Burrill & Company Announces 1997 Biotech Industry Analysis
1997 Good, But Not A Great Year For Biotech - 1998 Expected to Be Challenging
In 1997, the biotechnology industry in the United States raised $5.8 billion in financings, compared to approximately $5.3 billion in 1996, reports private merchant bank Burrill & Company (San Francisco). Initial public offerings (IPOs) accounted for $709 million (27 IPOs) compared to $1.5 billion for 1996, a decrease of 53 percent. Strategic alliances totaled an additional $5.9 billion in upfront and milestone payments, while mergers & acquisitions accounted for $3.7 billion, compared to $2 billion and $3.8 billion, respectively, for 1996.
Overall, the biotech industry in 1997 saw a steady increase in the average value of partnering/licensing arrangements, rising from $25.4 million in the first quarter to $54.8 million in the fourth quarter. In addition, the average value of partnering arrangements for each quarter was higher than the comparable quarter in 1996. The total average amount raised by IPOs in 1997 was similar to 1996, while the total amount raised in private placements into public entities (PIPES) was steady from quarter to quarter.
"After surviving a volatile second quarter, when during April and May no IPOs were completed, followed by the stock market crash in late October 1997, the biotech industry still managed to end the year slightly ahead of 1996," commented G. Steven Burrill. "The total value of partnering agreements in 1997 was triple that in 1996. Many deals involved drug discovery technology, emphasizing the faith many large pharma companies place on the ability of the industry as a whole to discover novel drugs and technologies. It was the year of genomics, the year of enabling technologies -- a whole new era of biotech has emerged."
In the fourth quarter 1997, the biotech industry raised approximately $1.9 billion in financing (including public offerings and venture funding), compared to approximately $1.7 billion for 3Q97 figures. According to Burrill & Company's analysis, public offerings accounted for $1.6 billion in funds in the fourth quarter. Partnering agreements were $1.6 billion (disclosed amounts) this quarter compared to $1.2 billion in the previous quarter.
For 1998, Burrill & Company sees a confluence of issues, with U.S. politics, world economics, regulatory uncertainty, product/clinical news and capital market uncertainty dominating the U.S. biotech industry. With voter interest in healthcare accelerating and over 15% of the U.S. GNP devoted to healthcare, it is a great enticement for politicians to propose unrealistic government-directed solutions. When and how the "spend" in healthcare will shift, will create opportunities for the biotech industry both technologically and opportunistically.
"It is tough enough to build a successful biotech company in a stable environment, but even tougher when most of the world around the biotech industry is undergoing massive changes," commented Burrill. "Regulatory change both in the U.S. and Europe will provide long-term solutions to getting new technologies/products to market more quickly and with less expense, thereby significantly benefiting the patients. However, short term turmoil will continue to make regulatory uncertainty a reality, leaving Wall Street's desire for predictability unmet."
Important NDA milestones in 1998 may include MedImmune's treatment for respiratory syncytial virus in infants, Immunex's rheumatoid arthritis therapy, Baxter's blood substitute, Interneuron's citicoline for stroke, Gilead Sciences' GS840 for HIV treatment and Aviron's nasal flu vaccine. Product approvals for COR's Integrilin, Vertex's HIV protease inhibitor and Pathogenesis' TOBI to treat cystic fibrosis may also set the capital market environment for 1998, Burrill & Company predicts.
Big pharma restructuring will continue in 1998, with increased combinations among the large companies. The Roche/Boehringer Mannheim merger is still to be completed with the impact of the resultant consolidation still to come. Pharmacia & Upjohn, Glaxo Wellcome and Novartis continue to create spin outs and make partnering, on the inbound side, more problematic.
"In the great arena of large pharma combinations, we're still early in a decade-long environment for moving market share from the 6+% today in the largest companies to the reality of seeing a 10-15% market share by a single company emerging in the early part of the millennium," noted Burrill. "Spin-ins and spin-outs of pharmaceutical and biotech companies will dominate the end of the 90s, with start-ups accelerating in Europe, but decelerating in the U.S."
The economic realities of Asia and the underlying uncertainty of the capital markets make the umbilical cord of the industry, the public and private equity markets, increasingly tough to understand.
Not only are the financial markets themselves changing dramatically, but the investment bankers who serve them are equally dramatically restructuring the financial services sector. As banker and capital market consolidation occurs, Burrill & Company predicts that opportunities for mid-cap and lowercap companies become more challenging.
"Getting the attention of the banker, analyst and/or the investment community is still the issue -- no easy answers are apparent," said Burrill. "1998 will be much tougher than 1997, but there will be selective success by those companies with astute management, financial staying power, compelling intellectual property protection, products in the market (or near to it) and interesting business models and strategies."
Fourth Quarter '97
Alliances and Acquisitions Alliance news this quarter continued the year's trend and was dominated with deals involving genomics and drug discovery technology, including a rise in the number of biotech to biotech agreements. Some of the largest deals of the quarter involved the partnering of late-stage products. "Companies that resisted the temptation to partner products early in their life-cycle are starting to see the fruits of their patience," stated Burrill. "Partnering products at a later stage can be much more lucrative, with the originating biotech having a lot more negotiating power."
Highlights of the quarter include:
In a deal potentially worth $200 million, Genentech (NYSE: GNE) acquired development and marketing rights to Alteon's (Nasdaq: ALTN) pimagedine, a drug currently in pivotal Phase III trials for the treatment of diabetic kidney disease. The agreement also covers second generation drugs related to pimagedine.
Ligand (Nasdaq: LGND), in its most lucrative deal to date, signed a diabetes collaboration with Lilly, potentially worth $190 million plus royalties. The agreement covers oral Targretin and related compounds and technologies based on Ligand's intracellular receptor research. During the quarter, Ligand also announced positive data from a second Phase III trial of Panretin for AIDS-related Kaposi's sarcoma. Based on these results, Ligand plans to file a NDA during the first quarter of 1998.
MedImmune (Nasdaq: MEDI) recently forged an exclusive worldwide marketing agreement worth up to $60 million with Abbott Laboratories for palivizumab, a humanized monoclonal antibody for respiratory syncytial virus (RSV) in infants. Within a couple of weeks, MedImmune announced another agreement, this time with SmithKline Beecham for $85 million. The second deal covers worldwide marketing rights for MedImmune's human papillomavirus vaccine.
In a deal worth potentially $40 million, Aradigm (Nasdaq: ARDM) aligned with SmithKline Beecham for development and commercialization of Aradigm's AERx electronic inhaler to deliver morphine for the treatment of pain.
To bolster its late-stage product pipeline, Elan announced in December that it will acquire Sano Corp. (Nasdaq: SANO) for $375 million in stock. Sano applies its transdermal drug delivery systems to generic and proprietary drugs.
Chiron (Nasdaq: CHIR) announced the sale of its Chiron Vision division to Bausch & Lomb for $300 million in cash in a move to narrow its business focus. Chiron will now focus on its core programs in therapeutics, vaccines and diagnostics.
Aurora Biosciences (Nasdaq: ABSC) signed its largest research and licensing agreement, this time with Merck & Co. The deal, potentially worth $100 million to Aurora, allows Merck access to Aurora's assay and screening technology.
Privately held Signal Pharmaceuticals inked a $59 million agreement with Ares-Serono to identify small molecule inhibitors of the gene regulation pathway, NF-Kkbeta. This research could have applications in autoimmune and inflammatory diseases.
Digital Gene Technologies signed a $93 million, five-year agreement with Immunex (Nasdaq: IMNX) for the use of genomics to identify targets for drugs against inflammatory diseases of the gastrointestinal tract.
CuraGen signed two major collaborations within a month: a five-year genomics research collaboration with Biogen potentially worth in excess of $33.5 million; and a deal potentially worth $55 million with Genentech for access to Curagen's genomics platform.
In late October, Millennium (Nasdaq: MLNM) signed one of the largest genomics deals to date, a five-year agreement with Monsanto worth up to $218 million to discover agricultural products using its genomics technology platform.
Early November, Arris (Nasdaq: ARRS) secured a $166 million takeover of Sequana Therapeutics (Nasdaq: SQNA) to form a new entity called AxyS Pharmaceuticals. The resulting company combines Sequana's expertise in genomics with Arris' drug development capabilities.
In a deal worth up to $130 million, Biogen (Nasdaq: BGEN) signed a research, development and licensing agreement with Merck & Co. for a new class of anti-inflammatory drugs for the treatment of asthma.
The Quarter's Product News
During the fourth quarter, product news was dominated with successes of biotechnology product approvals by the FDA. First-of-their-kind genetically engineered biological product approvals, including Rituxan, Zenapax and Regranex Gel heightened this news. "The approval of these unique products represents fruition of the early promise of biotechnology, especially related to monoclonal antibodies," commented Burrill. "I believe this is only the beginning and predict that in 1998 many more unique and novel products will enter the market place."
Highlights of the quarter include:
In December, the FDA approved Rituxan (rituximab) for the treatment of low-grade non-Hodgkin's lymphoma recurrences. Rituxan, developed by IDEC Pharmaceuticals (Nasdaq: IDPH) in collaboration with Genentech and Roche, is the first monoclonal antibody approved for cancer.
Early October, the FDA approved Amgen's (Nasdaq: AMGN) Infergen, a product for the treatment of hepatitis C. The company made the product available immediately.
An FDA advisory panel unanimously recommended approval of Protein Design Labs' (Nasdaq: PDLI) humanized monoclonal antibody, Zenapax, for the prevention of acute graft rejection in kidney transplant recipients. Full approval was granted to Protein Design Labs and its marketing partner Roche in December.
In November, Centocor (Nasdaq: CNTO) was granted approval by the FDA to market ReoPro for expanded indications. The company can now market ReoPro as an adjunctive therapy to prevent blood flow stoppages to the heart in patients undergoing percutaneous coronary intervention (PCI) and in unstable angina patients who are not responding to medical therapy when PCI is planned within 24 hours.
Genetics Institute was granted FDA clearance for marketing of Neumega (oprelvekin) for the treatment of thrombocytopenia during cancer chemotherapy. Neumega is a recombinant version of human interleukin-11.
Gliatech (Nasdaq: GLIA) received a recommendation for approval from an FDA advisory committee for ADCON-L, a post-surgical gel to prevent scarring, pending labeling changes that would detail specific indications.
GelTex Pharmaceuticals (Nasdaq: GELX) filed an NDA for its first product, RenaGel, a non-absorbed phosphate binder for the control of elevated phosphate levels associated with chronic kidney failure. If approved, the product will be commercialized under a 50-50 partnership agreement with Genzyme (Nasdaq: GENZ).
Seragen (OTC Bulletin Board: SRGN) filed its first biologics license application (BLA) to the FDA for its interleukin-2 Fusion Protein as a treatment for recurrent or persistent cutaneous T cell lymphoma (CTCL). Almost simultaneously, Seragen announced positive Phase III data for the product which showed that 30% of patients treated with the IL-2 Fusion Protein exhibited a 50% or greater reduction in tumor burden lasting at least six weeks. Approximately 10% of patients showed complete resolution of all evidence of tumor.
Chiron (Nasdaq: CHIR) experienced mixed fortunes this quarter. Successes included approval in the U.S. of its RabAvert rabies vaccine, Proleukin (interleukin-2) to treat metastatic melanoma and Regranex (becaplermin) for diabetic foot ulcers. However, the Company and its partner DepoTech (Nasdaq: DEPO) suffered a set back in December when an advisory committee to the FDA failed to recommend approval of DepoCyt for neoplastic meningitis.
Other News of Note
President Clinton signed the FDA Modernization Act of 1997 which enacts changes in the way that the agency regulates medicines, medical devices and foods. The bill is a culmination of three years of debate and reauthorizes the Prescription Drug and User Fee Act (PDUFA) for five more years.
Millennium (Nasdaq: MLNM) announced it was launching a $100 million spin-off company, Millennium Predictive Medicine, Inc., that will focus on developing pharmacogenomics technology.
Summary For more information on the biotech industry's performance in 1997 (and 1996 comparison), visit Burrill & Company's website at http://www.burrillandco.com.
Burrill & Company
Burrill & Company is a private merchant bank investing in and advising private and public life sciences companies. Burrill & Company, through its seasoned management team and board of scientific and business advisors, offers a unique blend of financial, managerial, scientific and operational experience to the sector.
Burrill & Company's current portfolio includes major international pharmaceutical and life sciences companies.
Burrill & Company co-sponsors The Biotech Meeting at Laguna Niguel (with Kleiner Perkins Caufield & Byers) and the annual International Life Sciences Partnering Conference (with Brobeck, Phleger & Harrison, Ernst & Young, Health Science Capital Partners, and Vector Securities International). G. Steven Burrill also co-authors Ernst & Young's annual U.S. and European biotechnology surveys (most recently, Biotech 97: Alignment and European Biotech 97: A New Economy)