No prizes for guessing which company topped the list in recording the largest increase in its share price in the second quarter of 2012. Arena Pharmaceuticals Inc. won going away, thanks to the FDA's approval of Belviq (lorcaserin) the first new weight-loss drug for more than 13 years. (See BioWorld Today, June 28, 2012.)

Prior to the agency's decision on June 28, Arena's (NASDAQ:ARNA) share price had been on a wild ride with huge daily trading volumes in the period. The 225 percent improvement in its share value in the quarter rewarded all those investors that had bet that Belviq would be allowed onto the market. Obesity drugmakers Vivus Inc. and Orexigen Therapeutics Inc. were also caught in the updraft with their shares climbing 27 percent and 35 percent in the quarter, respectively.

Taking a longer view, the year-over-year share performance of this trio of companies has been nothing less than outstanding with Arena's shares up 634 percent and with Vivus (NASDAQ:VVUS) and Orexigen (NASDAQ:OREX) both recording huge 250 percent increases in their share values. Vivus' Qnexa (phentermine/topiramate) has a PDUFA date of July 17 and Orexigen Therapeutics Inc.'s Contrave (naltrexone/bupropion) is in an FDA-required cardiovascular outcomes study to address a complete response letter.

Although it was a tough year for stem cell companies on the public markets, Osiris Therapeutics Inc.'s breakthrough Canadian approval of its Prochymal (remestemcel-L) allogeneic stem cell treatment for graft-vs.-host disease (GvHD) in children gave investors something to cheer about. The news helped drive up the company's share value, which vaulted 114 percent in the second quarter. (See BioWorld Today, May 21, 2012.)

One of the winners from the recent annual meeting of the American Association for Cancer Research was Pharmacyclics Inc. Data from a Phase II trial of its drug ibrutinib in diffuse large B-cell lymphoma presented there impressed investors. The Btk inhibitor ibrutinib is being developed in association with partner Johnson & Johnson. (See BioWorld Today, April 3, 2012.)

This was the second meeting where the compound made a splash. Impressive data presented at the annual meeting of the American Society of Hematology also showed its ability to fight chronic lymphocytic leukemia. (See BioWorld Today, Dec. 13, 2011.) For the quarter, Pharmacyclics' shares jumped 97 percent and its year-over-year performance has been a whopping 423 percent. This increase put the company's market cap at $3.77 billion, a valuation that allowed them to join 34 other biotechnology companies in the BioWorld Stock Report that have market caps higher than $1 billion. Each week, the BioWorld Stock Report tracks more than 200 U.S. biotech and biotech-related stocks.

The elite billion-dollar and up group, representing $275 billion in market capitalization, according to BioWorld Insight statistics, performed well in the second quarter of 2012 with an average share value increase of almost 20 percent. For the six-month period the group recorded an average share price increase of 57 percent. This is one of the reasons why the sector has been so hot this year – a factor that has translated onto the BioWorld Stock Index, which is up over 25 percent since the beginning of the year. This compares to a 12.6 percent increase in the NASDAQ Composite index and a 5.4 percent increase in the Dow Jones Industrial Average for the same period.

Honorable Mention

Although just shy of the $1 billion market cap mark, at $870 million, an honorable mention goes to Synageva BioPharma Corp., of Lexington, Mass., (NASDAQ:GEVA), which has seen its share price soar 53 percent year-to-date. The company completed a reverse merger with Durham, N.C.-based Trimeris Inc. last year and has been on a roll ever since. (See BioWorld Today, November 4, 2011.)

The firm has moved into the clinic with lead program SBC-102, a recombinant human lysosomal acid lipase (LAL), in patients with LAL deficiency, a lysosomal storage disorder characterized by the buildup of fatty material in the liver, spleen and blood vessels. The disease is classified into two types – early onset, a rapidly fatal type also known as Wolman disease, and late-onset LAL deficiency. Synageva's SBC-102 is designed to treat both. The company has partnered with Mitsubishi Tanabe Pharma Corp., of Osaka, Japan, and recently expanded this collaboration to develop a second protein therapeutic for an undisclosed orphan disease using Synageva's development capabilities and protein expression platform. (See BioWorld Today, April 3, 2012.)

While the capital market has been conducive for companies with market caps north of $500 million, the picture has not been as bright for small biotechs. The average stock price values for this group of companies, which have market caps of $100 million or less, dropped 24 percent in the second quarter. This performance impacted on all the public biotech companies in the BioWorld Stock Index with their collective total average stock price valuation decreasing 2 percent in the second quarter.

Investors have shied away from investing in the open market (or secondary market) due primarily to limited liquidity, but also due to the make or break "binary" events that impact a small company versus a larger company with a broader pipeline, John Chambers, managing director and head of healthcare investment banking at Roth Capital, told BioWorld Insight. "The major risk being that the investor has difficulty exiting such an investment if a clinical setback or a tremendous market downdraft were to occur."

And this is why it is important to drill down into the data to get a realistic picture of what has been happening in the markets for biotechs this year. It is clear that in these uncertain economic times, investors are dialing into big biotech companies rather than the smaller or mid-size companies. Investors like the strong fundamentals and focused business strategies that these companies bring to the table as opposed to the more risky emerging companies. (See BioWorld Insight, June 18, 2012.)

Public Offerings Selective

Follow-on public offerings were definitely lackluster in the second quarter of 2012 with only $1.5 billion raised – down 40 percent from the first quarter total of $2.5 billion. In the first half of 2012, follow-on public offerings totaled $4 billion, which represented a 14 percent decrease over the 2011 total.

Only two of the 16 reported follow-on deals raised more than $100 million. The largest financing was by Medicis Pharmaceutical Corp., of Scottsdale, Ariz., which raised $450 million in convertible senior notes. The specialty pharma is focusing primarily on the treatment of dermatological and aesthetic conditions. Rare disease developer BioMarin Pharmaceutical Inc. turned to the markets to raise $248.8 million from an underwritten public offering of 6.5 million shares of common stock. Medivation Inc.'s raised $225 million in a public offering of convertible notes, followed closely by public stock offerings from Amylin Pharmaceuticals Inc. totaling $208 million and Vivus Inc. totaling $202.5 million.

The selective number of deals in 2012 is surprising given the fact that some of the larger cap companies have seen significant increases in their share values, which affords them a very good opportunity to leverage these stock increases into favorable financings that will help augment their cash resources to fuel product development. (See BioWorld Insight, June 18, 2012.)

Creativity in Financing

In the first half of 2012, public biotechs raised $2.54 billion through private placements, registered direct offerings, rights offerings, at-the-market deals, loans and other such financing alternatives. This amount was almost 62 percent lower than the $6.6 billion raised in the first half of 2011. However, it should be noted that this amount included Amgen Inc.'s massive $3 billion senior note deal. What could be some cause for some concern is the fact that the total is similar to the $2.47 billion raised in the first-half of 2008, albeit during an extremely different and tougher financing climate.

While most of the 2012 deals in this category were small ($1 million to $20 million) there were several deals of note. Salix Pharmaceuticals Ltd., for example, raised $690 million, Amarin Corp. plc raised $150 million and Elan Corp. plc received $381 million by selling off much of its holdings in Alkermes plc. Theravance Inc., of South San Francisco, decided to sell 10 million shares of its common stock to London-based GlaxoSmithKline plc at a price of $21.2887 per share, for a total of $212,887,000. As a result, GSK now owns about 25.8 million shares of Theravance common stock, or about 26.7 percent of the company. Theravance and GSK have been collaborating since 2002 on a long-acting beta2 agonist (LABA) deal, and GSK is expected to file for approval this year for Relovair, an inhaled corticosteroid/LABA combination product, in chronic obstructive pulmonary disease. (See BioWorld Today, March 26, 2012.)

Looking toward the second half of the year it is clear that investors do have biotechnology on their radar screens, and there are a number of "stock price moving" events with several key upcoming PDUFA dates on the calendar for companies. These include those for Vivus, Horizon Pharma Inc., Amarin and Salix Pharmaceutics in July alone. Investors also will be watching to see which biotech company will be next to test the IPO "waters." Not to mention, there is a presidential election upcoming . . . certainly plenty to keep investors focused on biotechnology for the foreseeable future.

"This bodes well for the latter part of the year – when November passes and election uncertainty is eliminated, we have a sector that is of great interest to fundamental investors and should benefit both in the secondary markets but also from a continued strength in the transaction market," Chambers concluded.