July | August 2006 | If you’re looking for mid-summer reading (and a fair but short-lived reference for your bookshelf), consider G. Steven Burrill’s Biotech 2006 — Life Sciences: A Changing Prescription. It’s his 20th annual report on the industry, and to mark the milestone, this longtime market watcher and biotech investment banker has pulled together a kind of whirlwind tour of biotech finances, markets, and technologies.
As of Major League Baseball’s All Star Game, I was about halfway through the 500-page report, and it’s easy to jump around. As always, there is an abundance of financial data, charts, and predictions. I’ve got two minor criticisms: First, in an effort to make it easier to read, Burrill chopped up much of the text into bite-size chunks, but sometimes the device has the opposite effect of making the work seem disjointed. Second, he offers predictions for 2006, but as we’re already well into the year and since this is when many readers get a copy to read, it might have been more interesting to offer thoughts on 2007.
But these are small chinks in a very useful work. This excerpt from the executive overview near the beginning of the book catches biotech recent funding struggles quite well: “The bigger story for the industry — and one that unfolded during the year was the amount that the industry generated through partnering. The $17 billion raised was an all time record in biotech’s 30-plus-year history, giving a very clear indication that M&A, along with partnering, had become a more attractive option for biotech companies to help drive their product development programs and ultimately increase shareholder value. Since the current IP window opened in 2003, average pre-IPO valuations have declined around $70 million to $154 million. In the same period, average private acquisition values have increased nearly $100 million to $266 million — an approximately $100 million value gap in favor of M&As, a trend that we will see continue in 2006.”
Of course, there are the predictions. Here are a few:
• Biotech stocks will continue to outperform Nasdaq, Dow Jones, and pharma in 2006. Escalating oil prices, inflation, and Iraq war costs, suggests Burrill, could keep biotech stocks from soaring as high as they otherwise might
• The number of IPOs in the United States will surpass 30, but as noted above, M&As are increasingly the preferred strategy for the companies and their early investors seeking an exit
• Interest in biofuels will continue to rise, driven by DOE monies. Burrill looks a little at the emerging synthetic biology market, suggests this community will tackle biofuels, and provides a sidebar on J. Craig Venter’s latest company, Synthetic Genomics, whose early emphasis is on improved ethanol and hydrogen production
• Drug pricing pressure, driven by Centers for Medicare & Medicaid Services (CMS), will continue, with CMS expected to account for 40 percent of the U.S. drug buy in 2008
• Technology will be driven by pandemic preparedness, the obesity epidemic, proteomics and systems biology, and stem cell discoveries
Burrill provides ample details of these and other predictions in subsequent sections. No doubt many readers will be already familiar with the details of the particular industry segments in which they work, but they’ll likely find new material on other segments. I found the sections on “Preventative Medicine and Nutrition” and “Agbio” fascinating. Both are areas I don’t follow closely. It seems likely that more companies will soon offer “Nutrigenomics” products to help consumers choose their diet based on genetic profiling. Burrill looks at a couple of companies starting to do this.
The Regulatory section is also interesting and includes, for example, a short history of the FDA to mark its hundredth anniversary, and information on drugs approved in 2005 and some of those that ran into trouble. All in all, Biotech 2006 is an interesting read.
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