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Genomics Companies Dominate Q2 Pharma M&A Activity

NEW YORK, July 3 – Three out of four of the largest mergers and acquisitions that occurred in the pharmaceutical sector in the second quarter involved genomics companies, and the consolidation trend is expected to continue, said Steven Burrill, CEO of Burrill & Company, a San Francisco-based merchant bank.

During the second quarter Merck announced that it would acquire Rosetta Inpharmatics in a stock deal valued at $620 million, Vertex penned a deal to buy Aurora Biosciences for $592 million in stock, and Celera entered into a definitive agreement to acquire Axys in a stock deal valued at about $173 million.

The only deal bigger than these made in this period was Bristol-Myers Squibb’s agreement to purchase DuPont Pharmaceuticals for $7.8 billion.

Speaking about the genomics sector, Burill noted that the pace is likely to pick up.

“In the next few months, we'll see more M&A, more partnering, more investment capital coming into the sector, and even the return of the IPO," Burrill said in a statement released Monday. "Despite the volatility of the capital markets, the momentum is building."

However, Burrill also cautioned that the volatility in the sector would continue, particularly in light of the slowdown in business coming from big pharma.

"Investors are trying to sort out the winners and losers in this market and that's a challenge. Good science can easily be stifled in a bad business model," he said. "And with the pharmaceutical industry retrenching, these enabling technologies are fighting for revenues in an increasingly difficult market." 

During the quarter, some shares saw dramatic fluctuations. Affymetrix’s stock price plunged to the low $20-range from about $50 after issuing an earnings warning that left investors uncertain about the company’s future growth prospects.

Despite the uncertainty that still surrounds the sector, companies continued to raise fresh funds in the quarter, albeit more through private than public financing methods.

Financing for the biotech industry as a whole nearly doubled to $4.1 billion from $2.1 billion in the first quarter.

"Even though the IPO window remained shut during the second quarter, several large public companies and many private companies accessed capital," Burrill said.

The largest source of capital came from convertible debt in the second quarter, with biotech companies raising $2 billion in convertible debt, compared with $200 million in the previous quarter. 

Venture capitalists invested $604 million in biotech during the quarter, just shy of the $638 million invested in venture capital in the year ago period, when the mood in the sector bordered on euphoric.

PIPEs, or private investment in public entities, represented another increasingly popular way for raising money, with publicly traded biotech companies raising some $697 million through these types of financings.

Genomics companies such as Orchid Biosciences and Lynx Therapeutics raised new funds through PIPEs, and Burrill said he expected to see more of these deals if the public’s demand for biotech stocks remains low.

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