SAN FRANCISCO, November 3, 2008 – The month of October 2008 will be remembered for a very long time by biotech CEOs. Not only for the wild swings in the Dow – the industry has experienced these market meltdowns in the past and lived to tell the tale - but also for how it has and will continue to affect for the foreseeable future the flow of much needed capital into the sector.
“We know that finance has been the industry’s umbilical cord for the past forty years…the implosion of financial institutions has served to sever the cord and now the biotech ‘infant’ is left to fend for itself,” said G. Steven Burrill, CEO, Burrill & Company, a San Francisco based global leader in life sciences with activities in Venture Capital, Private Equity, Merchant Banking and Media. “The more mature and blue chip biotech companies will do just fine since they have plenty of cash, product revenue streams, strong pipelines and big pharma partners. It is the large universe of small public companies, and private companies looking for venture capital who will feel the most pain,” commented Burrill.
“The prognosis for the almost 200 publicly-listed biotechnology companies that have seen their market cap drop to less than $100 million will find the next 12 months challenging since they are often trading at almost no multiple to their cash. These companies will need to find ways to extend their runway and stretch out the funds that they have remaining.”
In fact, 30 percent of the public biotech companies tracked by the monthly Burrill Biotechnology Report were facing the specter of NASDAQ delisting notices until the Nasdaq Stock Market announced that it had suspended its minimum bid price and market value requirements for continued listing for three months in response to the continuing market meltdown. Even this extension, may not be long enough as the consensus appears to be that the industry is facing a long down-turn.
“When the markets do return in late 2009/early 2010 we are likely to see a very different industry than exists today,” observed Burrill. “Already we are seeing that companies with limited cash are starting to cut their work forces and even eliminate research and drug development projects in a desperate effort to extend their runway. Some might have to sell themselves at less than favorable prices, since it is a buyers market. Clinical Data, for example was able to acquire Avalon Pharmaceuticals in an all-stock transaction valued at approximately $10 million. At the beginning of 2008, Avalon’s share price was $3.25 representing a market cap of approximately $55M.”
By the Numbers
The collective market cap of the industry closed October at $417 billion, a drop of 10% for the month. Genentech’s market cap closed the month at $87.5B; Amgen was at $63.4 billion and Gilead Sciences at $42.2B.
Analyzing biotech’s monthly performance…the Burrill Biotech Select Index, a price-weighted index tracking 20 of biotech’s “blue chip” companies, finished October down 10%. In comparison, the Dow fell 14% and the NASDAQ took a 17% hit.
“Our Indices reveal the magnitude of the fall off in the markets,” said Burrill, “and they reflect the realities that investors still have faith in the blue-chip biotechs but are staying well away from the more risky emerging biotech companies, with the stock values of the mid-cap and small cap biotechs taking a pounding in October.
“We are not writing biotech’s obituary. In fact, these stressful times will force companies into looking at what they have and how those assets can be monetized. They will also have to look further afield for financing and potential partners such as the BRIC countries – Brazil, Russia, China and India.
“The industry has been and will be as creative in its survival as it has been in its product development. From this will emerge and even stronger industry.”
About Burrill & Company
Founded in 1994, Burrill & Company is a San Francisco-based global leader in life sciences with activities in Venture Capital, Private Equity, Merchant Banking and Media. The Burrill family of venture capital funds has over $950 million under management and its merchant banking business is one of the industry leaders in life sciences transactions.
Burrill is also the creator, sponsor and facilitator of over a dozen leading industry conferences worldwide and publishes a range of bio-intelligence reports including the monthly Burrill Biotechnology Report and annual “State of the Industry” report, the 22nd Edition is entitled Biotech 2008: Life Sciences – A 20/20 Vision to 2020.
