November 1, 2010 (Vol. 30, No. 19)

Robust Performance Hailed as Strongest September Rally in More than 70 Years

Biotech posted its strongest monthly and quarterly performance in several years in what was hailed as the most robust September rally for equities in more than 70 years. The Burrill Biotech Select Index gained 7.8% in the month and 13% in the third quarter. The significant rise of share values was fueled by an easing of investor concerns about a double-dip recession as well as hopes for a better economic outlook. Biotech is now up 6% year-to-date and is well positioned for a strong fourth quarter.

There will be a significant number of news stories to keep investors engaged in the biotech industry for the rest of year. Already we have seen research into stem cells enter the legal arena once again. Fortunately for the industry, federal funding for embryonic stem cell research will be allowed to continue while the federal government appeals a lower court injunction that would ban such financing.

The recent ruling by the U.S. Court of Appeals in Washington overturns U.S. District Court Judge Royce Lamberth’s August ruling that all funding should be suspended while its legality is challenged in the courts.

In M&A land, the resolution of Sanofi-Aventis’ bid to acquire Genzyme will continue to unfold after its first offer, valued at $18 billion, was rejected. The fall will also be a very busy time for U.S. drug approvals with over 20 marketing applications to be decided before year’s end by FDA regulators.

2010 year-to-date biotechnology IPOs (in chronological order)

Biotech IPO Activity

IPO activity across all sectors also picked up in the quarter, but in order to attract investors and get deals done, companies had to be willing to trim their price expectations even in the wake of the strengthening equity markets.

Three biotech companies amended their prices to go public in the third quarter. Antibiotic developer Trius Therapeutics  slashed its expected share price by 62% to complete its offering selling 10 million shares at $5 per share. Specialty pharmaceutical company NuPathe raised $50 million after trimming its offering price to $10 from its original $14 to $16 range. Amyris Biotechnologies, which uses genetically modified yeast to make products for the specialty chemical/fuel markets, raised $85 million by offering 5.3 million shares at $16, below the range of $18–$20. However, its post-IPO trading was positive with the company’s shares up 7.8% at the close of September.

Year-to-date there have been eleven biotech IPOs, three in the third quarter, and their average market performance as of the end of September was down 24%.

U.S. biotechnology financings ($M) for third quarter 2010


Investors have warmed to biofuel companies this year. The Burrill BioGreentech Index, which includes several firms that are developing alcohol from biomass, is up a healthy 15% in the third quarter. Interest in biofuels has also encouraged two alternative fuel and chemical companies to add themselves to the IPO runway: PetroAlgae, which produces biocrude from duckweed and hopes to raise $200 million, and Colorado-based Gevo, which is commercializing bio-based alternatives to petroleum-based products using a combination of synthetic biology and chemical technology to produce isobutanol that can then be converted into a variety of plastics and fuels.

IP Queue

In addition to these two biofuel companies, several other biotechs filed to add themselves to the IPO queue in the quarter including:

  • Complete Genomics (, has already sequenced more than 200 complete human genomes since the beginning of the year, according to its filing.
  • Horizon Pharma (, has a product on the market in Europe. Lodotra is a low-dose formulation of prednisone, for the treatment of rheumatoid arthritis.
  • Aegerion Pharmaceuticals ( is focused on the development and commercialization of pharmaceuticals to treat cardiovascular and metabolic diseases.
  • Cutanea Life Sciences ( is a development-stage specialty pharmaceutical company whose mission is to strategically in-license novel, mid-stage candidates to treat diseased and aging skin conditions.
  • Endocyte ( is developing targeted therapies for the treatment of cancer and other serious diseases.
  • Pacific Biosciences ( has developed a single molecule, real-time technology that enables analysis of biomolecules with single-molecule resolution.

Public Company Financings Soft

Analysis in the Burrill Report shows that, apart from debt financings, all other financing vehicles were down a collective 50%, compared with the second quarter of 2010.

Follow-on financing and IPOs were down quarter-over-quarter; however, padding the data was the $7.2 billion raised in debt financing, bringing the total raised in the third quarter to $9.5 billion.

Venture capital financing continued to flow to U.S. biotech companies with $1.3 billion raised from about 90 deals announced in the third quarter. The U.S. biotech industry is on track to raise over $20 billion by the end of the year.

Partnering Continues to Be Hot

Of the partnership deals that disclosed their financial terms, a whopping $9.6 billion was collectively raised in the third quarter of 2010 by U.S. biotech companies—up 8% on the $8.9 billion raised through partnership deals in Q2’10.

We are on pace to equal last year’s record-setting total for partnership dollars, an incredible amount given the uncertain economic environment and testimony that pharma’s appetite for biotech innovation continues unabated.

We did predict at the beginning of the year that the general markets would be choppy and that biotech companies would begin to perform well in the second half of the year. It appears that this scenario is beginning to play out as we enter the final quarter of the year.

Although all the biotech companies that have completed their IPOs this year have  not performed well so far, we believe there will be at least another five getting out before the end of the year. Investor interest will be fueled by two high-profile genomics companies—Complete Genomics and Pacific Biosciences—and the traditional bullish trend for biotech in the fourth quarter.

By the Numbers

1 The industry closed the third quarter with a collective market cap of $350.48 billion (up 9.8% for the month, up 6.8% for the quarter, and up 0.4% for the year).

2 Fifty-five biotech companies (18%) have market caps greater than $1 billion, compared to 49 companies at the same time last year.

3 Ninety-eight biotech companies (32%) have market caps less than $100 million, compared to 39%
(122 companies) at the same time last year.

G. Steven Burrill ([email protected]) is CEO at Burrill & Company. Web: Burrill & Co. is an investor in Gevo and Endocyte.

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