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Biotech 2004: Cautious optimism

CHICAGO – Though spring is in the air and we are emerging into the second week of March, it’s still difficult to look in the crystal ball and say whether this will be a good or bad year for biotechnology. In the first two months of 2004, though, some significant activities have already taken place that impact the land of U.S. biotech. Witness these:

1. The FDA in the last two weeks has approved not one but two new cancer drugs coming from biotech companies: Genentech’s Avastin and the controversial ImClone’s Erbitux (remember that this is the product and company that “did in” Marsha Stewart).

2. The hostile announced takeover of the French-German giant Aventis by the also French company Sanofi-Synthelabo (note that this deal hasn’t happened yet as Aventis is looking for a white knight).

3. The non-hostile merger of two Japanese companies, Yamanouchi and Fujisawa (which just happen to have U.S. headquarters in Chicago), to form the second-largest Japanese Pharma company and the seventeenth-largest Pharma company in the world. Moreover, it’s taking place in Japan where M&A almost never happens.

4. Remember also that some significant biotech M&A happened right here in the Midwest during the fourth quarter of 2004 as Pfizer acquired Michigan-based Esperion Therapeutics for more than $1 billion and biotech giant Cephalon acquired Minnesota-based CIMA Labs.
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5. The sudden but not totally unexpected departure of a relatively new FDA commissioner, which leaves a gaping hole at this critical agency.

6. The opening of the biotech IPO market, which has raised $917 million since the fourth quarter of 2003. There are 13 more IPOs in registration with another 25 companies behind this group looking to go public.

Including the 12 companies that went public in the last part of 2003, this is a group of about 50 companies. If each of these companies raise a minimum of $50 million, the biotech IPO market will have produced $2.5 billion in fresh capital during 2004, which will provide a steady exit to large numbers of VCs looking for a return on their investments.

7. Total financing of $3.9 billion for the first two months of 2004, which compares favorably to 2003’s total year financing of $16.5 billion. This was the second-strongest year historically in biotech financing (2000 was the best with about $38 billion raised).

8. The stock market continues to respond favorably with the Nasdaq Biotech Index up 10 percent thus far in 2004 over a stellar 45 percent last year.

9. The growth of specialty Pharma, the new breed of small, focused and agile Pharma companies that are not quite Big Pharma and not quite biotech companies.

10. Large numbers of drugs in phase III (the last stage of drug development before going to the FDA). Not all of these drugs will make it down the home stretch.

11. Finally, the sales success of new biotech drugs. Novartis’ Gleevec and Genentech’s Rituxan both were $1 billion drugs last year with the latter reaching sales of $2.1 billion and the former reaching sales of $1.1 billion. Both drugs happen to be new cancer drugs. There are at least seven other new cancer drugs at the phase III level or better.

Assembled by IBIO and held at Northwestern University’s Allen Center, all of this was recently discussed by a panel of five investment bank analysts who specialize in the biotech, specialty Pharma and Big Pharma arenas. (Disclosure: columnist has a role at IBIO.)

The event’s emcee, Jim Hussey (the CEO of NeoPharm, one of Chicagoland’s leading biotech companies), led a vigorous discussion on the terrain for biotech financing. Interestingly enough, his own company has led the parade of biotech financing this year (raising about $75 million in January in a secondary offering).

NeoPharm is a cancer products company with a market cap exceeding $400 million and with more than $100 million in the bank. The five analyst panelists represented all geographic sectors of U.S. biotech:

1. JMP Securities with its headquarters in San Francisco.

2. Piper Jaffray with headquarters in Minneapolis but a strong vantage point from New York.

3. William Blair and Robert Baird from Chicago.

All seemed cautiously bullish about the sector for 2004. Part of this is due to the unfolding of the 2004 biotech IPO market, which is in process. Still, there is a scent of biotech spring in the air as we come out of a long biotech winter.
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Michael S. Rosen is president and CEO of Barbeau Pharma and a founder and board member of the Illinois Biotechnology Industry Organization (IBIO). He can be reached at rosenmichaels@aol.com. This article has been syndicated on the Wisconsin Technology Network courtesy of ePrairie, a user-driven business and technology news community distributed via the Web, the wireless Web and free daily e-mail newsletters. They can be found at www.eprairie.com.

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The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of The Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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