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12:00 AM
Jun 10, 2002
 |  BioCentury  |  Finance

Ebb & Flow

The biotech industry raised a record amount of money in the first quarter, $5.7 billion, the best start to any year for the industry with the exception of 2000, when biotech took in $13.1 billion in the first quarter. Since then, however, the industry has pulled in only $2.1 billion. The lull includes an especially arid six-week spell up to last Friday, during which the industry raised only $435.3 million.

The group is now on track to raise $17.3 billion, which still makes a respectable year. But over that six week period the BioCentury 100 fell 14%, suggesting that the performance of the sector is keeping some money on the sidelines (see "Causal Effect?").

Evan McCulloch of Franklin Funds attributes part of the funding ebb to the successful money raising in the first quarter. "A lot of the companies have a lot of cash already, and many that needed it jumped through the window in the first quarter, and some that didn't need it jumped through, too," he said.

On the public company side, McCulloch noted that while there is a group of small cap biotechs valued below $200 million that need money, their stocks are getting "hit disproportionately." Thus, he believes those companies won't elect to seek financing now. The IPO and follow-on queue look particularly bare, too, with only one follow-on candidate - Draxis (DRAX; TSE:DAX), which was filed last week (see B17) - and 14 IPO candidates seeking to raise around $1 billion. Even though the IPO figure appears large, the actual number of deals close to marketing is much smaller.

McCulloch also believes the relative underperformance of the sector is keeping buyers away, and last week's decline in the BioCentury 100 certainly did nothing to help matters. The index fell 9% to 1118.80 on the week, putting it down 42% on the year compared to the 21% decline in the NASDAQ Composite. Indeed, the index is at its lowest point in nearly three years. The last time it was lower was June 25, 1999, when it closed at 1093.79 (see "Why Break Precedent?").

Last week's numbers weren't helped by Biogen (BGEN), which was down $7.72 (15%) to $42.16 on the week after falling $5.54 (12%) on Friday's news that it revised its EPS and revenue guidance for the second quarter and full year, citing inventory adjustments by U.S. wholesalers for its Avonex multiple sclerosis drug and soft growth of the U.S. MS market. BGEN now expects 2002 EPS of $1.50-$1.60, instead of its 1.70-$1.78 guidance given in April.

The decline has driven many funds out of the group. "The number of blowups has forced some non-dedicated buyers out of the market," McCulloch said. "A lot of the small cap funds owned Sepracor(SEPR), Icos(ICOS) and ImClone (IMCL), and it usually only takes one or two blowups for [non-core investors] to lose faith in the sector."

He also pointed out that the technicians were watching closely to see whether the Amex Biotech Index (BTK) fell below 380, seen as a key support level. "Technicians were saying, 'if 380 doesn't hold, the sector's going a lot lower.' That's keeping money out of the sector as well."

The BTK closed Friday at 361.90.

Private rounds

While VCs are saying that venture rounds are taking longer to close, venture investing hasn't cooled. Venture financings accounting for $800 million (38%) of the $2.1 billion raised so far this quarter. In the first quarter, the venture piece was $960 million, or 18% of the first quarter's take.

Last week, drug delivery company XenoPort raised $43.9 million in...

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