been a year for making tough decisions, for streamlining operations, for advancing concepts into commercialization. There is a great deal to be gained from prudent investment in biotech especially now with the market revaluating and industry restructuring underway. With more than 370 biotech drugs in pivotal stage trials (more than in any other time in the industry's history), completion of the mouse and rice genomes, impressive headway in integrating pieces of the discovery and development continuum, inroads in the utilization of pharmacogenomics to personalize medicine, and huge strides forward in addressing global health and environmental issues using biotechnology, this industry has a healthy future," he continued. "But in the short term, we will continue to be plagued with uncertainty. Still, as ugly as the thought of war and bioterrorism is, significant funding has been set aside for biotech R&D. To date, the NIH has earmarked $1.7 billion and the DoD has committed $1 billion. This could prove to be a moon shot for this industry and we are likely to realize additional benefit beyond just defense applications," Burrill said.
U.S. Biotech Industry Fundraising
(U.S. Millions)
Public
IPO Secondary PIPEs Debt/Other
Public
4Q02 $0 $180 $77 $517
4Q01 253 1,158 538 1,939
3Q02 0 183 136 202
2Q02 325 33 321 857
1Q02 120 583 373 3,675
2002 445 979 907 5251
2001 440 2,539 1,741 4,848
U.S. Biotech Industry Fundraising
(U.S. Millions)
Private Financing
Venture Other Total Partnering* Total
Capital
4Q02 $528 $50 $1,352 $2,354 $3,706
4Q01 723 0 4,611 865 5,476
3Q02 560 12 1,093 1,242 2,335
2Q02 889 2 2,427 2,875 5,302
1Q02 711 114 5,576 1,025 6,601
2002 2688 178 10,448 7,496 17,944
2001 2,397 9 11,974 7,486 19,460
Partnering figures based on total deal value of disclosed transactions, worldwideFor additional commentary and for Burrill's expectations for 2003, please refer to our press release dated December 12, 2002, entitled "Biotech Endures" which is posted on PR Newswire: www.prnewswire.com and on the Burrill & Company website: www.burrillandco.com.
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 $400 million under management, includes the Burrill Biotechnology Capital Fund and its successor -- the Burrill Biotechnology Capital Fund II (under development), 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 Sciences Capital Fund.
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.
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.
We have completed more than 25 strategic partnerships with a value in excess of $1.5 billion.
For more information, please visit Burrill & Company's website at www.burrillandco.com.
Selected PIPES in Q4 02
Company Month Amt. Raised
($US M)
Discovery Laboratories Nov 12.8
Palatin Technologies Nov 11.5
Photogen Technologies Nov 9.0
Ortec International Nov 8.7
ViroLogic Nov 7.0
The Immune Response Corp. Dec 6.4
Ariad Pharmaceuticals Nov 6.1
Cellegy Pharmaceuticals Nov 5.5
Selected M&A Transactions in Q4 02
Acquirer Acquired Value
($US M)
Laboratory Corp.
of America Holdings Dianon Systems 598
Gilead Sciences Triangle Pharmaceuticals 464
Biovail Pharma Pass LLC, Pharma Pass SA 190
H. Lundbeck A/S Synaptic Pharmaceutical 121
Baxter Healthcare Epic Therapeutics 50-100
Johnson & Johnson OraPharma 85
AEterna Laboratories Zentaris AG 52.5
Celgene Corp. Anthrogenesis Corp. 45
Invitrogen Corp. InforMax 42
Angiotech Pharmaceuticals Cohesion Technologies 42
Hyseq Pharmaceuticals Variagenics Inc. 39.3
Incyte Genomics Inc. Maxia Pharmaceuticals Inc. 28
Follow-Ons Q4 02
Company Ticker Amount Price at Price at % Change
Symbol Raised Secondary 12/31/2002
($US M)
NPS Pharmaceuticals NPSP 95.8 24.09 25.17 4%
Myriad Genetics MYGN 58.5 21.39 14.60 -32%
Tularik TLRK 25.7 7.51 7.46 -1%
Total 180
Selected Convertible Debt in Q4 02
Company Ticker Symbol Value ($US M)
MGI Pharma MOGN 21.0
Ligand Pharmaceuticals LGND 155.0
Gilead Sciences GILD 300.0
Selected Collaborations
Biotech Pharma Description Value
($US M)
Eyetech Pfizer Partnered to develop and 745
Pharmaceuticals market Eyetech's Macugen
pegaptanib VEGF-binding
aptamer to treat
age-related macular
degeneration and diabetic
macular edema.
Neurocrine Pfizer Inc. Partnered to develop and 575
Biosciences commercialize Neurocrine's
indiplon for treatment
of insomnia.
Exelixis Inc. GlaxoSmithKline The companies will 219
collaborate to discover
and develop small
molecules to treat vascular
and inflammatory diseases
and cancer.
Alk-Abello Schering-Plough Schering and Alk-Abello 125
partnered to run a clinical
trial of Alk-Abello's
oral tablet to treat grass
pollen allergy.
Diversa Syngenta Seeds The companies partnered 118
to develop plant science
applications, antibodies
and other products using
their genomics and other
technologies.
Antisoma plc Roche Roche received exclusive 44
worldwide rights to
develop, manufacture
and market Antisoma's
oncology pipeline.
Peter |
