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Consolidation slows, valuations grow, and now hope for some IPOs


November 15, 2003 | The optimists who've been chanting "It can't get any worse" are finally sounding smart. A number of signs point to brighter times for biotech companies, including rumored imminent IPOs becoming more than pipe dreams. In fact, Acusphere recently completed the first biotech offering since June 2002, according to VentureWire editor Ken Andersen, and more are lined up to go.

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

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Supporting that optimism, the Genomic Index continued its upward trajectory during 2003's third quarter. Not entirely along the same course, however: Whereas last quarter the discovery companies put in a stronger performance than the tools companies (with 56 percent and 17 percent market value growth, respectively), this quarter the roles were reversed — discovery companies gained just 2 percent, and tools companies gained 21 percent.

Discovery companies' average trailing-12-month revenues have declined over the past four quarters, while average revenues for tools companies over the same period have grown.

For both categories, valuations relative to revenues have been increasing since April. However, tools companies currently have a market value of $3.2 per dollar of revenue, whereas discovery companies are valued four times higher, at a market value of $11.2 per dollar of revenue. Valuation differentials, as measured by such "value per revenue" metrics, mainly reflect differences in revenue growth prospects and long-term profitability.

On the discovery side, several companies contributed to the net 2-percent increase of the index over the past quarter. For example, deCODE Genetics' continued success discovering new genes (see "DeCODE Scientists Decode Stroke Gene," page 16) and major cost cutting helped boost the company's share price by 34 percent over the past three months, adding $57 million to its market capitalization. Rigel Pharmaceuticals put in a strong performance that added $151 million to its market capitalization (318 percent relative performance), supported by the continuing progress of clinical trials for its allergic rhinitis drug R112, and the discovery of new regulators of the immune system.

Human Genome Sciences netted a $132-million addition to its market value (8 percent relative performance), after an initial rise driven by gaining fast-track approval for its anthrax drug Abthrax. That was followed by a decline due to disappointing trial results for repifermin, a chronic venous ulcers compound.

Vertex Pharmaceuticals was one of only three discovery companies in the Mirus Genomic Index that lost market value. The company's market capitalization dropped by $235 million (-20 percent relative performance).

The 21-percent increase in the tools index was driven by a number of strong performers. Invitrogen was the main driver, with an increase of $871 million in market value (44 percent relative performance). This was likely supported by Invitrogen's acquisitions of discovery company Molecular Probes and selected nanotechnology product lines and technology rights from Genicon Sciences.

Harvard Bioscience saw a $107-million increase in its market capitalization (94 percent relative performance). In September, in the latest of a series of well-received deals, Harvard acquired the assets of BioRobotics, a life science instrumentation company. Qiagen's market capitalization increased by $440 million (37 percent relative performance), supported by strategic alliances with Novartis, Intradigm, and Thermo Electron. * 

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

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