25 Jul Globalization of biotech industry is a decidedly worldwide phenomenon
CHICAGO – As witnessed by the BIO 2005 meeting in Philadelphia last month, the globalization of the biotech industry beyond its U.S. roots has really taken flight. The company that perhaps best chronicles and tracks this trend is Ernst & Young in its annual report on biotechnology.
This report is usually released and previewed at the annual BIO meeting. This year’s report, which carries the appropriate title “Beyond Borders: Global Biotechnology Report 2005,” is a treasure lode of data for anyone wanting to understand the pervasive effect of the biotech industry.
There’s so much good information in this report that I almost don’t know where to start. Perhaps an attempt to describe the globality of this industry would be helpful. Considering that 10 years ago nearly two-thirds of this industry resided in the U.S., there has been an incredible growth of the biotech industry outside the U.S. Let’s take a look:
Yikes! This globalization trend is worse than I thought. Let’s review some key points:
• The U.S. is no longer the geographic leader in terms of number of biotech companies. Europe now surpasses the U.S. with 41 percent of the companies compared to 33 percent in the U.S.
• Asia-Pacific is also rapidly catching up not only fueled by the growth in Australia but by rapid growth in Japan, China, India and Korea.
• The U.S. is still “king of the roost” in terms of publicly traded companies (at least for the moment) with more than 51 percent of this category.
This is due to the availability of five trading markets for biotech companies: the New York Stock Exchange (which actually has few biotech companies but virtually all of Big Pharma), the Nasdaq National Market, the Nasdaq Small Cap Market, the American Stock Exchange and the OTC Bulletin Board (for the penny stocks).
Though Europe has no real trans-European exchange, it counts on the London Stock Exchange, the London AIM and the bourses in France, Germany, Switzerland, the Netherlands, Sweden, Denmark and Spain. Canada has two main exchanges: the Toronto Exchange and the Vancouver Exchange. Many Canadian companies seek to list in the U.S. to access capital there.
Another measurement for biotech globality would be the number of IPOs by region:
Though the U.S. once again was the clear leader in terms of number of IPOs and amount of money raised, the Asia-Pacific region had a surprisingly strong showing with significant IPOs in India (Biocon), Japan and Australia. The growth in the number of IPOs outside the U.S. attests to the growth in both VC as a global phenomena as well as the receptivity of international bourses to this industry sector.
While the number of companies is one key indicator of the globalization trend, it should be noted that companies outside the U.S. in general are earlier stage than U.S. biotech companies with lower valuations, lower revenue and lower income.
If the U.S. has lost its lead in terms of number of companies, it still is the absolute leader in a number of other categories. These include:
• Revenue: 78 percent of global biotech revenue
• R&D expense: 75 percent of global biotech R&D
• Net income: the U.S. is still “king of the losses” with 81 percent of all global net losses
Nevertheless, the Europeans are investing more of the R&D expense as a percent of sales than American companies while the Asians are investing a paltry 12 percent of revenues into R&D. This is typically lower than Big Pharma levels, which averages about 15 percent of revenue.
To test the globalization waters of the industry, yet another category to look at is employment:
Far surpassing the other regions, it appears that the U.S. is still a clear-cut leader in this category.
What’s the key message of all the above? A trend that started in the U.S. in the early 1970s and was legitimized in 1980 when Amgen and Cetus had its IPOs has now reached global warp speed. Biotech is here to stay. See you next week!
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