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Sequestration a Blow to Life Sciences

Companies mentioned in this article: Burrill & Company

SAN FRANCISCO, CA -- (Marketwire) -- 03/01/13 -- A total of $85 billion in across-the-board U.S. government spending cuts will be triggered today in the absence of a last-minute Congressional deal to delay or end the threat of sequestration. While the cuts are meant to spread the pain of austerity, they threaten to slow scientific research, the development of innovative drugs and medical devices, and the ability of patients to get access to new therapies.

How big an impact sequestration has on the life sciences will depend on whether action is eventually taken that spares the U.S. Food and Drug Administration and the National Institutes of Health from the cuts, and if not, how these agencies take steps to implement the cuts to their individual budgets. The industry has already expressed ongoing concerns about both agencies being underfunded and sequestration will only worsen the situation. The FDA is expected to lose $318 million in funding and cut hundreds of jobs to adjust to the lower funding level. For NIH, sequestration would mean the loss of more than $1.6 billion in funding and reduce the number of grants it issues by more than 2,000.

"While the political parties remain divided over issues of what mix of spending cuts and taxes are needed to address the country's budget problems, it appears no one wants to take responsibility for unpopular choices and so we end up with an ax, rather than a scalpel," says G. Steven Burrill, CEO of Burrill & Company, a global financial services firm focused exclusively on the life sciences. "The unwillingness to make difficult decisions and reach compromise will harm innovation, weaken our economic strength, and delay patients' access to new medicines."

The evolving situation in Washington comes against a backdrop of weakened financing activity for the life sciences sector in February, a month in which activity fell dramatically from levels a year ago. Global venture financings for life sciences companies totaled $582 million in February, a 47 percent decline from the same period a year ago and the lowest monthly activity in two years. The cancer immunotherapies developer Jounce Therapeutics, which raised $47 million in a series A round, was the largest venture financing for the month.

On the public financing side, total global financing transactions for life sciences companies in February reached an anemic $865 million, a 78 percent drop from the $3.9 billion for the same period a year ago. IPOs, PIPEs, follow-ons, and debt offerings all slowed dramatically.

In fact, the only IPO completed in February occurred in Japan for the cardiovascular therapeutics company MedRx, which raised $23.6 million. In the United States, the success of the Zoetis IPO failed to produce coattails for other life sciences companies. Personalized genomics-based cancer diagnostics maker Cancer Genetics postponed its IPO and the molecular diagnostics company AutoGenomics withdrew its IPO.

Four companies did add themselves to the IPO queue in February, giving some hope for a pick-up in activity. These included Tetraphase Pharmaceuticals, Ambit Biosciences, Sophiris Bio, and the contract research organization Quintiles, which filed for a $600 million IPO.

Global M&A activity rose in February, thanks in part to Biogen Idec's acquisition of the rights to the multiple sclerosis drug Tysabri from its partner Elan for $3.2 billion plus future royalties on the drug. Royalty Pharma is seeking to buy Elan's royalties for Tysabri for $6.6 billion. Elan's management has not responded to the offer, but Royalty is taking its bid directly to the company's shareholders.



Scorecard February 2012
                                                YTD        YTD
                                              2/28/13    2/28/13    Change
Global Venture Capital                           1,726      2,152     -19.8%
U.S. VC                                          1,268      1,336      -5.1%

IPOs (5 in 2013 vs 10 in 2012)                   2,423        693     249.8%
U.S. IPOs (4 in 2013 vs 6 in 2012)               2,399        399     501.6%

Global PIPEs                                       278        915     -69.6%
U.S. PIPEs                                         138        367     -62.3%

Global Follow-ons                                1,952      1,412      38.3%
U.S. Follow-ons                                  1,913      1,304      46.7%

Global Other Equity                                202        462     -56.2%
U.S. Other Equity                                  150        447     -66.5%

Global Debt Offerings                            5,940      3,249      82.8%
U.S. Debt                                        5,093      2,257     125.7%

Global Other Debt                                  338      1,377     -75.5%
U.S. Other Debt                                    275      1,364     -79.9%

Total Global Public Financings                  11,133      8,107      37.3%
Total U.S. Public Financings                     9,968      6,137      62.4%

Global Partnering                                4,933      8,892     -44.5%
U.S. Partner/Licenser                            3,935      4,142      -5.0%

Global M&A                                      14,109     10,673      32.2%
M&A, U.S. Target                                 5,983      9,564     -37.4%


Reviewers at the U.S. Food and Drug Administration approved three innovative therapies in February, bringing the 2013 total to five. Among the highest profile approvals this month was Roche and Immunogen's T-DM1. The therapy will be sold as Kadcyla for the treatment of HER2-positive, metastatic breast cancer and was reviewed under the FDA's priority review program. Kadcyla is an antibody-drug conjugate that pairs Herceptin with a powerful chemotherapy agent. The combination delivers the therapy directly to the tumor cells, bypassing healthy cells.

Other drugs approved in February included Celgene's Pomalyst for the treatment of multiple myeloma; and QuatRx Pharmaceuticals' and Shionogi's Ophena for the treatment of vulvar and vaginal atrophy due to menopause.

The industry in the weeks ahead will continue to keep its eyes on Washington. As the drama surrounding sequestration plays out, the attention will begin to shift to the threat of the government shutting down unless action is taken to address the current spending bill that is set to expire March 27.

"The public has become weary of manufactured crises and accustomed to dysfunction in Washington, but action will need to be taken," says Burrill. "We are paying a price as a nation for our inability to reach a consensus. Lawmakers need to understand what's at stake here both in terms of our economic competitiveness and the needs of people suffering with disease."



BURRILL INDICES                                        Month        Year
                     12/31/2012 1/31/2013 2/28/2013    Change      Change
Burrill Select           607.66    634.23    638.61         0.7%        5.1%
Burrill Large Cap        736.90    759.90    779.13         2.5%        5.7%
Burrill Mid-Cap          309.52    332.44    347.58         4.6%       12.3%
Burrill Small Cap        105.99    119.39    117.05        -2.0%       10.4%
Burrill Diagnostics      191.32    202.54    203.60         0.5%        6.4%
Burrill Personalized
 Medicine                119.22    127.48    128.02         0.4%        7.4%
Burrill Biogreentech     162.27    175.67    181.56         3.4%       11.9%
NASDAQ                  3019.51   3142.13   3160.19         0.6%        4.7%
DJIA                   13104.14  13860.58  14054.49         1.4%        7.3%
S&P 500                 1426.19   1498.11   1514.68         1.1%        6.2%
Amex Biotech            1547.03   1661.17   1702.36         2.5%       10.0%
Amex Pharmaceutical      369.57    395.00    392.43        -0.6%        6.2%


About Burrill & Company
Founded in 1994, Burrill & Company is a diversified global financial services firm focused on the life sciences industry. With $1.5 billion in assets under management, the firm's businesses include venture capital/private equity, merchant banking, and media. By leveraging the scientific and business networks of its team, Burrill & Company has established unrivaled access and visibility in the life sciences industry. This unique combination of resources and capabilities enables the company to provide life sciences companies with capital, transactional support, management expertise, insight, market intelligence, and analysis through its investments, conferences, and publications. Headquartered in San Francisco, the company oversees a global network of offices throughout the United States, Latin America, Europe, and Asia. For more information visit: www.burrillandco.com.

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Contact:
Daniel Levine
Managing Director
Burrill & Company
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415-591-5449