SOURCE: Burrill & Company

Burrill & Company

December 20, 2012 08:45 ET

Biotech Visionary G. Steven Burrill Offers Predictions on 2013

Sees Improvements to the Sector in the New Year Despite Continued Global Economic Concerns

SAN FRANCISCO, CA--(Marketwire - Dec 20, 2012) - As the year comes to a close, biotech visionary G. Steven Burrill issued his annual predictions for the life sciences in the new year. Burrill, CEO of Burrill & Company, a global life sciences financial services firm, says the pace of change is accelerating as personalized medicine and digital health technologies are altering the way doctors and patients treat, manage, and prevent disease. But global economic problems and the transition of healthcare around the world to value-based systems provide continuing challenges for life sciences companies.

"In 2012 life sciences companies enjoyed rising stock prices, successful financings, promising clinical results, and the approval of important new products," says Burrill. "Though 2013 may get off to a choppy start if Washington is unable to reach a resolution that avoids the fiscal cliff, we expect a year of strong performance for the sector."

For the life sciences in 2013, Burrill expects the following:

PREDICTIONS

Capital Markets
Biotech stocks overall posted strong gains in 2012. The Burrill Select Index rose 41.8 percent through the end of November 2012. That compares to a 6.5 percent increase in the Dow Jones Industrial Average, a 12.4 percent gain for the S&P 500, and a 15.4 percent rise in the Nasdaq Composite Index. While the world economy continues to improve, turmoil in the Middle East, economic instability in Europe, and political dysfunction in the United States threaten to disrupt a tenuous recovery.

Fundraising
The global life sciences industry raised $86.5 billion through the end of November 2012. Of that amount, debt financings accounted for $56.8 billion in funding. Capital will continue to be expensive and difficult to raise for life sciences companies. Nevertheless, expect to see the financing environment improve once the fight in the United States over budget cuts and taxes is resolved. In 2013, expect the industry to raise $100 billion in capital, with financings heavily weighted to the large companies and to the use of debt.

Private Financings
In 2012, private life sciences companies raised $11.4 billion globally, a 23 percent increase over the previous year. Going forward, traditional venture investors will become less relevant to start-ups as they continue to migrate not only toward later-stage deals, but public company investments as well. Angel, corporate venture, disease advocacy groups, and philanthropic organizations will fill the growing gap. In order to get funding, companies will need to convince investors they have a clear path to market, ability to get paid for their products, a way to demonstrate value to customers or payers, and an exit opportunity for their investors. Larger financing rounds that get a company to proof-of-concept will become the norm, not the step financings of the past.

With growing wealth in emerging markets, investors in these parts of the world will become more prominent and new cultures of entrepreneurship will give rise to a growing number of life sciences startups outside the United States. Expect private financings to grow 20 percent in 2013.

IPOs
A total of 16 life sciences companies went public on U.S. exchanges during the first 11 months of 2012. The 12 therapeutics companies that debuted in public markets in 2012 outperformed life sciences IPOs as a whole. Those issues rose 17.8 percent by the end of November 2012. Bolstered with increased public market activity, the JOBS Act, and more realistic outlooks about the pricing of their offerings, the number of life sciences IPOs will grow to 25 in 2013.

Mergers & Acquisitions
M&A activity in 2012 fell to $101.1 billion during the first 11 months of 2012, a 34.5 percent decrease. Expect this number to increase by at least 20 percent with a pick-up in acquisitions of mid-cap life sciences companies and at least one Big Pharma or major biotech merger in 2013. Deals targeting drug companies that reach into Latin America, the Middle East, and Southeast Asia, will also drive activity.

Partnering
Pharmaceutical companies in 2012 focused much of their partnering efforts on discovery collaborations as they worked to externalize their research operations. Of the $36.5 billion in potential value of partnering deals, $16.2 billion were for discovery collaborations or preclinical-stage assets. This trend will continue as drugmakers seek to reduce their costs and broaden their sources of innovative ideas.

Competition to license experimental drugs will increase, however, pharmaceutical companies will insist on sharing risk with their partners and provide small upfront payments with rewards coming only if milestones are met.

Global Dealmaking
As developing countries look to grow their economies and provide for their growing populations and rising middle classes, companies will have more opportunities to take advantage of local needs to obtain capital and market access on more attractive terms. Latin America will be hot, as life sciences companies look beyond just Brazil to other countries in the region. China will continue to be a desired place for dealmaking. India will be seen as a big opportunity for bioinformatics as the country's information technology strengths and lower cost services are embraced by the life sciences. Even Russia will become a bigger player with more acquisitions than sales of companies.

Clinical trials
In an effort to reduce development costs, drugmakers will increase their use of adaptive trial design that allow them to modify studies in ways that make use of data as it is collected, but doesn't compromise the validity of the study.

Reimbursement
Payers will increasingly reimburse whole genome sequencing selectively on an individual patient basis as the falling cost of sequencing drives doctors' interest in making use of the tool for diagnostic purposes.

Comparative effectiveness will become a reality for drugmakers in 2013 as they prepare to meet the growing demand of payers to demonstrate value and justify pricing of their new products. Investors will shift emphasis from a focus on whether a drug will be approved, to whether payers will see value in a product and if companies will be able to capture value.

Regulatory
Through the first 11 months of 2012, the U.S. Food and Drug Administration approved 31 new drugs. We expect a total of 35 new drugs to be approved in 2013 as drugmakers take advantage of mechanisms to accelerate approval.

FDA will enter into public-private partnerships to reach earlier into the product development pipeline of both drug and device makers to work with industry to improve the tools they use to evaluate biomedical innovation.

Cooperation between regulators around the world will increase to improve post approval monitoring of regulated products.

National Institutes of Health
Regardless of what happens with sequestration, expect NIH funding to decrease in real dollars. It will force researchers that relied on grants to find alternative sources of funding and lead to new initiatives to fund academic research.

Diagnostics
As there will be increasing pressure on drugmakers and payers to define the subpopulation of patients that respond to therapies, there will be a shift in value towards diagnostics from drugs.

Sequencing
Focus in 2013 will shift from the $1,000 genome to the $100 genome. It's real. It's happening. It's the diagnostic of tomorrow.

Healthcare
A new cost-consciousness will permeate patients and providers as new value-based approaches to healthcare take hold. Patients will look past the traditional delivery of healthcare and rely on new digital tools to comparison shop for services. Providers will place a greater emphasis on cost control within their facilities as they move toward billing for outcomes rather than services.

Digital Health
Digital health technologies will grow ubiquitous as doctors and patients grow comfortable with using their everyday digital devices to manage health. As comfort levels grow, increasing sophistication will be layered on to monitor patients and share information with doctors. The convergence of wireless technologies, social medial, and low-cost monitoring devices and sensors will provide consumers with new ways to take control of their own health and wellness.

Agricultural
In 2013, there will be expanded use of biopesticides to combat insects and microoganisms that damage crops. Plant breeders will harness emerging technologies, such as RNAi, to produce a new generation of products that allow for greater crop yields without the stigma of producing foods that are considered genetically modified.

GMOs
Despite the defeat of California's Proposition 37, anti GMO sentiment will continue to be a problem for the industry, particularly in Europe and increasingly in Asia.

Biorenewables
The biorenewables industry will begin to see the first commercial projects come on line but until the industry starts to generate real revenues, raising capital will remain difficult and partnering will remain a critical lifeline for its growth.

Industrial Biotechnology
Advances in synthetic biology will begin to transform manufacturing of everything from fragrances to fabrics as engineered organisms produce materials traditionally derived from plants and petroleum.

About Burrill & Company
Founded in 1994, Burrill & Company is a diversified global financial services firm focused on the life sciences industry. With $1.5 billion in assets under management, the firm's businesses include venture capital/private equity, merchant banking, and media. By leveraging the scientific and business networks of its team, Burrill & Company has established unrivaled access and visibility in the life sciences industry. This unique combination of resources and capabilities enables the company to provide life sciences companies with capital, transactional support, management expertise, insight, market intelligence, and analysis through its investments, conferences, and publications. Headquartered in San Francisco, the company oversees a global network of offices throughout the United States, Latin America, Europe, and Asia. For more information visit: www.burrillandco.com.

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