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Horizons
MARKET COMPASS

Consolidation and fallout continue, but market caps are rising

BY MALORYE BRANCA, DAVID HOFFER, AND BAS VAN DER BRUGGE

August 13, 2003 | In this, the third quarter that Bio·IT World has been tracking genomic discovery and tool company activity, some notable trends are beginning to emerge.

Q2 2003 saw further consolidation and fallout among discovery companies. Hyseq and Variagenics officially merged to form Nuvelo in February. Nuvelo has kept up with its milestones for its lead product alfimeprase, a new approach to treating acute peripheral arterial occlusion (PAO). The company announced the start of dosing in a Phase II trial in late June. After a great deal of bickering and uncertainty, CellTech completed its acquisition of Oxford Glycosciences in April. And finally, despite a frantic effort to reorganize, which included shifting the business focus to tools, Deltagen filed for Chapter 11 on June 27 and will be delisted from the Nasdaq.

All the companies in the discovery index improved their market capitalization over Q1 2003, though the strong 56-percent overall increase in the index was driven mainly by Millennium Pharmaceuticals (up $2.2 billion, or 91 percent), Human Genome Sciences (up $525 million, or 48 percent), and Vertex Pharmaceuticals (up $334 million, or 40 percent). Several smaller companies such as DNAPrint (up $31 million, or 347 percent), Genome Therapeutics (up $30 million, or 90 percent), and deCODE Genetics (up $72 million, or 72 percent), put in strong relative performances.

Millennium was riding high after receiving rapid approval of its novel cancer drug, Velcade, for multiple myeloma. But then the Street disapproved of the size of the upfront payment in Millennium's marketing deal for Velcade with Johnson & Johnson's Ortho Biotech subsidiary, and the company's stock dipped appreciably after the June 30 closing bell. In the deal, Millennium receives an upfront payment of just $15 million but retains all U.S. commercialization rights and profits from the drug. Most importantly, Johnson & Johnson will pay almost half the development costs for Velcade's use in other cancers, including lymphoma and colon and lung cancer. The potential markets for those indications are many times larger than for multiple myeloma.

Under pressure to shift resources downstream to their more developed projects, drug discovery companies continued to downsize. Millennium, Vertex, and CuraGen were among those who announced the biggest layoffs, mostly from early-stage discovery.

Tools companies also had a strong quarter, with the tools index increasing by 17 percent. The only underperformer was Affymetrix, which saw its share price drop by more than 30 percent in early April after the company announced it would not meet revenue and profitability targets. Strong performers in the tools index include Invitrogen (up $436 million, or 29 percent), Qiagen (up $346 million, or 40 percent), Compugen (up $79 million, or 162 percent), and Aclara Biosciences (up $73 million, or 100 percent).

In June, biotech incubator Calba- Tech agreed to acquire privately held MolecularWare, a bioinformatics company. The deal allows MolecularWare to continue the development of DigitalGenome, its microarray workflow and analysis software. CalbaTech is in the market for products that can generate revenue streams quickly, with minimal investment. In other bioinformatics news, AnVil closed its doors.

Mirus Genomic Index 
The Mirus Genomic Index, prepared exclusively for Bio·IT World, is calculated as the sum of the market capitalizations of all included companies and is consequently a value-weighted index.

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Q3 is already looking like a hot one. Alnylam's merger with Germany's Ribopharma reinforced its prominence in the race to develop RNAi-based therapeutics. The new company is called Alnylam Holding, and it received an additional $24.6 million in private equity funding. Deals are likely to be thick in this field, where the intellectual property issues are complex and the rewards appear high.



Malorye Branca is senior informatics editor at Bio·IT World
. David Hoffer is a managing director, and Bas van der Brugge an associate, at Boston investment bank RCW Mirus.





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