April 1, 2006 (Vol. 26, No. 7)

Investors Believe there is Plenty of Upside in these Emerging Companies

In the relatively quiet month of February, the biotech industry managed to outperform the markets with the Burrill Biotech Select Index up 4.5%, while the NASDAQ finished down 1% and the Dow up 1%. In addition, the biotech industry reached a significant milestone in its comparatively short history with its collective market cap topping the $500-billion mark for the first time.

&#8220However, the unfolding story continues to be the excellent performance of the mid-cap biotech companies,&#8220 said G. Steven Burrill, CEO of Burrill & Company. &#8220The almost 30% gain, and 13% in February, in the Burrill Mid-Cap Biotech Index since the beginning of the year demonstrates that investors believe there is plenty of upside in these emerging companies.

&#8220With U.S. spending on prescription drugs projected to more than double in the next decade, to $446 billion from $188 billion, according to the Centers for Medicare and Medicaid Services latest estimate, the future looks bright for these biotechs. Drug sales, bolstered by Medicare coverage, is expected to keep rising and biotechs will certainly capture a significant portion of this increase,&#8220 noted Burrill.

&#8220Even the biotech initial public offering market is off to a strong start in 2006,&#8220 added Burrill. &#8220The five new IPO companies have raised $231 million, and Q1 06 is well on pace to beat the amount raised in Q1 05.

&#8220With three more companies adding themselves to the IPO runway in February all the signs indicate that our prediction of 30-plus biotech IPOs by the end of the year is on track.&#8220

Hitting Wall Street in February: Valera Pharmaceuticals, Iomai, and Acorda Therapeutics, netting $34 million, $35 million, and $33 million, respectively. Of the three, Valera and Acorda, were up by 10% or more on their first trading day but were unable to maintain this momentum with Valera dropping 3% below its opening price before rallying late February to close the month at $9.84, up 9%.

Acorda, whose lead product candidate, Fampridine-SR, is in a Phase III trial for the improvement of walking ability in persons with multiple sclerosis, closed at $6.20, up 3%. For Iomai, it has been all downhill since its IPO debut. The company closed February at $5.41, down 22%.


The companies filing for IPOs in February were QuatRx, Biomimetic Therapeutics, and Novacea.

The Burrill Biotech IPO Index again reflected the market&#8217s interest in the small and emerging biotech companies, posting a jump of 6.8% in its value in February and adding to its 19% growth year-to-date. Most actively moving stocks were: Xenogen, which rose 39% by the end of the month on the news that it had agreed to be acquired by Caliper Life Sciences for $80 million; Barrier Therapeutics, up 33%, the company received approval for an ointment designed to treat diaper rash complicated by fungal infections; Santarus obtained up to $75 million in equity financing over a three-year period. The company&#8217s shares finished February up 19%; and Avalon Pharmaceuticals, up 28%, reported that it had completed a three-week dosing regimen in its Phase I trial of AVN944 in patients with advanced hematological malignancies.


The Burrill Large-Cap Biotech Index remained flat in February, a situation that the Index has reflected since the beginning of 2006. The only bright spots were Biogen Idec, Celgene, and Human Genome Science, closing up 6%, 7%, and 14%, respectively.


The Burrill Mid-Cap Biotech Index, which started out the year on a tear kept up the momentum with a stellar 12.7% gain in February and is up almost 31% year-to-date. Adolor and Aprevea led the charge. Adolor completed a $143.75-million public stock offering, selling 5.75 million shares of common stock at $25 per share. The net proceeds from the offering were about $135 million. Its shares closed the month at $27.44, up 79%.

Shares of Aspreva Pharmaceuticals soared 31% during February after the British Columbia-based company reported better-than-expected 2005 sales. Full-year revenues were $76.5 million with earnings of $0.62 per fully diluted share, well above the $65 million to $70 million it previously forecast.

Following a meeting with the FDA, DOV Pharmaceutical said that it was on track to submit its NDA for bicifadine, a treatment for low back pain, in the first half of 2007. Its share price jumped 25% in the month to close at $19.25.

Digene posted a sharply higher quarterly profit as demand increased for its test to help screen for cervical cancer. Shareholders liked what they heard and pushed the company&#8217s share price up 25% by months end.

Pain Therapeutics and its partner King Pharmaceuticals reported that they were commencing a pivotal Phase III trial with Remoxy in 400 patients with severe chronic pain. Pain Therapeutics&#8217 shares closed the month, up 17%.

Idenix Pharmaceuticals was not rewarded though it reported some positive news; with Novartis, it submitted a Marketing Authorization Application to the European Medicines Agency for a 600-mg dose of telbivudine for the treatment of chronic hepatitis B&#8212the company&#8217s share closed, down 10%.


The Burrill Small-Cap Biotech Index posted a modest 1.25% gain in value in February and is up 23% year-to-date. Several companies posted impressive gains in the month. Hemispherx Biopharma&#8217s shares climbed to close, up 44% after reporting that its antiviral drug Ampligen can be highly effective in boosting the power of the avian flu-fighting drugs Tamiflu and Relenza and avian flu vaccines.

Genomics Index

The Burrill Genomics Index continued its slide in February, down 0.4% and is down 5% since the beginning of the year. Nanogen posted a drop of 17% in its share value after reporting a net loss of $96.5 million for its 2005 fiscal year, compared to a net loss of $38.9 million in 2004.

Leading gainer was CuraGen (up 26%) after Piper Jaffray raised its investment rating on the company&#8217s shares. This was based on the potential of its PXD101, a therapy to help patients with multiple myeloma. The Phase II results are expected mid-year.

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