Burrill & Co: Biotech recovers in second half of year and is poised to have a
SAN FRANCISCO—This year saw a gradual recovery in the
capital markets, and the
worst of the global economic dislocation seems to be
behind us, according to life sciences merchant bank Burrill & Co.
From their lows in
March 2009, the markets have gained about
60 percent. Both the Dow Jones industrial average and the S&P 500 hit
13-month closing highs following
Thanksgiving, Burrill notes.
"The economic data indicates a stabilization in the labor
housing markets and provides hope that the economy is finally in a recovery
mode," says G. Steven Burrill, the firm's CEO.
The public capital markets for biotech recovered as well. It
was not only the blue chip biotech companies that saw their
values increase in
the second half of 2009, with the Burrill Large Cap Biotech index up 20
percent, the Burrill Mid-Cap Biotech index up 13 percent,
and the Burrill
Small-Cap Biotech index up 10 percent, year-to-date respectively. The companies
that have survived the 18 months of difficult financial
conditions are adapting
well to the new environment.
Despite the tough economic environment, the
in the United States is on target to raise $18 billion this year compared to
only $10 billion last year, according to Burrill. Even
the IPO window opened a
crack with three companies raising a collective $1 billion between them in
"This has encouraged several biotech companies to add
themselves to the IPO runway, and we are likely to see many of these
finish line in early 2010," Burrill notes.
At the beginning of 2009, the industry's market
cap stood at
$404 billion.With Roche's acquisition of Genentech (valued at $100 billion),
the industry's market cap dipped below $300 billion in May,
but has since
rebounded to $350 billion (up 16 percent since that low point). Partnering was
on a tear through much of the year with the industry
raising $30 billion through
partnerships—a record for the industry. With nearly $50 billion raised, 2009
will go down in history as our industry's
second largest financing year, albeit
during one of the most difficult financing environments ever.
"The message: when companies have to raise capital,
companies do, even when the cost of capital is unfavorable," Burrill says.
As a prelude to the release of "Biotech 2010-Life Sciences:
Adapting for Success," the 24th edition of Burrill's annual report on the
biotechnology industry (February 2010), the firm has provided predictions for
what lies ahead for biotech in the new global financial environment:
environment: The worldwide financing
environment in 2010 will be
more robust but choppy and selective at times.
This environment favors risk mitigated companies rather than earlier stage
companies. Capital markets in the United States and globally
will continue to strengthen, building on a return of investor confidence
helped create a 50 percent increase in major stock market indices
during the second half of 2009 from their lows at the end of March 2009.
Much of the global economic recovery has so far been driven by stimulus
funding, and as a result, real economic growth will remain uncertain in
and the capital markets: The biotech
benefit from the return of investor confidence in the second
half of the year. Expect to see biotech's elite companies continue to
well with their financial returns meeting analysts' expectations.
Although the Burrill Biotech Select Index lagged the general markets in
2009, we will see a steady improvement in 2010 and by year-end the index
will have outperformed the Dow Jones industrial average and Nasdaq
IPOs: The biotech IPO window will
to crack open. During the first half of 2010, there will be at
least five companies that get their offerings done, particularly after the
Morgan Healthcare Conference in January. By year-end, we predict that
15 biotech IPOs in the United States will have been completed, but supply
will overwhelm demand, and the markets will be very selective.
to continue: The large
universe of small public companies and private companies looking for
venture capital will still face
challenges as they try to find ways to
extend their runway and stretch out their remaining funds. Expect to see
further consolidation in 2010
although at a slower pace that we saw in
- Capital: More than $15 billion
will be raised by U.S.
biotechs, better than 2009; partnering/M&A will again trump financings
and in total $35 billion will be raised.
The industry's market cap will
grow from its present level of $350 billion to $400 billion, despite
significant consolidation and attrition
as valuation is lost through
M&As. There will be significant funding available for public companies
through secondary financings,
registered direct offerings and PIPEs,
especially after they report good news.
- Partnering: To deal with their impending patent cliffs, Big
Pharma will continue to keep a robust pace of partnering deals. Both
Pharma and Big Biotech will continue to compete for companies with
advanced product pipelines, as well as important land grabs of
There will also be new players competing for technologies—such as major
medical devices, instrumentation and healthcare IT
companies, and even
generics companies will be acquirers. The traditional sector lines of
pharma, biotech, devices, diagnostics, healthcare
IT, services and
generics/biosimilars will blur as we see converging technologies (and
companies) responding to new market opportunities that
as we move a system focused on treating sickness to one that seeks to
structures will change from the usual model of large upfront and smaller
milestone payments towards product
partnership across the board, smaller
upfronts and shared risk.
acquisitions: Big Pharma
consolidation will continue as these companies position themselves for the
new market realities and
competitive pressures from the generics world.
Pharma will also start to adapt from its vertically integrated business
model to one that
reflects virtual integration. Companies will build
dedicated business product units with their own management structures and
spin-outs: Expect also to see more
spin-outs and new
companies built around technology platforms and product
reform: Obama's State-of-the-Union
address (on Jan. 20) will report on a new healthcare reform bill just
passed. The reform will
stimulate ways to move the system from one based
on cost to one based on value. Providers will look for ways to reduce
costs by improving
healthcare delivery and rewarding behaviors that
promote healthier lifestyles. But most of the impact of this healthcare
reform bill will be
on reforming the insurance industry and who pays for a
largely dysfunctional system. Healthcare reform II will begin immediately,
fix what is still a broken system.
- Biosimilars: The growing use of biologics and their
price tag will put pressure on U.S. legislators to establish a pathway to
allow the FDA to approve generic versions of biosimilars.
environment: The regulatory world
will become more complex
as comparative effectiveness research enters the
equation (cost/value + utilization/comparative efficacy).
government involvement: The federal
government, through Medicare and Medicaid, will play a greater
role in the
delivery and reimbursement of healthcare. This trend will create an array
of new regulatory and compensatory rules, issues and
and technology: We will
see companies both large and small build their business models around the
technologies that are driving personalized medicine.
will be developed that focus more on subpopulations rather than the
traditional one-size fits all model. Expect to see Big
Pharma operate more
like innovative biotech companies. Stem cells will become increasingly
important as tools for technology development,
especially in the areas of
cancer and regenerative medicine.
boom: The clean tech boom
(biocleantech) in non-food crops will continue in 2010 as major
investments in solar power, wind power,
and next generation biofuels gets
attention. The market will
not only embrace green, but technologies that improve energy efficiency
and environmental "friendliness"—less polluting, less consuming. As a result, clean technology
companies will attract financing in
- Biofuels: Biomass must be sustainable, affordable,
and available. Significant investments will be made in the
development of "cheap sugars" to feed the advanced biofuels industry. The
for the by-products of biofuel production will grow as companies
leverage their technologies for more near-term opportunities in renewable
chemicals and biopolymers, and a diverse use of their resources.
health: The ag/animal health sectors
will also see an increase in interest and funding, driven by the world
food crisis and
companies looking to spin their units off as a source for
markets: Global emerging markets,
particularly in China, India and Brazil, will grow faster than the United
States and Europe.
Increasing affluence, a growing middle class, and
government policies will make healthcare big business in these countries.
The global nature
of biotech will put pressure on the United States to
maintain its dominance and we will see increasing evidence of other
taking the lead in some technologies and business
arbitrage: Global arbitrage will be a
major driving force as companies increasingly look beyond their borders to
maximize the value
of their businesses and access sources of capital that
may be unavailable locally.
clusters: Will be redefined away from
geography focused clusters and be more virtual built around diseases,
pathways, markets, and unique industry segments. As such, business models
will continue to evolve more virtually.
year ahead: Overall, 2010 will be a
productive year for the industry as companies learn to adapt
to their new
environment, Burrill says. The past 12 months has exacted a significant
toll on the biotech industry (through bankruptcies,
cost-cutting) and we have a very different industry today than previously
existed. The companies that have survived the
conditions will have to adapt to this new environment. The main challenges
for 2010 for the industry will be healthcare
effectiveness, biogenerics/biosimilars, follow-on biologics and
reimbursement pressures from government efforts to cut