The state of global biotech: An Ernst & Young perspective

The state of global biotech: An Ernst & Young perspective

One of the things I always like about the annual BIO International Conference is that the accounting firm of Ernst & Young always releases at this event its latest report on the state of the biotech industry called: “Beyond Borders: Global Biotechnology Industry 2007.”
This report is chock full of great information about the industry, and nobody better than Ernst & Young covers the global growth of this industry due to its extensive network of operations around the world. For example, I had a chance during my recent trip to India to get a good update on the local Indian life science scene from the local E&Y rep.
It would be impossible to recapitulate all of the good information in the above report, but there are some real biotech jewels that need to be highlighted and shared.
Firstly, and contrary to what most people think, this is an industry with significant global sales, as we can see below. Unfortunately, the industry still loses money for three main reasons:
• The high amount of R&D expense as a percent of sales, about 38 percent.
• The long time (and high expense) it takes to develop a drug and get it to the marketplace.
• The high risk in drug development, where less than five percent of drugs that are in clinical development make it to the marketplace.
So should we just pack it up and go home? Not when there are still many diseases to be conquered! This passion to conquer these diseases is what drives the industry!
Worldwide Biotech Industry Financials – 2006

Public Company Data 2006 ($ billions) 2005 ($ billions) % Change
Revenues $73.5 $64.2 +14%
R&D Expense $27.8 $20.9 +33%
Net Loss $5.4 $4.0 +35%

Source: Ernst & Young: “Beyond Borders: the Global Biotechnology Report 2007”
Interestingly, if the biotech industry had kept R&D flat during 2006, it would have made money. Instead, it is an industry looking to embrace risk rather than avoid it, so R&D expenses actually grew 33 percent, resulting in an increased loss for the year. Also remember that this is not one company but 4,275 companies according to E&Y, of which 710 are publicly-traded.
The biotech industry employs directly about 191,000 people (public companies only), of which:
• Sixty-nine percent are in the U.S.
• Twenty-one percent are in Europe
• Four percent are in Canada
• The remaining six percent are in Asia-Pacific.
While this number may be low, you can estimate that, conservatively speaking, the biotech industry generates about three to five indirect jobs to supporting industries for each direct job (some say this number is as high as 10).
The U.S. continues to be the dominant player in sales, R&D expense, number of publicly traded companies, net loss, and other parameters. However, it is no longer the leader, as I pointed out last year, in sheer number of companies:
• Europe now has 1,621 companies to the U.S.’s 1,452.
• The Canadian Pharma (drug) market is about 10 percent of the U.S. market, nevertheless Canada has about one-third the number of biotech companies as the U.S.: 465 versus 1,452 in the U.S.
• Asia-Pacific is also rapidly catching up, as I have commented before, with 737 companies.

Public Company Data Revenues ($ billions) % R&D Expense ($ billions) %
Global $73.5 100 $27.8 100%
U.S. $55.5 76% $22.8 82%
Europe $11.5 16% $3.6 13%
Canada $3.2 4% $.9 3%
Asia-Pacific $3.3 4% $.4 2%

Source: E&Y:”Beyond Borders”
While the above is a good indicator that the U.S. role in this vital industry is strong, some other measures of relative strength show a decline in this role (albeit still with U.S. dominance):
Biotech Scientific Competitiveness Indicators – 2006

Country Scientific Paper Citations Rank Share of Global Biotechnology Patents (%) Rank
U.S. 37,822 1 43.3% 1
U.K. 7,565 2 5.3% 4
Germany 7,497 3 9.6% 3
Japan 6,298 4 14.1% 2
France 5,172 5 3.6% 5
Canada 4,194 6 2.7% 6
Italy 3,363 7 1.0% 15
Netherlands 2,665 8 1.7% 9
Australia 2,273 9 2.1% 7
Switzerland 2,168 10 1.4% 12
Spain 2,042 11 0.8% 16
Sweden 1,960 12 1.2% 13
China 1,481 13 1.7% 9
Belgium 1,206 14 1.1% 14
Denmark 1,052 15 1.8% 8
Israel 1,039 16 1.6% 11
Russia 1,019 17 0.2% 19
Finland 893 18 0.5% 18
Korea 841 19
India 789 20 0.8% 16

Source: E&Y: “Beyond Borders 2007”
If you add up all the European countries on the scientific citations, they equal the U.S; while if you add up all the biotech patents in Europe they get close to the U.S. number.
1) For two countries that up to recently didn’t have intellectual property implemented, they are moving forward aggressively in this area.
2) These numbers don’t include all of the Indian and Chinese scientists working in the U.S. and filing papers/patents with other U.S. investigators.
3) Tiny Israel does pretty well for such a small country!
Two other indices other show the U.S. in a less favorable light:
• High school science proficiency
• Growth in biotechnology patent applications.
In the former, the U.S. ranks 20th with Japan and Finland tied at #1, Korea as #2, and the Netherlands and Australia tied at # 5. In the latter, the U.S. also ranks 20th, with China as #1, India as #2, Korea as #3, Russia as #4, and surprisingly, Spain as #5! Israel is ranked 7th.
Stellar year
Lastly, analysis of biotech global financing for last year also provides some interesting insights. According to E&Y, the three major regions, U.S., Canada and Europe raised $28 billion in financing in 2006 (this does NOT include monies derived from pharmaceutical partnering or investments) versus $19.7 billion the prior year or an increase of 42 percent. While the U.S. had the lion’s share of this financing and grew 38 percent, European biotech financing grew 47 percent and Canadian financing grew 79 percent. So, it was a stellar year for the industry.
As this report has so much good material, I will try to glean further nuggets for my next article. See you soon!
Previous articles by Michael Rosen
Michael Rosen: Brazilian bio-industry should impress American investors
Michael Rosen: Olympics of biotechnology has international flavor
Michael Rosen: A Midwest passage to India, Part II
Michael Rosen: Indian trade possibilities boggle the mind
Michael Rosen: A Midwest life-science odyssey comes full circle
Michael Rosen: Bioscience clusters: Too many or room for more?
Michael Rosen: The deconstruction of “Big Pharma”

Michael S. Rosen is president of Rosen Bioscience Management, a company that provides CEO services, including financing and business and corporate development to start-up and early-stage life science companies such as Renovar and Immune Cell Therapy. Rosen also is a founder and board member of the Illinois Biotechnology Industry Organization. He can be reached at
This article previously appeared in, and was reprinted with its permission. It is not meant to be a recommendation to buy or sell stocks!
The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC.
WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.