MARKET COMPASS | Tool companies inch forward, while discovery declines By Malorye A. Branca, David Hoffer, and Lakshmi Nambiar
August 18, 2004 | Hopes that a burst of high-flying IPOs would fan investor interest in biotechnology were dashed in Q2, as several companies — including Acadia Pharmaceuticals and Alnylam Pharmaceuticals — had to accept much lower prices than anticipated. Otherwise, it was an uneventful second quarter, and tools companies managed to maintain last year's hard-earned gains, adding 1 percent to their index. Discovery companies, however, dipped 9 percent.
Discovery's decline was driven by a number of weak performers, most notably Celera Genomics, whose market capitalization dived $200 million as its share price fell 20 percent. The drop reflects investors' discomfort with Celera's pipeline, which is still weighed toward early-stage products. Recent steps, however, including major deals with Abbott and GE, could do much to reverse this trend, and are already lifting the stock.
| 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 a value-weighted index. It serves as an indicator of the financial health of the industry. The index was developed at Mirus Capital Advisors (www.merger.com), an investment banking firm, by David Hoffer and colleagues at the firm’s Boston headquarters.
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Another 6 percent of the Discovery Index decline came from an $897-million drop in Millennium Pharmaceuticals' market capitalization. The company's 17-percent dip in share price was driven mostly by lower-than-expected sales of its anti-cancer drug, Velcade. But analysts continue to be optimistic about Velcade because it is being tested in a variety of cancers.
Sustained losses and declining revenues dragged down deCODE Genetics' market capitalization by $144 million and a 26-percent fall in share price. Exelixis was one of only three discovery companies that experienced any increase at all — $135 million (24-percent relative performance), a lift likely driven by heightened interest in targeted cancer therapies.
On the tools side, Applied Biosystems saw the strongest growth, adding $261 million to its market capitalization (9-percent rise in share price). Nevertheless, facing stiff competition, ABI has announced it will trim another 150 or so jobs and is restructuring (see www.bio-itworld.com/news, enter DocFinder 5599).
Invitrogen, another big tools player, added $142 million to its market capitalization (4-percent relative performance). The company's stock is recovering after a two-month slump due to concerns about dilution associated with its large convertible debt. Analysts expect further appreciation in share price on account of strong cash-flow generation and solid growth prospects. Meanwhile, Qiagen saw a decline of $161 million in market value (9-percent dip in share price) despite increasing sales and profits in the past quarter.
David Hoffer is a managing director, and Lakshmi Nambiar an analyst, at Boston investment bank Mirus Capital Advisors. Malorye A. Branca is Bio·IT World's senior informatics editor.