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 October 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 6/03 or 9/03, with pro forma adjustments for more recent financings (including debt offerings).


Highlights From The October 2003 Stock Report:


§ At the end of October, the average market cap for the companies in our universe was $1,098 million, unchanged from the previous month. The median market cap, however, was $239 million at the end of October, nearly 9% higher than it was at the end of September.

§ Market caps have improved significantly over the last 12-month period. At the end of October 2002, the average market cap was $738 million and the median was $100 million. One year later, the average market cap had risen by 49% and the median market cap for the entire group had gained 139%.

§ As another indication that the biotech sector is recovering, only about 2% (6/246) of the stocks were trading below cash at the end of October 2003. Conversely, at the end of October 2002, 22% (52/235) of the companies in our universe had negative technology values.

§ The large-cap stocks – those with market caps of at least $1 billion – had been leading the recovery, but in October they stalled. There are 35 companies in this group (or 14% of the total). They are now lagging the overall average and median in terms of one-year stock performance. Over the last 12 months, stocks of the large-cap companies have increased by 69% in value, on average, much lower than the average increase of 107% for the entire group.

§ The mini-cap group – stocks with market caps of less than $200 million – showed the strongest one-year gains in price performance, with 120% increase.

§ Overall, the climate is much more positive than it was a year ago. The stock prices of 35% of the companies in our universe have more than doubled over the last 12 months. Another 18% of the companies saw their stock prices gain by more than 50%.

§ The top 3 performing groups are Autoimmune, Cancer and Metabolic – with average increases of 168%, 163% and 138%, respectively.

§ Companies are busy with fundraising. In October, 5 companies completed IPOs and 6 raised money in follow-on offerings. As of November 11, 3 more firms had sold stock in follow-ons and 2 more priced shares in IPOs.

§ A number of companies have also started spending money again. Following cutbacks and layoffs over the last 2 years, some firms are perhaps feeling a bit more generous today. Quarterly reports from June and September reveal that the average burn rate is increasing slightly compared to previous quarters.

§ We expect the currently favorable market conditions to continue for a while. The biotech sector is already firmly on track to have its second-best financing year ever: Companies raised slightly more than $13.3 billion through the end of October, already more than the $10.9 billion the sector raised in 2002 and very close to the $14.7 billion raised in 2001.

§ In fact, we may be starting a new cycle: The industry experienced a record number of consolidations and bankruptcies over the last few years, leaving room for new companies to rise to the top.


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