13 Jul Global biotech industry: Close to profitability
CHICAGO – At the annual BIO International Conference, this year held in Atlanta, the global accounting firm of Ernst & Young (www.ey.com) normally rolls out its annual report on the biotech industry in a special session. This report, known as “Beyond Borders: Ernst & Young Global Biotechnology Report 2009”, charts the development of the industry in the prior year and key trends.
Some of the key facts from this year’s E&Y global biotech report:
- The revenue for worldwide publicly-traded biotechnology companies increased 12% to $89.7 billion in 2008. The global biotech industry continued to lose money but narrowed its losses to $1.4 billion (down from last year’s loss of $3 billion). The U.S. segment of this industry actually made a profit in 2008: $0.4 billion.
- Capital raised in 2008 declined significantly with companies in the U.S. and Europe raising only $16 billion in financing during 2008, a 46% decline from 2007. Initial public offerings in both regions fell 95% to $116 million. Biotech venture financing also declined but quite as sharply: 19% drop versus the prior year.
- Industry deal-making was very active: merger & acquisitions worth $28.5 billion in deals were consummated just in the U.S., plus another $5 billion in Europe.
- According to a survey of more than 300 biotech executives, 83% believed that the combination of constricted investment and more aggressive play by Big Pharma will lead to the independent biotech sector shrinking before the recession ends; 79% of those surveyed believed that the appetite of Big Pharma companies has already increased in the last 12 months as they have made strategic alliances or outright acquisitions.
- The biotech industry is encouraged by President Obama’s recent pronouncement at the National Academy of Sciences that the U.S. government should spend more than 3% of the country’s gross domestic product (GDP) on scientific research and development. Obama plans to continue to increase NIH research funding, which had flattened under the Bush Administration.
The leading global biotech companies during 2008 were:
Leading Global Biotech Companies – 2008 (by sales)
|Company/Country||2008 Revenue $ Billions||%
|2008 Net Income
– $ Billions
|% Growth||Income as % of Revenue|
|1. Amgen (U.S.)||$15.0||+1%||$4.2||+31%||28%|
|2. Genentech (U.S./Swiss)||$13.4||+15%||$3.4||+21%||25%|
|3. Gilead Sciences (U.S.)||$5.3||+26%||$2.0||+25%||38%|
|4. UCB (Belgium)||$5.3||–||$0.1||<73%>||2%|
|5. Genzyme (U.S.)||$4.6||+21%||$0.4||<12%>||9%|
|6. Biogen Idec (U.S.)||$4.1||+28%||$0.8||+23%||20%|
|7. CSL (Australian)||$3.6||+16%||$0.7||+30%||19%|
|8. Celgene (U.S.)||$2.3||+64%||<$1.5>||N/A||<65%>|
|9. Cephalon (U.S.)||$2.0||+11%||$0.2||>999%||10%|
|10. Actelion (Swiss)||$1.4||+12%||$0.3||+158%||21%|
|Total Top 10||$57.0||+13%||$10.6||+12%||19%|
Source: MedAd News, June 2009
- Genentech was fully acquired by the Big Pharma Roche earlier this year;
- UCB is listed as a biotech company which in reality it is not and its decline in income is due to a major drug losing patent exclusivity.
- Celgene’s drop in income is due to the acquisition of another biotech company called Pharmion.
With these exceptions, the leading biotech companies are quite profitable and sizeable. Not measured here are the market caps of these companies which exceed many Big Pharma companies based on the analysts’ evaluation of their drug pipeline. Nevertheless, companies likes Biogen Idec, based in Boston, Celgene and Cephalon are susceptible to acquisition by Big Pharma.
Some of the key trends identified by the E&Y Report that were predominant last year and which carry-over to this year are:
- Generics: the loss of patent exclusivity on many large blockbusters drugs over the next few years will be beneficial to both consumers and the government as there will considerable impact on overall sales and pricing of drugs; this will be extended by the impact of the “biosimilars” (generic biotech drugs) approval process in Europe and hopefully a new program to be implemented later this year by the FDA.
- U.S. Healthcare Reform: the U.S. is headed towards some form of universal coverage to try and mitigate the 45+ million people without any type of medical insurance in the U.S. This will likely include, according to E&Y, some kind of pay-for-performance in reimbursement decisions. This will be beneficial to the biotech industry if they can really demonstrate enhance product efficacy and improved patient quality of life.
- Personalized Medicine: as many biotech drugs are targeted to specific patient subgroups and are increasingly being matched with diagnostics, this should also help lower drug development costs as the product development risk becomes lower if the drug is targeted to a specific subset of patients with a disease, e.g. breast cancer patients showing the her2 neu gene.
- Globalization: although most U.S. biotech companies are focused on the U.S. market, the increasing role of biotech in places like Asia, India, China, etc., mean that these companies will need to think through not only their product commercialization strategy but their product development and manufacturing strategies earlier. As such, new strategies for ex-U.S. rights to products and technologies is allowing for creative alliances and new sources of capital
The E&Y Global Biotech Report is rich in details on biotech in various regions of the world and charts the industry’s progress in these regions. The one key theme is that while the U.S. part of the industry has for the first time achieved profitability, the greater and faster growth of the industry resides in other parts of the world. The U.S. market, however, continues to be the benchmark for this industry as it is the largest single market for biotech products, as well as contains the largest financial market for the financing of this industry.
See you soon!
Recent columns by Michael Rosen
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- What Illinois can learn from Israel about medical technologies
- Michael Rosen: World recession slowing down global pharmaceutical market
- Michael Rosen: Biotech 2009: Industry Standing at a Crossroads
- Michael Rosen: U.S. Healthcare: Out of control
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.