Biotech Remains Upbeat in Wake of Market Turmoil, Burrill Analysis Finds.

SAN FRANCISCO -- The biotech industry's report card for the first half of the year contains surprisingly good grades for its performance on the capital markets, and for partnering and venture capital deal making, but all other forms of financing didn't fare as well, particularly IPOs, the new monthly Burrill Biotechnology Report finds.

"With the first half of the year dominated by macroeconomic factors such as inflation, recession, credit market turmoil and escalating oil prices it is not surprising that biotech IPOs were virtually non-existent with only one biotech IPO to date in 2008," 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.

Biotech did, however, outperform the broader stock market indices in the first half of the year even factoring in a brutal month of June for the capital markets where the Burrill Biotech Select Index, a price-weighted index tracking 20 of biotech's "blue chip" companies, finished down 1.3% with the Dow falling 10% and the NASDAQ, dropping 9%. Comparing the six month performance of these bell weather indices, the Burrill Biotech Select Index closed up 1% while the Dow and NASDAQ were down a whopping 14% and 13% respectively.

"Investors have clearly gravitated to biotech's elite companies and away from the traditional 'safe havens' of big pharma in these times of economic uncertainty," noted Burrill. "Normally viewed as defensive, health care saw unusually high volatility in big pharma and managed care with shares of pharma giants like Merck and Schering-Plough falling 35% and 26% in the first half of the year because of Vytorin and Zetia issues, and Pfizer falling 23% over generic competition concerns."

In the wake of these setbacks, the American Stock Exchange Pharmaceuticals Index has declined over 14% in the first half of 2008. In biotech land it has been a different story. Shares of Vertex Pharmaceuticals posted a strong 40% quarter gain on the strength of positive clinical developments and sales outlook. Amgen's shares also recovered in the second quarter to post a 12% increase.

Although gaining approximately 5% in the second quarter the market conditions have proved to be tough on the emerging biotech companies with the Burrill Mid Cap Biotech Index down 19% year to date. The only companies in the group to post positive numbers in June were Biomimetic Therapeutics, Pharmasset, Sequenom, and Third Wave Technologies. Sequenom posted the most dramatic gain of almost 100% following their announcement that its prenatal Down syndrome test was able to use maternal blood to correctly identify the 10 Down syndrome samples from the 201 tested samples without any false positives.

FINANCING

"The capital market bears have appeared and 2008 is shaping up to be one of biotech's worst in terms of IPOs," commented Burrill. "Except for venture capital deals, all other forms of financing have fallen compared to the first quarter of 2008 and comparative 2007 figures.

"As detailed analysis shows in our new Burrill Biotechnology Report, companies are resorting to other creative ways of financing in addition to these traditional and well established instruments. For example, Exelixis obtained a flexible $150 million line of credit from health-care hedge fund Deerfield Management; and, CV Therapeutics sold half of the North American royalties it is due from partner Astellas for the newly approved drug Lexiscan to a private investment group, which netted $175 million."

Partnering picks up the pace

After a slow Q1'08, partnering deals picked up the pace in the second quarter bring in over $4.1 billion for US biotech companies. Notable deals in the quarter included a potential $770 million partnership between Astellas Pharma, Inc. and CoMentis, Inc. to develop products from CoMentis' beta-secretase inhibitor program, including lead compound CTS-21166, which is being developed as a disease-modifying treatment for Alzheimer's disease.

AVANT Immunotherapeutics granted Pfizer an exclusive worldwide license to a therapeutic cancer vaccine candidate, CDX-110, in Phase II development for the treatment of glioblastoma multiforme (GBM). The deal could potentially be worth approximately $440 million. A full listing of partnering and M&A deals in the first half of the year is provided in the Burrill Biotechnology Report July/August launch issue.

Market cap

The industry's market cap closed May at $462 billion, unchanged for the month of June, up 3% for the second quarter and 2% for the year to date. Genentech's market cap closed the month at $79.7B; Amgen strengthened to jump into second place once again at $51.3 billion and Gilead Sciences slipped to third posting a month-end market cap of $48.8B.

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