Q1 2006 Life Science Sector Review - Johnston Blakely & Company

echinoidclapBiotechnology

Dec 1, 2012 (4 years and 8 months ago)

210 views

© 2008

Johnston Blakel
y & Company, LLC. All rights reserved.




Q
3
/
2008

Life Science Sector Review


"
This sucker could go down!
"


-

George W. Bush


We began
last

quarter's review with the Led Zeppelin
refrain

"
Upon us all, a little rain must
fall
" and noted a declin
e in activity across the

board,

in both public and priv
ate financings and
M&A activity. Yet we also pointed to the emergence of a possible silver lining, as sector
volatility declined

and possible support for a bottom appeared. And despite a continued lack
of new issue access t
o the public markets, private financing and M&A activity in the third
quarter seemed to bolster that contention

(though subsequent events have obviously made this
conclusion tenuous at best

-

see our comments at the end
)
.


To no one's surprise, m
arket aver
sion to new issues seemed only to become more entrenched
in the third quarter, with only five issues coming public. This was the lowest level of new
issues activity in over a decade

-

not a data point that instills confidence.

And f
or the second
consecut
ive quarter, no new life science issues made
a

debut.

Interestingly
, though
,
while
the
S&P
declined

nearly 10% for the quarter, the biotechnology sector was actually up, the BTK

hitting a 52
-
week high in mid
-
August and

ending the quarter

up

4.8%
.

This
div
ergence from
the broader market

may

likely
have
reflected a sector rotation, with investors moving into
what might be considered
more defensive positions.


Venture capital activity
suggested

continued s
upport for the sector

as well. During the third
quart
er, nearly 60 venture financings were announced raising
a total of
$1.2 billion.
We noted
that both of t
hese figures
, completed deals and dollars raised
,

showed increases over second
-
quarter activity.

Of particular note was

the
total
dollar
amount

raised

which jumped

24.5%
quarter
-
over
-
quarter.

Moreover, third quarter venture activity was substantially higher
as
compared to

the year
-
prior period.
We would add the caveat that among this quarter's deal
were a larger number of venture debt, bridge financing
s and round extensions which may be
indicative of the current financing environment

(and distorting the numbers)
.


As opposed to
venture financings in the

second quarter, when biopharmaceutical deals
outpaced device deals, the third quarter witnessed a rol
e reversal with medical device deals
slightly
outnumbering biopharma deals. Yet t
he largest deal of the quarter was neither device
or biopha
rma, but a diagnostic financing with

Pacific Bioscience securing a $100 million
financing to launch its DNA sequenc
ing technology.

We reiterate our belief that diagnostic
-
directed prescriptions may well be the next major
public
-
market
influence

driving the sector
higher
, despite

current structural impediments to
their
more pervasive use (which might also
imply the nex
t
biotech
wave is unlikely in the near
-
term).


M&A activity for the third quarter was also
relatively strong despite weakness in the overall
market.

The number of announced deals was up slightly over the second quarter as was dollar
volume, even after bac
king out Roche's bid for the remainder of Genentech. For the third
Johnston Blakely
& Company
Johnston Blakely
& Company
Johnston Blakely
& Company
Johnston Blakely
& Company
Johnston Blakely
& Company, LLC
Johnston Blakely
& Company
Johnston Blakely
& Company
Johnston Blakely
& Company
Johnston Blakely
& Company
Johnston Blakely
& Company, LLC


Q3/2008

Life Science
Sector Review


© 200
8

Johnston Blakely & Company, LLC. All rights reserved.

Johnston Blakely
& Company
Johnston Blakely
& Company
Johnston Blakely
& Company
Johnston Blakely
& Company
Johnston Blakely
& Company, LLC
Johnston Blakely
& Company
Johnston Blakely
& Company
Johnston Blakely
& Company
Johnston Blakely
& Company
Johnston Blakely
& Company, LLC
quarter M&A activity totalled $23.1 billion vs. $20.8 billion

in the second quarter, with six
billion
-
dollar plus transactions announced. In addition to the Roche bid for Genentech w
ere

t
he Bristol
-
Myers/Eli Lilly competing bids for Imclone, Teva's bid for Barr Pharmaceuticals,
Fresenius' acquisiton of APP Pharma, King Pharmaceutical's acquisition of Alpharma and the
Shiongi deal for Siele.
While recent market turmoil may result in fewer
high priced deals, we
still expect transaction pace to remain
fairly
brisk as

weaker
companies seek
to bolster their
financial position (or simply maintain their operating viability) through consolidation and
rationalization.


* In the two weeks since the
quarter's end, the markets witnessed unprecedented declines and
(today) a record advance.
Despite its relative strength previously, the sector fell into the abyss
along with virutally all others. Comparable to the broader market indexes, the biotech inde
x
dropped a staggering 21% in just the first ten trading days of the quarter

(recovering
somewhat in the Monday rally). These gyrations underscore t
he enormity of the global
financial turmoil as well as broader economic dislocation

-

and no sector remains

unscathed.
As the current choppiness is expected to continue,
it is
likely that activity will be t
epid at best
in the near
-
term, despite earlier indications otherwise.


Last quarter we felt it wasn't quite time to tune up
"
It's the end of the world as w
e know it
".
We are now having second thoughts.

_______________________________


Johnston Blakely & Company, LLC is a Boston
-
based investment bank offering private equity
placement and merger & acquisition
-
related financial advisory services exclusively to

companies in the life science sector. The firm incorporates the venture capital tradition of
comprehensive company involvement into investment banking engagements to delivery
superior results for its clients.

Member
FINRA
/SIPC.





More than investment
banking...in
Venture
banking™


www.johnstonblakely.com