18 May Biotech 2009: Industry Standing at a Crossroads
It’s that time of year again, the annual celebration of the progress of the biotech industry around the globe. This year’s fiesta, known as the BIO International Conference, will go to a new venue for the first time: Atlanta, Georgia. But don’t fret too long as it come back to the Midwest and Chicago for the second time in 4 years next year, 2010. The theme for this year’s conference is: “ Heal, Fuel, Feed the World”, recognition of the diverse elements of biotechnology.
Biotech is at a crossroads (I can hear the refrain in the background of Eric Clapton/Cream’s version of Crossroads). The 30th anniversary of the industry came and went and the first 30 years was mostly about the development of new drugs and proving of the technology. The last 10 years has seen the increasing development of this promising technology and industry in the field of agriculture. The last 5 years has seen an offshoot of this agricultural direction into bio-fuels, specifically bio-ethanol and bio-diesel. The next 5 years will see a strong push into clean tech.
Unlike the pharmaceutical industry which grew up focused on chemistry, biotechnology, which is focused on biology, is not just about drugs, and although there are now 22 biotech drugs with annual sales of $ 1 billion or more each, the vast applications of the technology are bearing fruit in all kinds of societal directions.
The drug-related biotech companies are beginning to plateau and perhaps even decline in the U.S., not in new directions and applications of technology, with the latest being stem cell therapy, but in the number of companies. The number of drug-related biotech companies has been holding steady at about 1,500 companies for the last 5 years or more, while the expansion of the industry outside of the U.S. has been exponential with more than 3,500 companies, with the world total reaching some 5,000 companies.
In the U.S. and Europe, with venture capital investments substantially down this year, a large number of biotech companies have folded or are close to folding, others have been delisted from NASDAQ, and still others are running perilously low on cash. Even with states that have investor tax-credit programs which have attracted angel investors, this sector of the economy has also declined so far this year.
Biotech is clearly an area of vital U.S. national interests, and could use a dose of emergency funds. However, unlike the car and banking industry, the biotech industry is not asking for cash, but for an ability to convert the one thing it has plenty of, operating losses, into cash even at a substantially discounted rate.
As many biotech companies can’t use their operating losses carry-forwards for tax purposes, an ability to sell these to other non-biotech companies needing these tax loss carry-forwards would be important. Even at a proposed cap of about $10 million per company, and assuming that all U.S. biotech companies would use this, the total amount is about $15 billion of tax losses carry-forwards for an entire industry (consider that the U.S. Government has already put more than this amount in General Motors) generating over 180,000 direct jobs and probably well over 750,000 indirect jobs.
Assuming that companies received 10% on the dollar for their tax loss carry-forwards, this would result in about $1.5 billion of cash infusion to companies at a time when VC investments are just not happening. This kind of activity would not be utilized by a Genentech, Amgen, Genzyme, Biogen Idec, which already make money, but to the vast majority of biotech companies still trying to get to a revenue-generating stage.
This year’s edition of the BIO meeting will most likely be a “down” year in attendance, dropping from the mark of about 20,000 attendees set by Chicago 4 years ago. This “down” year is in part due to the economic crisis which is not only the current milieu, but the overall difficult year most biotech companies are facing; add to this that Atlanta has not traditionally been known as a “hotbed” of biotech. This first foray into the U.S. South should have ventured to Research Triangle in North Carolina, which is perhaps the 3rd largest biotech region in the country, but perhaps lacks a large convention center.
Atlanta is home to the U.S. Centers for Disease Control (CDC), the premier government agency focusing on infectious and contagious diseases, and world class medical institutions such as Emory University and tech mecca Georgia Tech, but lacks an overall cluster dimension to it. Additionally, the state of Georgia has invested a large sum of money into research via the Georgia Research Alliance and the Georgia Cancer Coalition.
There is a Georgia Biotech Association (www.gabio.org) which was founded in 1989, some 20 years ago. GeorgiaBio claims some 300 life science companies, but this needs to be closely analyzed to see what is in that definition. Elan, the Irish drug company, has long had fairly large operations in the Atlanta suburbs, as has Solvay the Belgium pharma and chemical company. In looking through the list of affiliated companies, many of these seem to be subsidiaries of pharma and large biotech companies, perhaps sales and lobbying offices. But there are also a number of bio-fuels/bio-energy, and Ag biotech companies.
The BIO International Conference has increasingly been about economic development as companies and states vie for biotech investment in their region. Biotech means highly-educated employees and high-paying jobs. In the past as many as 62 countries and 48 states have participated in the conference, with at least a dozen governors.
Keynote speakers this year feature Sir Elton John with a focus on biotechnology and the HIV/AIDS epidemic, a panel of ex-and current U.S. senators to talk about Health Reform including Tom Daschle, William Frist, MD, Governor Howard Dean, and Karl Rove (former deputy chief of staff to President George Bush).
At least 31 countries have so far confirmed presence and delegations, which is about half of recent years, but this is a preliminary count.
I started this article with the premise that the Biotech Industry is at Crossroads; I believe this crossroads is the exponential growth of the industry in the future in non-healthcare related areas such as biofuels, Ag biotech, cleantech and nanotech. This is not to say we will not see further innovation in healthcare (I think the best is yet to come as further advances in personalized medicine will take place), but the rate of growth will be driven by other applications. Next year’s celebration of this event in the Midwest and Chicago will further bring home this last point due to the wide spectrum of biotech in the Midwest with heavy university research efforts and involvement. Let the Biotech Games begin!
See you soon!
Recent columns by Michael Rosen
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- Michael Rosen: IBIO: A twelve year retrospective on biotechnology in Illinois
- Michael Rosen: Pharma transformers: Big Pharma into biotech or into bigger pharma?
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This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. The article is not meant to be a stock recommendation.
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.