SOURCE: Burrill & Company

Burrill & Company

September 01, 2011 07:45 ET

Volatile Markets in August Take a Toll on Life Sciences IPOs

Burrill & Company Says Poor Performance for New Issues, Depressed Stocks, Could Fuel Surge in M&A

SAN FRANCISCO, CA--(Marketwire - Sep 1, 2011) - Market volatility in August battered life sciences companies that went public this year, wiping away nearly $1.3 billion in market capitalization as tumultuous trading activity hit them harder than the broader market, IPOs in general, and biotech stocks as a whole, a Burrill & Company analysis shows.

The market's gyrations, triggered by the United States' debt ceiling fight, worries about the nation's creditworthiness, the debt crisis in Europe, and the stalled economic recovery, threw U.S. life sciences IPOs into a dramatic reversal. As a group, the return from the 13 U.S. life sciences IPOs completed in 2011 on U.S. markets had moved into negative territory by the end of August, down an average 7.4 percent from their IPO price compared to the 17.2 percent gain they had realized by the end of July. The group in August fell 18.9 percent, with 3 advancers and 10 decliners compared to 9 advancers and 4 decliners at the end of July.

In all, the life sciences IPOs had actually outperformed broader market indices by the end of July, but now are significantly underperforming the Dow Jones Industrial Average, the Nasdaq Composite Index, the Burrill Biotech Select Index, and the AMEX Biotech Index. As a class, they have also failed to match the performance of U.S. IPOs overall, which as a whole were down 3 percent at end of August, according to Renaissance Capital.

"Investors took flight from risk in the recent market turmoil and that does not bode well for life sciences companies hoping to complete public offerings," says G. Steven Burrill, CEO of San Francisco-based Burrill & Company, a diversified global financial services firm focused on the life sciences industry. "If the volatile market activity that characterized August persists, it could cause private life sciences companies to turn away from the IPO market and seek financing elsewhere."

Life sciences companies demonstrated a willingness to seek funding outside the United States, going where they felt they had the best chance of raising money in difficult markets. Two U.S. companies did manage to go public in August, but on exchanges outside the United States. EcoSynthetix, a renewable chemicals company, completed a $101.6 million offering on the Toronto Stock Exchange on August 4. GI Dynamics, a medical device company commercializing non-surgical treatments for diabetes and obesity, closed an $85 million offering on the Australian Securities Exchange on August 30, planning to list on September 7. That's a trend that's likely to continue. Genomatica, a renewable chemical company, added itself to the IPO queue, raising the total to 36 life sciences companies in registration globally.

Performance of 2011 U.S. IPOs In August
COMPANY IPO PRICE (USD) AMOUNT RAISED (USD M) RETURN FROM IPO 7/29/11 RETURN FROM IPO 8/31/11 ONE-MONTH CHANGE MARKET CAP
(USD M) 8/31/11
PRICE 8/31/11
Endocyte 6 86.3 122.20% 82.70% -17.80% 394.8 11
Sagent Pharmaceuticals 16 105.8 74.20% 43.70% -17.50% 614.6 23
Pacira Pharmaceuticals 7 42 43.10% 9.40% -23.60% 143.6 7.7
Horizon Pharma 9 50 0.40% -11.10% -11.50% 156.2 8
Fluidigm Corporation 13.5 86.3 25.60% -0.10% -20.50% 261.5 13.5
BG Medicine 7 40.3 7.60% -13.70% -19.80% 120.5 6
Tranzyme 4 54 -1.30% -22.50% -21.50% 76.4 3.1
Solazyme 18 227.2 26.90% -22.20% -38.70% 831.8 14
Gevo 15 123 10.20% -28.90% -35.50% 271.3 10.7
KiOR 15 150 -3.70% -8.00% -4.50% 1377.3 13.8
Epocrates 16 85.8 2.80% -33.60% -35.30% 254.4 10.6
AcelRx Pharmaceuticals 5 40 -18.00% -32.00% -17.10% 60.6 3.4
Kips Bay Medical 8 17 -65.90% -60.00% 17.20% 49.9 3.2

IPOs were not alone in being punished within the life sciences sector. Dendreon had the misfortune of reporting disappointing sales for its groundbreaking cancer vaccine Provenge as markets tumbled in response to the Congressional fight over raising the debt ceiling. The company saw nearly two-thirds of its value wiped away as its shares closed at $11.69 on August 4, down from $35.84 the previous day. Dendreon's problem in ramping up sales spilled over to other companies as investors grew concerned about the pace at which other recently approved drugs will be able to realize their market potential.

Overall, the life sciences sector in August saw nearly 6 decliners for each advancer for stocks trading over $1 at the end of month. With values depressed throughout the sector, it could fuel increased M&A activity among cash rich pharmas looking to expand their pipelines.

"Big Pharma's problems have not gone away. The need to find new sources of revenue to replace income from sales of drugs going off patent continues to fuel dealmaking," says Burrill. "With values depressed, acquirers will likely find more bargains today when they go shopping. We could see a pick-up in activity between now and year-end."

The stock market's wild swings dampened activity in the capital markets for life sciences companies across the board. In August, the immunotherapeutics company Agenus was the only life sciences company to complete a follow-on offering. It raised just $7 million. Only four companies in the United States completed PIPEs raising a total of $83.6 million.

LIFE SCIENCE FINANCINGS (USD M)
YEAR-TO-DATE THROUGH 8/31/11 YEAR-TO-DATE THROUGH 8/31/10 Change
Total Global Venture Capital 6,532 6,676 -2.2%
U.S. VC 4,881 5,339 -8.6%
Total IPOs (34) - 24 in 2010 3,250 1,458 122.9%
U.S. IPOs (13) - 11 in 2010 1,298 820 58.3%
Total Global PIPEs 2,659 2,620 1.5%
U.S. PIPES 1,148 1,415 -18.9%
Total Global Follow-ons 4,668 2,482 88.1%
U.S. Follow-ons 4,047 1,995 102.9%
Global Debt Offerings 32,105 23,156 38.6%
U.S. Debt 18,584 17,595 5.6%
Global Other Financings 9,160 7,318 25.2%
U.S. Other Financings 3,820 5,597 -31.7%
Total Global Public Financings 55,292 37,034 49.3%
Total U.S. Public financings 28,817 27,522 4.7%
Global Partnering 24,269 42,645 -43.1%
U.S. Partnering 20,845 24,580 -15.2%
Global M&A 130,222 107,128 21.6%
U.S. M&A 109,292 51,780 111.1%

Personalized medicine emerged in August as a bright spot for the sector with the U.S. Food and Drug Administration's approval of Roche's melanoma drug Zelboraf and Pfizer's non-small cell lung cancer drug Xalkori. Both drugs were approved for use with companion diagnostics to determine which patients would benefit from their use. The FDA also approved Seattle Genetics' lymphoma drug Adcetris, a drug that marries an antibody to a toxic chemotherapeutic payload to deliver a targeted therapy to a certain subgroup of lymphoma patients.

The approvals follow the announcement in July that pharmacy benefits manager Express Scripts reached an agreement to acquire its competitor Medco Health Solutions, a leader in integrating personalized medicine into healthcare. Although the deal must pass regulatory scrutiny, and will likely face opposition from drugmakers concerned about a concentration of buying power, it provides Express Scripts with a strategic position in personalized medicine that it had been lacking.

"There has been criticism of late about the slow progress in realizing the promise of personalized medicine," says Burrill. "The recent activity, though, points to the very real changes that are underway to incorporate genomic medicine into standard practice of healthcare today."

Burrill & Company will explore the challenges and opportunities for personalized medicine when it holds its 7th Annual Personalized Medicine Meeting October 3-4 at the San Francisco Airport Marriott in Burlingame, California. NIH Director Francis Collins, Life Technologies CEO Greg Lucier, and Illumina CEO Jay Flatley will be among the speakers sharing their perspectives at this year's conference. More information is available at http://www.burrillandco.com/personalized_medicine_2011/.

BURRILL INDICES
INDEX 12/31/10 7/29/2011 08/31/11 MONTH CHANGE YEAR-TO-DATE
Burrill Select 365.12 415.2 398.26 -4.08% 9.08%
Burrill Large Cap 526.55 537.42 482.90 -10.14% -8.29%
Burrill Mid-Cap 218.10 290.87 282.11 -3.01% 29.35%
Burrill Small Cap 94.97 106.04 97.91 -7.67% 3.10%
Burrill BioGreenTech 152.78 155.75 126.10 -19.04% -17.46%
Burrill Diagnostics 158.05 184.05 175.60 -4.59% 11.10%
Burrill Personalized Medicine 106.26 111.82 104.47 -6.57% -1.68%
Canadian Biotech 55.68 67.07 58.32 -13.05% 4.74%
NASDAQ 2652.87 2756.38 2579.46 -6.42% -2.77%
DJIA 11577.51 12143.24 11613.53 -4.36% 0.31%
Amex Biotech 1297.61 1353.5 1194.27 -11.76% -7.96%
Amex Pharmaceutical 305.88 324.48 315.95 -2.63% 3.29%

About Burrill & Company
Founded in 1994, Burrill & Company is a diversified global financial services firm focused on the life sciences industry. With more than $1 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 investment 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, 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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Upcoming Burrill & Company Events
The Burrill Personalized Medicine Meeting
October 3, 2011 - October 4, 2011
The San Francisco Airport Marriott
Burlingame, CA
http://www.burrillandco.com/personalized_medicine_2011/

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