It's Halloween ... Biotech Market Spooked in October

Market downturn catches biotech in its wake

02-Nov-2004

"The biotech market took a beating in October, partly because of the general public market experiencing pre- election jitters, partly in reaction to Merck's Vioxx withdrawal and partly because Chiron, one of the five top biotech firms in the country, lost nearly a third of its value over the flu vaccine debacle," noted G. Steven Burrill, CEO of Burrill & Company, a San Francisco-based Life Sciences merchant bank. The Burrill Biotech Select Index dropped 5% in October, compared to the NASDAQ, up 4% and the DJIA, down less than 1%.

"Every so often, we see a downward shift in biotech's performance on Wall Street-not because biotech's intrinsic value is flagging, but because investors have decided to wait on the sidelines. Such is the case right now," explained Burrill. "The industry has already raised more than $20 billion in 2004 and Wall Street's appetite for biotech has been temporarily sated," he continued. "You can see this reflected in Genentech's performance for the month. Although the company posted a significant increase in profits, its stock plummeted 13%. And, Millennium, which announced it had narrowed its losses, also saw shares drop by 5% for the month," Burrill noted. "At other times in biotech's history, this kind of news (improved performance) would have driven stocks up, not down," he said.

"Still the one-two punch of Merck's recall of Vioxx and Chiron's tainted flu vaccine gave rise to the kind of uncertainty that makes investors very nervous and while all boats rise with the tide, they take on water in heavy weather," Burrill explained. "But the tide will take a turn -- likely for the better -- once the elections are behind us and the market gets back to discerning value in biotech and the companies continue the business of building biotech's value," he added.

"One interesting aspect of this year's elections is California's Prop 71 initiative which calls for a $3 billion state bond measure to fund stem cell research for therapeutic purposes. Governor Arnold Schwarzenegger recently announced his support for the measure which has now been endorsed by more than 42 disease advocacy groups," he noted. "If passed, Prop 71 could turn California into a mecca for biotech research, ultimately benefiting patients with Parkinson's disease, juvenile diabetes, and other debilitating diseases," said Burrill. "The UN, which already opposes cloning for the purpose of creating humans, is now considering a proposal by the US to ban all cloning. On October 21, UN Secretary-General Kofi Annan told a UN committee that he would go for therapeutic cloning only...but the final decision from all member states is not in," noted Burrill. "Yet, the US position (prohibiting all cloning) is contrary to most of the world's views (of permitting therapeutic cloning), and clearly different from the views of the scientific community," he added.

"Although drug reimportation seems to have gained more champions than critics this past month, with the Senate preoccupied with the elections, any vote about the proposed legislation has been temporarily delayed," said Burrill. "Meanwhile, Illinois Governor Rod Blagojevich and Wisconsin Governor, Jim Doyle initiated the I-SaveRx program which will help residents in those two states purchase prescription drugs from Canada at cheaper prices," he added. "But, the real side of the drug reimportation argument is that, with such price controls in place, drug investment returns would dwindle and innovation will suffer," Burrill said. "Until the US quits subsidizing the world's pharmaceutical markets, drug importation will continue to be politically popular."

Two new biotech firms entered the public market in October -- Theravance and CoTherix. Theravance has four compounds in clinical trials, including two asthma products that have completed Phase IIa studies and an antibiotic in Phase II testing, and six others in preclinical development. The company uses its multivalent technology to target pain management, respiratory, urogenital and infectious diseases. Entering the market on October 5 at $16 a share (at the high end of the filing range), the company's shares ended the month at close to $17 a share, an increase of 6%. "But key to Theravance's successful offer was a unique relationship with GlaxoSmithKline which limited the downside risk for investors," said Burrill.

CoTherix has a nebulizer-delivered therapy for pulmonary artery hypertension called Ventavis, which restricts blood flow to the lungs. The company is also developing an inhaled therapy for genetically acquired or smoking emphysema, which slows the rate of pulmonary degeneration. CoTherix entered the market on October 15 for $6 a share (less than half its filing range of $12 to $14), and ended the month even at $6.

https://www.bionity.com/en/news/40617/it-s-halloween-biotech-market-spooked-in-october.html