Monday, October 2, 2000
The IPO window that opened exactly one year ago has given birth
to many publicly held companies that are promising to provide value from the
genetic code, as well as more traditional product-oriented companies. In the
past 12 months, 55 U.S. companies have gone public, raising $5.3 billion, while
24 European companies have raised $1.8 billion in IPOs. This sheer proliferation
raises the question of whether the market can continue to feed all of these
mouths until they turn the corner on profitability.
But industry players aren't too concerned with oversupply because
in their eyes the demand for biotechnology investments - both on the primary
and secondary markets - has never been stronger.
Daniel Richner, senior investment officer responsible for Lombard
Odier's Immunology Fund, believes the market can sustain the new companies because
of the vast amounts of capital looking for emerging sectors. And he rates biotech
as the favored son as internet and e-commerce plays lose steam. "Biotech is
not just a big bubble into which you invest money," Richner said. "A lot of
companies have gone from bench to market and now there are a lot of biotech
products and technologies on the market. There is so much money out there, that
it has to find its way into emerging sectors like biotech."
In fact, despite the rotation from tech to biotech that began
last fall, Richner still calculates that institutional investors are underweighted
in biotech, and expects more capital to rotate in from spaces like e-commerce
and information technology.
Richner also sees a shift of money and momentum from the old
health care economy (pharma) to the new health care economy (biotechnology).
"The real innovations are coming from the biotechnology sector. Large pharma
has a lot of me-too products and faces generic pressure, and for biotech that's
not the case because many of the new products are immune to pricing pressures,"
To illustrate his point, Richner noted that biotech is having
a great year compared to most of the big cap pharma stocks, which have been
flat. Through the end of the third quarter, the BioCentury London index has
soared 108 percent, while the BioCentury 100 is up 71 percent and the AMEX Pharmaceutical
Index (DRG) is up 18 percent.
Xavier D'Ornellas, fund manager for Mercure Pharmacie and Mercure
Biotech, also sees rotation from big pharma into biotech as some old-line companies
post disappointing top line growth.
In fact, biotech appears to be one of the few places to make
money these days: the NASDAQ Composite, The Dow Jones Industrials, the S&P
500 are all under water this year (see "Index Performance", A1).
Hoping to capitalize on this performance, new money is coming into the sector through the creation of new funds dedicated to biotech and via the entry of non-core investors.