Biotech flourishes in 2005 while Big Pharma is on the decline

Biotech flourishes in 2005 while Big Pharma is on the decline

Goodbye, 2005, and hello, 2006! I sit hear writing this article as I listen, appropriately, to a new Cream anthology album called “Cream Gold” (released in 2005 – not to be confused with the live Cream concerts held in 2005). Why Cream, you may ask? Well, the successful re-emergence of this supergroup in 2005 via a series of concerts held in London and NewYork’s Madison Square Gardens marked a 2005 musical highlight for any baby-boomer. I caught a part of these concerts on public TV, and was surprised by how good they (Eric Clapton, Ginger Baker, and Jack Bruce) sounded considering they hadn’t played together in more than 35 years.
Hear we are, bright and early into 2006, wondering what will happen in the wonderful world of biotechnology! We know that at least one major life science event will impact the Midwest in a momentous way, the Olympics of biotechnology: BIO 2006 – Chicago ( on April 9th-12th.
Perhaps the first glimpse of what 2006 portends for the world of biotech will take place on Jan. 9th-12th at JP Morgan’s (known previously as the Hambrecht & Quist, or H&Q Conference) 24th Annual Healthcare Conference at the Westin San Francisco Hotel. This mega event will review the status of 260 public and private life science companies and provide a wrap-up of 2005 and a look-see into what might happen in 2006.
At this point in the New Year with this first column, I usually like to review the progress of Midwest life science publicly-traded life science companies, both big and small. Although I will get to this review soon (I promise!), an important phenomenon which occurred (note that I have previously commented on this in an article during 2005), is the blurring distinction between Big Pharma and Big Biotech which merits discussion today.
This trend is not only observed in the world of life sciences but also in other industries such as the software/hardware and internet industries. For example, internet company Google went public in 2004, and whose value skyrocketed to a market cap of $123 billion at the end of 2005 with a stock price of $414.86 (versus its IPO debut in August, 2004 with a stock price of $85/share). Google’s annual revenue is about $5.3 billion/year and income of $1.4 billion/year meaning that Google’s stock is trading at over 23 times sales and almost one hundred times earnings. Compare this to tech giant Microsoft, which has a market cap of about $278 billion, as well as the traditional tech companies of IBM with a market cap of $130 billion and Hewlett Packard with a market cap of $81 billion.
To drill home this point, let’s take a look at how the largest Big Pharma and Big Biotech stocks did in 2005:


Big Pharma/Ticker Stock Price Yearend 2005 (Dec. 30th) Stock Price -Jan. 3, 2005 %Change Market Cap
1. Johnson & Johnson (JNJ) $60.10 $63.35 <5%> $179 billion
2. Pfizer (PFE) $23.32 $27.31 <15%> $172 billion
3. Glaxo Smithkline (GSK) $50.48 $46.95 +8% $143 billion
4. Novartis (NVS) $52.48 $50.42 +4% $123 billion
5. Sanofi-Aventis (SNY) $43.90 $40.11 +9% $117 billion
6. Astra-Zeneca (AZN) $48.60 $36.40 +34% $78 billion
7. Merck (MRK) $31.81 $31.99 <1%> $69 billion
8. Eli Lilly (LLY) $56.59 $56.77 0% $64 billion
9. Wyeth (WYE) $46.07 $42.59 +8% $62 billion
10. Abbott Labs $39.43 $46.50 <15%> $61 billion

Source: Yahoo Financial Page: 12/30/05
Note: Does not include Hoffman LaRoche
Take note that Johnson & Johnson is now ahead of Pfizer in market valuation and is the largest cap life science company in the world (this ranking may be different in terms of sales and income results).
With the exception of Astra-Zeneca’s outstanding 34% increase in stock price, most of the rest of the Big Pharma group’s results were pretty ho-hum to downright unexciting. Four of the top ten companies had negative performances, with another company showing no growth. Another four companies showed only single digit growth.
In general, Big Pharma is still in trouble as a number of their blockbuster drugs come off in patent in the next few years and with few potential new blockbusters in the works. M&A activity, except for J&J’s go at medical device company Guidant (which almost failed when Boston Scientific took a run at Guidant itself) was limited to smaller biotech companies with the focus on acquiring new products at hefty prices. The one exception was Novartis’ acquisition of Chiron, a company for which it already owned a significant chunk. European biotech player Serono was also in play as an acquisition target in November, as it signaled a desire to acquired by a larger company (rumored potentially to be Pfizer or Novartis), but nothing really emerged by yearend.
Both Pfizer and Merck announced major restructuring plans laying off thousands of people and putting on the market, manufacturing and other facilities around the world. Major reductions in mammoth armies of sales forces began to take place as physicians increased their negative reaction to multiple Big Pharma company detailperson (sales reps – in Big Pharma lingo) visits, and increased receptivity to e-details (“details” are the sales calls by Big Pharma).
At the end of the day, to the world of Wall Street, it is about perceived value of really innovative new products both on the market and coming to the market. Let’s take a look at how the leading biotech companies fared.

Biotech Company/Ticker Stock Price Yearend 2005 (Dec. 30th) Stock Price Jan.2, 2005 %Change Market Cap
1. Genentech (DNA) $92.50 $54.25 +71% $98 billion
2. Amgen (AMGN) $78.86 $64.20 +23% $97 billion
3. Gilead Sciences (GILD) $52.57 $35.54 +48% $24 billion
4. Serono ((SRA) $19.86 $16.37 +21% $21 billion
5. Genzyme (GENZ) $70.78 $58.20 +22% $18 billion

Source: Yahoo Financial Page: 12/30/05
Just as there were surprises in Big Pharma land with Johnson & Johnson surpassing Pfizer for the first time in market valuation, a similar phenomenon took place in the land of biotech with Genentech surpassing Amgen in market valuation by a hair (give or take a billion). Note that both Genentech and Amgen have market caps superior to all but the top 5 Big Pharma companies.
All of the top five Big Biotech companies had very solid double-digit stock growth, with Genentech and Gilead having a very strong 2005. Not listed here, another two biotech companies, Celgene (CELG) and Biogen Idec had market valuations over $10 billion ($11 billion and $15 billion, respectively), with another significant group having market caps of over $5 billion.
All in all, a strong year for biotech! My prediction is that with patent expirations accelerating over the next 2-4 years, Big Pharma is in real trouble and will continue to pay large multiples for new products (and companies).
It will be interesting to hear what predictions for 2006 come out of the JP Morgan Healthcare meeting which starts a week from today.
Happy New Year everyone and see you next week!

Michael S. Rosen is president of Rosen Bioscience Management, a company that provides CEO services including financing, business and corporate development to start-up and early stage life science companies such as Renovar and Immune Cell Therapy. Rosen is also a founder and board member of the Illinois Biotechnology Industry Organization. He can be reached at
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