Specialty pharma Acusphere, whose ultrasound contrast agent is in Phase III clinical trials for detecting coronary artery disease, priced its shares at $14 the evening of October 7. The stock got off to a strong start on October 8, opening at $16.02, but couldn’t hold the gain: It closed the day at $14.03.

Perhaps this reflects the cautious overtone the markets have adopted over the last several weeks, for in general the stocks had been on a steady uphill course between mid-August and the last full week of September. Due to the recent pullback, however, the Nasdaq Composite Index managed to drop by 1% during the month of September, and the Nasdaq Biotech Index shed 4% between August 29, 2003 and September 26, 2003.

Still, the stocks have staged a very strong comeback this year. Between December 31, 2002 and September 26, 2003, the Comp rose 34% and the Biotech Index gained 43%. Biotech backers, of course, believe that the industry’s underlying fundamentals (which keep on improving), coupled with a fall calendar full of product news, will continue to fuel the sector’s performance for the foreseeable future.

Footnotes to the table:

§ Technology value: Market cap - cash (and cash equivalents)

§ LT debt plus convert.: Long-term debt plus convertible debt

§ Estimated burn rate: Net loss from the last available quarterly report, X4. Companies with net profit (instead of loss) are indicated as "na."

§ Survival index: Cash (plus cash equivalents) / Estimated burn rate.

§ Equity multiple: Market cap / (common stock + preferred stock + additional paid-in capital).

§ Median: Middle value in a set of values

§ The information contained in the September 2003 Stock Report has been obtained from public sources. Where information is not available, it is indicated as "na." Recombinant Capital cannot warrant the ultimate accuracy of the data. All data are subject to change.

§ Most of the accounting figures are from quarterly reports as of 3/03, with pro forma adjustments for more recent financings (including debt offerings) as well as adjustments to current cash levels based on losses incurred during 1Q 2003.


Highlights From The September 2003 Stock Report:


§ We have witnessed a strong recovery since March 2003. On average, the market cap of the entire group gained over 33% in 6 months -- from $825 million at the end of March to $1,098 at the end of September. The gain in median market cap was even better – from $102 million to $220 million, an increase of about 116%.

§ And the 12-month comparison looks great, too. At the end of September 2002, the average market cap was $636 million. A year later, it stood at $1,098, a gain of nearly 73%. And the median market cap at the end of September 2002 was $93 million; now, it’s $220 million, up 137% over the last 12 months.

§ As another indication that the biotech sector is recovering, less than 4% (9/247) of the stocks were trading below cash at the end of September 2003. Conversely, at the end of September 2002, 27% (66/246) of the companies in our universe had negative technology values.

§ That was a low point, all right, and many companies were having a tough time. We were in the middle of a bear market and biotech stocks were further depressed by a long string of clinical trial failures. At the time, we predicted that the stocks must have passed the bottom of their long slide south, although consolidations and bankruptcies would continue for some time.

§ Now, one year later, we are seeing a much brighter picture. In terms of one-year price performance, the average increase for the entire group was 113%. The top 5 performing groups were Cancer, Delivery, Autoimmune, Diagnostic/Imaging and Wound – with average increases of 202%, 147%, 134%, 131% and 131%, respectively.

§ Technology values per staff have improved significantly as well, primarily because market caps have increased – but also due to massive lay-offs and restructurings. One year ago, the average technology value was $0.7 million per employee; now it is $2.2M per employee.

§ The financing window is open for both debt and equity financings. In addition to the long-standing debt and convertibles carried by some large, relatively mature biotech companies, quite a few other firms managed to take advantage of the debt financing bubble that started in May. (For details, see the Signals articles “Biotechs Finally Grab The Brass Ring” and “Financing On Target For A Stellar Year.”) As a result, about half the companies on our list now carry some long-term or convertible debt on their balance sheets – totaling more than $18 billion.



Satomi Degami, CFA, Recombinant Capital
Jennifer Van Brunt, Editor, Signals