|
|
|
Bioscience Breakdown?
Will New Haven Bio-tech Stocks Recover?
|
Business New Haven
3/19/2001
By: Mitchell Young
|
Bioscience Breakdown?
Will New Haven
Bio-tech Stocks Recover?
Just three months ago in BNH's “Year-End Technology Review” we highlighted how six of the region's public biotech companies fared in 2000. Together they had raised more than $1 billion in capital during the year, two of them - Genaissance and Packard Bioscience - through successful initial public offerings.
At one point the six had a combined market cap of more than $5 billion. Today things are markedly different in the local (and national) biotech sector, and the half-dozen have seen their market value basically cut in half to about $2.5 billion today.
What has changed for the companies? Not much that's that bad, actually. CuraGen the largest New Haven biotech in market-cap terms (about $900 million today - down from $3 billion) has closed with Bayer on the largest biotech collaboration pact in U.S. history. The deal, potentially worth $1.5 billion, starts with an investment by the German drug giant in the New Haven genomics star. CuraGen stock is trading at about 20, down from a high of $78 per share.
Vion Pharmaceuticals introduced another cancer candidate into Phase I trials, Packard released increased earnings and revenues and boosted its balance sheet with the closing of the $170 million sale of its Canberra division.
Alexion announced it had good and bad news on Phase II trials for a heart-attack drug. The company's stock was whipsawed up 25 percent in mid-January to $74, and then reversed itself down to about $20 per share from an annual high of $118.
A March 12 announcement by Abbot Labs that it would purchase $250 million of stock in Millennium Pharmaceuticals (NASDAQ: MLNM), the Cambridge Mass.-based genomics company, underlined the weakness of the sector: Shares traded down $4 on the news on a very bad day for the market. The deal - the latest in a growing series of collaborations, alliances and partnerships between the well-heeled pharmaceutical companies and the biotech upstarts - should help prove to investors the viability of the new technologies. But even this kind of good news no longer seems to matter much.
The biotech breakdown is clearly part of the fallout of the tech sector and now wider market meltdown. The question for investors is: Can the stocks recover, and to what levels?
The biotech pioneers are not like their NASDAQ brethren, the Internet companies. First, CuraGen, Neurogen, Alexion, Vion, Gennaissance and Packard have all been at their work for a decade or longer. Indeed, funding droughts has been more the rule than the exception, Alexion, for example bounced around at about $10 per share from March 1996 until August 1999, running between $4 and $15.
That long funding drought proved to be a great motivator. Alexion, like Curagen and others, struck while the iron was hot and today Alexion has more than $350 million in cash and securities on its balance sheet. With operating expenses of about only $11 million per quarter (and investment income), there's still plenty of time for the scientists to work their magic.
Just as important, while many biotech executives revel in a certain amount of hype these are people who really are looking to cure disease - and have been doing it without the promise of big bucks. Their business plans also are in most cases quite basic. The problem for investors, however, is that with just a few exceptions biotech companies have yet to produce effective drugs. Periodic news plus the hype of decoding of human genome shows great promise, but marketable drugs are not quite the same as “drug candidates.” We're just now decoding the human genome, but DNA has been on our plate for fifty years.
Bayer's recent fast-track “success” with Millennium in bringing a drug to Phase I clinical trials in only 18 months may have helped propel that company to the CuraGen deal. It's this potential deal pipeline - plus the R&D budgets of the major drug companies - that most likely will fuel the next wave of investment in biotechs.
To take one example, Pfizer's market cap exceeds $250 billion and its annual research spending is more than $2.5 billion. With industry giants like Glaxo, Bayer, Merck, Bristol Myers, Johnson & Johnson, Abbot, etc. all drawn in by the now financed biotech companies, there is plenty of financial fuel for the latter.
Can they create real value that will push past the whims of investors? In the long run, almost surely. But remember: In the long run we're all dead, so be careful out there.
|
Go FirstGo PreviousGo
NextGo LastGo
to Index
|
|
