Chicago Biotech Mushroomed From Amgen


While most of Chicago’s great bluesmen (Michael Bloomfield of the “Butterfield Blues Band” and “Electric Flag”) and blueswomen left Chicago for New York and the west coast during the heyday of electric blues in the 1960s and 70s, a few stayed loyal to the home turf (Buddy Guy).

Likewise, though biotech definitely didn’t start in Chicago, its biggest company, Amgen, surely did. Like the blues, Chicago is beginning to put its imprint on this field.

The great Chicago bluesmen of biotech are helping establish this area on the national scene. This includes people like Bill Gantz of Baxter and Pathogenesis fame and now Ovation Pharmaceuticals. A number of the Pathogenesis executives have in turn started up several new companies in the area.

Others like John Kapoor of Lyphomed and Unimed fame have developed a plethora of companies like Lake Forest, Ill.-based NeoPharm. It is these serial entrepreneurs that will and are leading the Chicago charge.

If we include a long list of Abbott, Baxter and Searle senior executives that are now running biotech companies on the east coast, west coast and the U.K., the Chicago effect is even greater (now if we can only get them to come back here).

So what is the roadmap for 2003? Two weeks ago, the Illinois Biotech Industry Organization (IBIO) (disclosure: columnist is affiliated with IBIO) put together five investment banking analysts and bankers to scope out what happened last year and where we might go this year. Their conclusions:

The Amex and Nasdaq biotech indexes were both down 40 percent to 45 percent in 2002 (these indexes measure the best of biotech) and are so far down about another 6 percent to 7 percent in 2003 versus the entire Nasdaq’s drop of about 8 percent in 2003.
The IPO and public equity funding of biotech was mostly dead in 2002 and will not pick up much in 2003.
Remarkably, venture capital financing continues to be strong and lead the way in 2003. VCs are now active participants in PIPEs (private investment in public equity).
There are a substantial number of biotech companies with more than $100 million in cash (there are also a lot of companies trading for less than their cash value), so consolidation will continue.
They also noted that you can divide up the 350 publicly traded biotech companies in the U.S. in four major tiers:

The first tier: companies with a market valuation or cap of $1.5 billion or more (large cap biotech).
The second tier: companies with a market cap of $500 million to $1.5 billion (medium cap biotech).
The third tier: companies with a market cap of $100 million to $500 million (small cap biotech).
The fourth tier: companies with a market cap of less than $100 million (micro cap biotech).
So where does Chicago and Illinois stand in this rating? We currently have no companies in the first and second tier (part of our problem).

Our lead biotech company in market cap is cancer products company NeoPharm with a valuation of more than $160 million, which lands it smack in the third tier or small cap territory (although this company once had a cap of $400 million to $500 million).

All the rest of Chicago’s publicly traded companies (such as Northfield Labs, Immtech International and BioSante Pharmaceuticals) are all valued less than $100 million (micro cap land) or the fourth and last tier.

We do have a few promising private companies that have raised healthy sums of money in the last 12 months in spite of this financial drought. These include Ovation Pharmaceuticals, Nanosphere, Anagen, Arryx and Pyxis Genomics.

Key to the difficulties of raising money in biotech land is FDA approvals of new drugs. It also doesn’t help that there have been at least 20 drugs that failed at the phase three stage (the last stage of drug development) and new drug application (NDA) stage with the FDA last year.

Traditionally, drugs at this stage of development are an almost sure bet and bankable. Not any longer!

On the other hand, as the Big Pharmaceutical companies (“Big Pharma”) have significant gaps in their product pipelines due to their own research failures and products coming off patent, this group traditionally is a big funder of biotech deals.

In Chicago’s backyard, Abbott and Baxter have made a number of biotech and company acquisitions during the last 18 months – some of which were right here in Chicago (such as Vysis, a diagnostics company, which was acquired by Abbott for about $350 million). This trend will undoubtedly continue and benefit biotech.

Stay tuned as we chart the ups and downs of the Illinois biotech industry this year. Remember the key refrain from that famous blues song “Born Under a Bad Sign”: “If it wasn’t for bad luck, I wouldn’t have any luck at all.”