December 1, 2007 (Vol. 27, No. 21)
G Steven Burrill
Watch for New Personalized Medicine Business Models
The biotech industry entered the final two months of the year in good shape. Following a positive third quarter, the sector maintained its upward climb in October. The Burrill Biotech Select Index, a price-weighted index tracking 20 of biotech’s blue-chip companies, is up 17.5% since the start of the year, in step with NASDAQ and well ahead of the Dow Jones Industrial Average.
After a lackluster 2006, the Burrill Biotech Select Index is now on track to equal the stellar Amgen and Genentech led the charge. With their share values down 15% and 9% year-to-date, respectively, however, other firms such as Gilead Sciences (up 42% YTD) and Illumina (up 43%) have picked up the slack.
Barring some dramatic unforeseen changes, the strong performance of the industry in the public markets will continue until the end of the year principally driven by biotech’s emerging and elite companies.
IPOs Heat Up Again
Save for a short lull during the summer months, the appetite for biotech IPOs has been robust throughout the year. The total amount raised from 2007 biotech IPOs up to October 31 was approximately $2 billion. This amount has eclipsed the $920 million raised in 2006. The average amount raised per IPO is also considerably higher: $76 million versus $50 million in 2006.
Biotech IPOs faired reasonably well since their debut and certainly benefited from the strong capital markets in the third quarter; 58% of them were trading above their issue price by the end of October.
The good news is that these recent biotech IPO graduates are not floundering once they get out of the gate as has been the case for other new public biotech companies over the past few years. Firms such as WuXi PharmaTech, whose stock has been on a tear since its IPO debut, and Sirtris Pharmaceuticals, which is up 60%, are providing investors with renewed confidence about new biotech issues.
WuXi is a China-based pharmaceutical and biotechnology R&D outsourcing company. The firm raised $212 million on the NYSE offering 15.1 million ADS including an over-allotment at $14 per ADS, a 16.6% premium to the midpoint of its proposed $11–$13 range. The company’s shares closed the month of October at $36.40 up 160%.
Companies on the IPO Runway
The IPO runway is also crowded, and we will certainly reach our predicted 30 biotech IPOs completed by the end of 2007. Firms on the IPO runway include:
• Adnexus Therapeutics, focused on discovering, developing, and commercializing the proprietary drug class called Adnectins. Adnexus’ first product candidate, Angiocept (CT-322), is in U.S. Phase I development in oncology.
• Akela Pharma, focused on therapeutics for treatment of cancer pain.
• Anacor Pharmaceuticals, developing small molecule therapeutics derived from boron chemistry.
• Archemix, discovering, developing, and commercializing aptamer therapeutics.
• ARYx Therapeutics, focused on discovering and developing product candidates designed to eliminate known safety issues associated with commercially successful drugs.
• Biolex Therapeutics, developing recombinant human therapeutic proteins and mAbs that until now have been impossible or expensive to develop in existing protein expression systems.
• Elixir Pharmaceuticals, developing treatments for metabolic diseases such as diabetes and obesity.
• Insys Therapeutics, focused on discovering, developing, and commercializing products to address chemotherapy-induced nausea and vomiting, pain management, and other CNS disorders.
• Precision Therapeutics, developing and commercializing tests intended to assist physicians in individualizing cancer therapy in an effort to improve treatment outcomes.
• Talecris Biotherapeutics, manufacturing plasma-derived protein therapies to treat both chronic and acute diseases and disorders. Talecris hopes to raise $1 billion from the offering, which if successful will make it the largest biotech IPO ever.
• XDx, a molecular diagnostics company engaged in the development of gene expression-based tests to monitor transplant rejection and autoimmune diseases.
Capital Still Flowing
U.S. biotech companies collectively raised almost $17 billion in the first three quarters of 2007. They, however, found fundraising a little harder in this quarter compared to the first two. In fact, the $2.6 billion raised was one of the smallest total financing quarter amounts since the first quarter of 2003.
Offsetting the poor financing total was a stellar $7.6 billion raised through partnering. This total included four blockbuster deals that biotechs inked with big pharma, that, if fully realized, could potentially be worth $1 billion each.
The biotech industry is beginning to transition from one focused principally on treating sickness to one that is promoting wellness. The era of personalized medicine is upon us—one that emphasizes predictive and preventive medicine.
Diagnostics companies have been successfully riding this new paradigm. The Burrill Diagnostics Index, for example, is up 43% year-to-date. In addition, we are seeing companies focused in the personalized medicine space beginning to file for IPOs and test the appetite of investors for this new market opportunity.
Genoptix, a company providing specialized laboratory services to hematologists and oncologists, raised $85 million in October pricing its $5 million share offering at $17. This was above its proposed $14–$16 range. Investors liked the company’s prospects, and in the first day of trading after its offering, the firm’s share value jumped almost 50%.
As personal genome sequencing evolves, several groups are racing to find cheaper ways to map an individual’s DNA. The nonprofit X Prize Foundation has offered a $10 million prize for the first team that can sequence the DNA of 100 people within 10 days.
Another pioneer in the field, George Church, Ph.D., professor of genetics at Harvard Medical School, is working on a DNA test that would identify one percent of a person’s genome for $1,000. Another one of his goals is his Personal Genome Project (www.arep.med.harvard.edu/PGP), which aims to integrate data for genomics, environment, and phenotype in more than 100,000 volunteers.
The eventual capability of sequencing the entire human genome for $1,000 continues to draw attention to pharmacogenomics and personalized medicine. Although the U.S. genomics market is still primarily driven by qRT-PCR technologies, DNA microarrays, and next-generation DNA sequencing, it is growing at a fast pace and is expected to double to reach $3.7 billion by 2012.
As drug companies move closer to a personalized medicine model, genomics firms have become attractive targets for deal- making and acquisition. M&A activity in the personalized arena has been high, so far this year, with five deals greater than $1 billion in value.
Innovation in molecular diagnostics and the promise of personalized medicine is driving values upward into the range of those for therapeutics. At the same time, smaller players are realizing the importance of gaining marketing/sales infrastructure and expertise via an established company.
The headline diagnostic transaction in both Q1 and Q2 was Inverness Medical Innovations’ $1.48 billion purchase of BioSite after a protracted bidding war with Beckman Coulter. Biosite commercializes proteomics discoveries for the advancement of medical diagnosis. Its Triage® rapid diagnostic tests are used in more than 70% of U.S. hospitals and in more than 60 international markets.
Not to be outdone, Netherlands-based Qiagen acquired U.S. molecular diagnostics company Digene for $1.6 billion to combine its portfolio of sample and assay technologies and molecular diagnostic testing with Digene’s expertise in HPV-targeted molecular diagnostic testing. Digene’s HPV test product was both FDA approved and CE marked, a key driver of the acquisition. The two companies were already collaborating on a platform for the testing of sexually transmitted disease.
The biggest buyer was Roche Diagnostics, which purchased 454 Life Sciences in Q1 2007 for $154.9 million followed by BioVeris for $600 million and NimbleGen for $272.5 million in Q2 ’07.
Another huge deal was the $6 billion merger in May of Hologic and Cytyc in a cash and stock transaction that created a $10 billion global leader in women’s healthcare, a market that has traditionally been separated by diagnosis and therapy. The combined company is expected to gross $1.7 billion in sales each year and will bring together Hologic’s oncology and osteoporosis screening products with Cytyc’s ThinPrep test and endometrial ablation system for excessive menstrual bleeding.
The two other deals this year that exceeded $1 billion in value were Siemens’ acquisition of Dade Behring for $7 billion, and Quest Diagnostics’ takeover of Ameripath, a diagnostic testing company, for $2 billion.
Expect to see more activity as the personalized medicine paradigm heats up in the coming months.
G. Steven Burrill is CEO of
Burrill & Company.