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November 01, 2009 (Vol. 29, No. 19)

Gains Steadily Building in Biotech Sector

Positive Reports Confirm that Investors Are Returning and Momentum Is Growing

  • Partnering Remains Robust

    As a consequence of almost 12 months of tough financial conditions and the limited flow of capital to biotechs, companies have, increasingly, been turning to partnering as an alternate method of financing. The over $9 billion generated included two deals that could, if all milestones are met, generate over $1 billion. PTC Therapeutics’ exclusive research collaboration and licensing agreement with Roche for the development of orally bioavailable small molecules could realize approximately $1.9 billion. Roche will utilize PTC’s technology called gene-expression modulation by small molecules. The collaboration focuses initially on four CNS disease targets to be jointly selected.

    Nektar Therapeutics signed a worldwide licensing agreement with AstraZeneca for two of its therapies: NKTR-118, in late-stage development for the treatment of opioid-induced constipation, and NKTR-119, in early-stage development to treat pain without constipating side effects. AstraZeneca will pay Nektar $125 million up front and assume responsibility for the continued development of both programs. Nektar is eligible for milestones that could total up to $1.4 billion if the products achieve considerable levels of success.

  • Biotech Industry Statistics

    There are 328 biotechs that are publicly traded on major U.S. markets (down 7.8% year-to-date), and at the end of September the group of public biotech companies had an aggregate market cap of $352 billion (up 10.4% for the quarter). In addition, there are 51 companies that have market caps greater than $1 billion (up 4% year-to-date); 36 companies that have market caps between $500 and $999 million (up 38% year-to-date); and 136 public biotech companies (41%) that have a market cap below $100 million.

  • What Does the Future Hold?

    While the data is encouraging, we don’t yet believe biotech is fully back on track, as many companies are still struggling to find the necessary funding to maintain their operations. Almost half of U.S. public biotechs have market caps below $100 million and we are seeing companies still consistently turning off their lights for the last time.

    It is important to remind ourselves that the biotech industry is undergoing a major transition, a process that will likely continue for at least another two quarters. This is because we do not yet know how President Obama’s proposal for healthcare reform will fully impact the biotechnology industry, and the status of biosimiliars legislation (follow-on biologics) is also still unresolved. There are fears that these issues will drive the prices of innovative drugs lower and eat away at biotech company profits. Despite the market uncertainties, we will likely see the industry build on the momentum it has gained over the past several months.

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