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Outlook for ’06, Look Back at ’05

By G. Steven Burrill

Feb 15, 2006 | Overall, 2005 turned out to be an exceptional year for the biotech industry in terms of financings and partnering, bringing in a record $32 billion for U.S. companies. The U.S. biotech industry raised more than $17 billion through financings and $15 billion in partnering capital in 2005. PIPEs and secondaries remained flat, while IPO and debt financings declined. Public financings overall also remained flat.

The industry’s market cap hit an all-time high of $488 billion at the end of November 2005, surpassing the previous record of $475 billion reached in the summer of 2000. The Burrill Biotech Select Index widely outperformed the Nasdaq and Dow Jones Industrial on a year-to-date basis — an incredible testimony to the industry’s successful year (up 20 percent versus 4 percent for Nasdaq and 0.4 percent for the Dow). Biotech’s “blue chip” companies such as Amgen and Genentech led the way, both hitting the $100 billion market cap.

But it wasn’t all good news. The capital markets remained extremely cautious throughout the year, being assailed by worries over rising interest rates, skyrocketing energy prices, and the aftermath of Gulf Coast hurricanes.

Most of my 2005 predictions for the industry’s performance in terms of money raised and market performance were accurate, except my expectation of a better IPO market during the year.

Look Back at 2005
: A reasonably robust public equity IPO market with 30 or more IPOs completed in the United States and an even larger number internationally

Outcome: The IPO market was negatively influenced by the prevailing “macro” economic climate, with only 17 biotech IPOs in the United States and 17 in Europe.

Prediction: VCs will raise more money for life sciences ventures, spend more money, and increase their interest in investing in early-stage investments.

Outcome: U.S.-based biotech funds raised approximately $7 billion in 2005 (up from $5 billion in 2004), and life science investments by the VC community increased from 2004.

The predicted improved partnering environment for biotechs with even larger values attributed to earlier-stage compounds (including preclinical) certainly was the major story of 2005.

Prediction: An improved partnering environment for biotechs with even larger values attributed to earlier-stage compounds

Outcome: Pendulum swings from IPOs toward M&As and partnering. The more than $15 billion garnered by biotech in 2005 smashed the record $10.9 billion raised through partnering in 2004.

Prediction: A more challenging regulatory environment

Outcome: The bar for drug approval was raised in 2005. The FDA put personalized medicine on the radar screen, driving the industry towards increased use of pharmacogenomics and theranostics (diagnostics attached to therapeutics to identify responding patient populations).

Predictions for 2006
Biotechnology will continue to fuel a major transformation in healthcare — one that emphasizes earlier disease detection, more targeted treatments, and adjunctive support through enhanced nutrition.

Biotech stocks in 2006 will continue to outperform Nasdaq, Dow, and the pharma indices, although biotech’s performance will be out of its direct control and in the hands of the macro-markets. This may retard biotech’s growth somewhat because the world economy will not be as strong as it should be.

We will see a reasonably robust public equity IPO market — more than 30 in the United States in 2006 and even a larger number internationally. The industry will raise over $35 billion in 2006, with approximately $25 billion from the public equity markets capital and $10 billion in partnering. Pricing pressure will increase. The trend toward M&As will continue with substantially more deals than 2005, especially among the larger companies. Similarly, we will see more and larger partnering deals with an emphasis towards discovery-stage deals. Drug safety issues will be high on the agenda, and approvals will be tougher to obtain. The trend towards personalized medicine will accelerate. And we will see both scientific and political progress in stem cells.

The year 2006 will be a good one for biotech.


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

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