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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: zeta1961 who wrote (10645)	3/9/2004 9:26:16 PM
From: JMarcus	Read Replies (2) \| Respond to of 52153

Re PHYX, JM Dutton finally issued its investment report, with a Speculative Buy rating and a $4.50 price target. biz.yahoo.com No response from the market. Volume was about 50% of normal. But most biotechs were in the red today. Today I attended the morning session of Steve Burrill's Life Science Ventures Conference here in SF. 150 VC firms signed up to attend and 50 privately held companies are presenting. Set forth below are a few notes from Steve's opening commentary, whose slide show is on-line here: burrillandco.com At the end of 2002, 16% of public biotechs were trading below cash. In 2003, small cap biotechs outperformed both mid and large cap biotechs. The Imclone debacle forever changed the paradigm for biotech investing, which used to view a company's progress through preclincal to phase 1 to phase 2 to phase 3 to NDA submission as a steady process of adding value and lowering risk. Now, even the latest state (NDA submission) is seen as involving massive binary risks. This change in their perception of risk is affecting biotech valuations all the way down the food chain, so we are currently seeing IPOs priced at 1/2 of the premoney value. About 26% of every pharmaceutical sales dollar is being ploughed back into R&D, if you view the sector as a whole. That is a very high percentage. Steve thinks he may be alone in thinking that the big money in biotech in the future lies in diagnostics, rather than in pharmaceuticals. In the future, drugs will become more like commodities and the real value-added service will come from matching the right drug to the individual, with his/her unique genomics and and his/her unique symptoms. One of the drivers behind developing better diagnostics is the progress being made in "networkomics" -- how all the different systems interact. The challenge to achieving a critical mass in the development of networkomics is the need for a standardized platform. Not until Bill Gates established Windows as the standard platform for PCs did the computer industry really take off. Steve predicts that in the not too distant future biotech will develop a standardized system for integrating the technologies behind all the various particular -omics. The health care system cannot afford to be so wasteful in its purchases of pharmaceuticals. Lipitor is a $8B drug, but it only works in 60% of the people who take it. That means that $3.2B is being wasted each year. A good diagnostic could save that $3.2B. Steve estimates the cost of bringing a drug to market at $1B and the drug development time frame at 15 years. In the 1960s it only took 8 years. Only 1 in 3 approved drugs ever recovers its development costs. The big costs are in the Phase 3 trials. Biotech needs to find ways to reduce the failure rate in Phase 3 trials by pre-screening for the likely nonresponders. The four key areas for serving the needs/desires of the Baby Boomers are (a) obesity/diabetes, (b) Alzheimers Disease, (c) Anti-infectives, and (d) Wellness (prevention and early diagnosis). Dollars spent on wellness are more cost-effective than dollars spent on curative therapy. Big pharma companies need to focus on intense global marketing of their products during the first 3 years after approval. After that, competition starts to erode at their profit margins. Consolidation is not a trend in biotech, but a broadening of biotech/pharma collaborations is. The partnering in non-monogamous -- biotechs frequently have multiple partners and switch from one partner to another. The strength of the partnering trend is exemplified by the five Phase I deals done for over $100M in 2003. Steve gave the following figures for biotech fundraising: 2000 - $32B 2001 - $11.9B 2002 - $10.4B 2003 - $16.3B YTD - $3.5B Steve predicts 2004 will see 25-30 IPOs with total fundraising at $20B. Since 1980, biotech has raised $200B, but the market cap of the entire sector today is just $350B. That is not a very good rate of return. However, the last dollars in should perform well. Steve predicts that the total market cap of the sector will increase by 25% in 2004. Annual health care spending in the US is $1.3T and rising. The main driver of the cost is the value being added through innovation. Steve predicts that 2004 will see many high profile drug approvals by the FDA and more strategic partnering deals. But he warns of increasing pressure from generics manufacturers in BRIC (Brazil, Russia, India, China). I sat in on the presentations of Acceptys, Inc., C Sixty Inc., Phenomix Corporation, SelectX Pharmaceuticals, Inc., Elixir Pharmaceuticals, Inc., and Bayhill Therapeutics Inc. Anyone follow any of those companies? Marc