Monday, July 6, 1998
Put any two people together at any biotech meeting and the
talk invariably turns to the "bear market" for biotech stocks and what can be
done about it. Ironically, the bear market just may be arriving. The BioCentury
100 Price Level index shows that the sector carried a rising price cycle in
this year's second quarter from the fall of 1995. But since hitting 1035.13
on April 3, the BC100 has trended steadily down. The index closed the quarter
at 881.53, off 14 percent.
A large part of the bear mentality really has to do with the
fact that biotech has been underperforming everything else in the stock market,
as well as with the fact that the hot equity markets have finally, in a word,
disappointed. The NASDAQ Composite rose 3 percent in the second quarter, while
the S&P 500 rose 3 percent and the Dow Jones Industrials added 2 percent.
Perhaps hardest on biotech companies was investors' continued
love affair with pharmaceutical stocks. The American Stock Exchange Pharmaceutical
Index of 15 big cap pharma companies rose 7 percent in the second quarter, and
is up 26 percent on the year. The BioCentury 100 is down 8 percent on the year,
while the NASDAQ Composite, S&P 500 and the Dow Jones Industrials are up
21 percent, 17 percent, and 13 percent, respectively.
Bolstered by Europe, the industry managed to raise $1.1 billion in the second
quarter, down from $2.1 billion in the first quarter, which was driven by a
handful of big convertible debt vehicles. The second quarter numbers compare
favorably with recent years, ranking this year's second quarter take behind
the massive $3.5 billion raised in the second quarter of 1996 (see adjoining
But the IPO and follow-on markets continue to be finicky, providing
the source of frustration. Companies managed to carve out $233.5 million in
IPO dollars in the second quarter, bringing the year-to-date take to $464.3
million. Follow-on monies totaled $167.2 million, reaching $426.5 million year-to-date.
The only signs of life have been in private financings of public
companies, which have raised $1.7 billion year-to-date, $378.2 million in the
second quarter. Venture financings continued at a steady pace, with private
biotechs raising $314.2 million in the quarter, down a bit from $325 million
raised in the first quarter.
A healthy European financing environment accounted for $203.7
million (19 percent) of the money raised in the second quarter. By comparison,
the $411.9 million in European financings in the first quarter totaled 20 percent
of the sector's take.
What the chart says
Although the market for traditionally underwritten financing
is bleak, the sector's price chart clearly illustrates the difference between
a real bear market and the current situation (see above).