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Biotech Posts Strong Third Quarter

By G. Steven Burrill

Nov 15, 2005 | During each successive quarter in 2005, we have seen a consistent increase in the total amount of financings that biotechs have raised. Reinforcing the strong performance in the capital markets in the third quarter, biotech raised almost $10 billion in financings and partnering. We are on track to break the $30 billion barrier once again and perhaps even break the impressive $30.8 billion that was raised last year.

Public biotech companies were able to generate almost $5 billion in financing in the third quarter compared to the $2.5 billion that was raised in the second quarter of 2005. The $5 billion Q3 2005 total represents a whopping 131 percent increase over the $2.1 billion that was raised in the same quarter of 2004.

It certainly was a stellar quarter as far as public financings were concerned. In all financing categories, except for IPOs, the third quarter totals were considerably higher than both Q2 2005 and the comparable Q3 2004 totals. The market had an appetite for PIPEs, follow-on issues, and debt (with these instruments collectively generating $4.7 billion), showing a decided investor interest in more mature biotech companies.

Despite the fact that the Burrill Biotech Select Index finished the month just in negative territory, and biotech overall had a subpar performance in September, as compared with the previous four months, these disappointing numbers failed to take the shine off what was another excellent quarter for biotech. The third quarter results show that the Burrill Biotech Select Index again beat both the Nasdaq and the Dow, and is well ahead of both these benchmarks on a year-to-date basis.

The more than 15 percent gain since the beginning of the year, with most of this occurring in the second and third quarters, is a signal that investors are putting their faith in biotech stocks, which they have come to believe are much less sensitive to the prevailing market forces of rising interest rates, skyrocketing oil prices, and the recent tragic combined economic effects of hurricanes Katrina and Rita.

Good Quarter for Collaborations
In August, Biogen Idec and Protein Design Labs signed a broad collaboration for the joint development, manufacture, and commercialization of three Phase II antibody products.

RNA therapeutics is the focus of a major collaboration between Novartis and Alnylam Pharmaceuticals. The multiyear alliance will combine the research expertise and understanding of disease mechanism and pathway biology of Novartis with Alnylam’s leading position in the field of RNA interference (RNAi).

RNAi technology also brought Sirna Therapeutics and Allergan together in an alliance to develop Sirna-027, an RNAi-based therapeutic currently in Phase I for age-related macular degeneration.

AstraZeneca signed an exclusive global licensing and research collaboration agreement with Avanir Pharmaceuticals to discover, develop, and commercialize reverse cholesterol transport enhancing compounds for the treatment of cardiovascular disease.

IPO Window Opens...But Gingerly
There are even signs that the IPO window is beginning to open once again, as we predicted it would after Labor Day, given the flurry of activity that occurred to close out the quarter. Looking at the performance of those biotech companies that completed IPOs since the “opening” of the window in 2003, the group is now collectively up 23 percent overall at the end of the third quarter — even though more than half are still trading well below their issue price.

Biotechs Still Attractive for Big Pharma
Partnering deals in Q3 2005 were down approximately 10 percent compared with Q2 2005 but up 22 percent over the comparable 2004 amount. There has been no sign that big pharma is slowing down its partnering or acquisitions activities. Typical of this trend is GlaxoSmithKline’s acquisition of Vancouver-based ID Biomedical Corporation (IDB), developer and manufacturer of innovative vaccine products, including influenza vaccines. In the past, we might have seen GSK forge a strong alliance with IDB, which has vaccine-manufacturing facilities in Canada and in the United States, but now the pharma sees itself as a major player in the influenza vaccine market and hence they were willing to pay $1.4 billion for IDB. This transaction could have stirred Novartis into making its bid to acquire the approximately 58 percent of Chiron shares for $40 per share that it did not own. Although Chiron rejected the $4.5 billion offer, we probably haven’t seen the last of pharma/biotech acquisitions, nor the Novartis/Chiron deal.

 G. Steven Burrill is CEO of Burrill & Company in San Francisco. E-mail:


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