Product Success And Strong Financials Drive Biotech Industry's Maturation According To Ernst & Young's 2005 Global Biotechnology Report
"Biotechnology is delivering on its promises, and the sector's leading companies now rank among the top therapeutic companies in the world," said Mike Hildreth, Americas director, biotechnology, Ernst & Young LLP. "Rivaling and often exceeding past benchmarks, the sector's financial performance allows companies to focus on bringing products to market and proves that biotechnology is maturing and realizing its tremendous potential."
Key success indicators in 2004 include:
· Biotech raises $16.9 billion in capital in the U.S. and €2.8 billion ($3.4 billion) in Europe, surpassing 2003.
· Successful companies drive investor optimism for the sector, with two biotech companies' valuations rivaling the world's sixth largest pharmaceutical company.
· The sector receives approval for 20 new biotech medicines in the U.S. and 9 in the E.U., compared to 18 and 6, respectively, during 2003. Factoring in new indications, the U.S. garners 36 approvals in 2004 compared to 35 in 2003.
· The late-stage product pipeline grows considerably in 2004, and the majority of new product approvals in 2005 will come from biotech companies.
· Global revenue increases by 17 percent, sustaining the growth achieved in 2003.
· Biotech hotbeds emerge in the Asia-Pacific region, particularly Japan, India, and China.
U.S. Biotech Comes of Age
The remarkable surge of new biotechnology products that started in 2003 continued through 2004, demonstrating the strength of the sector's pipeline:
· Biotech companies market approximately 230 drugs, including 13 therapeutic antibodies.
· Fifty-five New Drug Applications (NDA) await approval in the United States alone, including therapies for cancer, congestive heart failure, pain and diabetes.
· Medicines in Phase III clinical trials number 365, compared to 290 the previous year.
The public is demanding safe, effective treatments for unmet medical needs and looking to biotechnology for solutions. Biotech's focus on targeted, personalized medicines—in contrast to the traditional blockbuster concept—is reshaping the way we diagnose and treat disease.
"While these trends could be revolutionary in transforming medicines from the blunt instruments of yesterday to the finely honed scalpels of tomorrow, the sector is challenged to adapt to the realities of smaller market size for each individual product," said Hildreth. "Biotech innovation is a key value driver for the pharmaceutical industry, as more than half of its late-stage pipeline now consists of therapeutics generated using biotechnology advances. The sectors are working together more closely than ever before to bring life-improving therapies to people around the world."
The coming of age of the U.S. biotech sector is accompanied by increasing maturity in the capital markets, where investors are more likely to value companies based on their expected return on investment. "Biotech's infamous boom-and-bust financing cycles may well be a thing of the past," Hildreth added.
Global Biotech Achieving "Critical Capital"
The biotech sector has gained respect in the capital markets, maximizing financial resources, developing human capital for innovation, and protecting intellectual capital resources. Beyond Borders cites strong financial performance in 2004. Highlights include:
· A record-breaking $3.6 billion in venture capital raised in the U.S., €1.2 billion ($1.4 billion) in Europe and $271 million in Canada.
· A long-awaited surge in IPOs, including 28 in the United States, 17 in Asia-Pacific, nine in Europe and four in Canada.
· Cost containment demonstrated by an R&D expense increase of only 12 percent and total employee increase of only five percent globally.
"The biotech sector has reached significant market capitalization while staying attractive to investors with its growth potential," said Scott Morrison, U.S. biotechnology leader, Ernst & Young LLP. "Going beyond the critical mass attained in numbers of drug trials and numbers of products, which provide revenue, the sector has embraced the value represented in its human capital and made a strong push to enhance global protection of its intellectual property—taking all of these pieces of ‘capital' and using them to increase the overall strength of the industry."
After significant recovery in 2003, biotech stocks held steady in 2004 as the performance of the AMEX Biotech Index was relatively moderate, growing at 11 percent. The sector has made solid progress in terms of profitability, and U.S. publicly traded biotechnology companies could still reach aggregate profitability by the end of the decade. One key threat to profitability is the possibility that a regulatory response to recent drug safety issues could either increase the cost of drug development or extend the average time for approval.
Growing Competition from Europe and Asia-Pacific
The United States remains the global biotech leader by a significant margin:
· U.S. biotech companies raised 80 percent of venture capital.
· Seventy-eight percent of biotech revenues are U.S.-generated.
· Over 50 percent of the public companies are still U.S.-based.
However, competition is heating up, with Europe better positioned to move forward after a painful period in 2003. Europe's financial performance in 2004 is up relative to 2003, and the sector registered a significant uptick in capital raised during the year.
"The attractiveness of the European biotech industry can be seen in the interest of venture capitalists and private equity companies, who invested heavily in Europe in 2004," Jürg Zürcher, Switzerland Industry Leader, Health Sciences, Ernst & Young AG. "In addition, more large pharmaceutical companies are teaming with biotech companies to focus on R&D activity, another emerging avenue for growth in the region."
The Asia-Pacific region, with rapid growth, increasing governmental focus, and improving regulatory regimes and infrastructure, is not far behind.
"The socio-economic priorities of Asia's developing economies—poverty reduction, food security, and employment generation—are making biotechnology a strategic imperative," said Utkarsh Palnitkar, Health Sciences leader, Ernst & Young India Private Limited. "Several countries are taking critical steps and enacting laws to address intellectual property issues, and the next step is aggressive enforcement. With the region already profiting from a reverse brain-drain and much needed investment, Asia has a significant opportunity to grow in global prominence."
When the U.S. Administration curtailed government funding for stem cell research, more liberal regulations in Sweden, Singapore, and Korea gave those countries a lead in this promising area. Now, several U.S. states have jumped into the fray by moving to provide funds for stem cell research.
Agricultural biotech, controversial in much of Western Europe, is being rapidly embraced by the developing world. 2004 marks the first year that the absolute growth in the cultivation of transgenic crops in developing countries outpaced growth in developed countries. From cost containment to public policy hurdles, biotech companies are increasingly overcoming local constraints by leveraging strengths in other parts of the world.
"The activity we see in Asia, Oceana and Europe is highly promising. As science creates new frontiers, governments reduce barriers to globalization, and products emerge in the marketplace, biotech is making good on its promise as a powerful global driver of change in multiple sectors," said Donn Szaro, Global Health Sciences director, Ernst & Young LLP.