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November 01, 2010 (Vol. 30, No. 19)

Biotech Posts Strong Third-Quarter Results

Robust Performance Hailed as Strongest September Rally in More than 70 Years

  • Click Image To Enlarge +
    2010 year-to-date biotechnology IPOs (in chronological order)

    Biotech posted its strongest monthly and quarterly performance in several years in what was hailed as the most robust September rally for equities in more than 70 years. The Burrill Biotech Select Index gained 7.8% in the month and 13% in the third quarter. The significant rise of share values was fueled by an easing of investor concerns about a double-dip recession as well as hopes for a better economic outlook. Biotech is now up 6% year-to-date and is well positioned for a strong fourth quarter.

    There will be a significant number of news stories to keep investors engaged in the biotech industry for the rest of year. Already we have seen research into stem cells enter the legal arena once again. Fortunately for the industry, federal funding for embryonic stem cell research will be allowed to continue while the federal government appeals a lower court injunction that would ban such financing.

    The recent ruling by the U.S. Court of Appeals in Washington overturns U.S. District Court Judge Royce Lamberth’s August ruling that all funding should be suspended while its legality is challenged in the courts.

    In M&A land, the resolution of Sanofi-Aventis’ bid to acquire Genzyme will continue to unfold after its first offer, valued at $18 billion, was rejected. The fall will also be a very busy time for U.S. drug approvals with over 20 marketing applications to be decided before year’s end by FDA regulators.

  • Biotech IPO Activity

    Click Image To Enlarge +
    U.S. biotechnology financings ($M) for third quarter 2010

    IPO activity across all sectors also picked up in the quarter, but in order to attract investors and get deals done, companies had to be willing to trim their price expectations even in the wake of the strengthening equity markets.

    Three biotech companies amended their prices to go public in the third quarter. Antibiotic developer Trius Therapeutics  slashed its expected share price by 62% to complete its offering selling 10 million shares at $5 per share. Specialty pharmaceutical company NuPathe raised $50 million after trimming its offering price to $10 from its original $14 to $16 range. Amyris Biotechnologies, which uses genetically modified yeast to make products for the specialty chemical/fuel markets, raised $85 million by offering 5.3 million shares at $16, below the range of $18–$20. However, its post-IPO trading was positive with the company’s shares up 7.8% at the close of September.

    Year-to-date there have been eleven biotech IPOs, three in the third quarter, and their average market performance as of the end of September was down 24%.

  • Biofuels

    Investors have warmed to biofuel companies this year. The Burrill BioGreentech Index, which includes several firms that are developing alcohol from biomass, is up a healthy 15% in the third quarter. Interest in biofuels has also encouraged two alternative fuel and chemical companies to add themselves to the IPO runway: PetroAlgae, which produces biocrude from duckweed and hopes to raise $200 million, and Colorado-based Gevo, which is commercializing bio-based alternatives to petroleum-based products using a combination of synthetic biology and chemical technology to produce isobutanol that can then be converted into a variety of plastics and fuels.

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