A Big Year for Biotech
The segment surpassed $60 billion in 2005, according Ernst & Young.
By Parthasarathy Devaraj
Biotech recently hit a milestone. According to Ernst & Young’s 2006 Global Biotechnology Report, revenues of publicly-traded biotechnology companies surpassed $60 billion for the first time in the sector’s 30 year history.
“Global biotechnology revenues are growing at strong rates, product approvals are bringing innovative drugs to market, and the long elusive goal of profitability is quickly approaching,” noted Don Szaro, leader, global biotechnology and pharmaceutical sectors, Ernst & Young.
Specifically, revenues of the world’s publicly-traded biotech companies grew 18 percent in 2005, reaching all-time high of $63.1 billion. As revenues increased, the industry’s net loss fell 30 percent to $4.3 billion. The U.S., Canada and the Asia Pacific region collectively improved their bottom line by about $3 billion.
The global biotech industry raised $19.7 billion in 2005, its second highest total since the bubble of 2000.
A Year of Deal-Making
The year was marked by a dramatic increase in Big Pharma’s acquisitions in the biotech space. Major pharmaceutical companies made several large acquisitions as they faced their biggest patent-expiration year ever, with $23 billion worth of pharmaceutical products losing protection, according to some estimates.
In the U.S, the lackluster performance of initial public offerings (IPOs) drove venture capitalists and their portfolio companies to look at deals for exits or sources of financing in Europe, companies showed more confidence to partner within the region. Mergers and acquisitions (M&As) there reached 66—an all-time high.
China and India continued to attract attention and deals, as multinationals were motivated by increased access to these large and growing drug markets and, most importantly, by the lower costs of drug development. The number of deals in vaccines was energized by concerns around the avian flu, SARS, and bio-defense products, while looming patent expirations led to increased deals in the generics segment.
“Deals were a key driver in Asia-Pacific, where companies formed partnerships to position themselves in an environment characterized by brisk growth, increasing competition and sweeping regulatory changes,” said Mr. Szaro.
“There was unprecedented consolidation among Japan’s largest pharmaceutical companies, as well as noteworthy deals across the region.”
Strong competition and aggressive growth drive Asia Pacific.
The biotechnology sector’s growth in the Asia Pacific region outpaced its performance in other parts of the world as revenues soared 46 percent. Australia’s CSL boosted the country’s biotech revenues by over 60 percent, allowing the Australian biotech sector to reach profitability ahead of the U.S. and Europe, and propelling the Asian sector to a break-even point as well.
Competition is stiff, as Asian government focus on biotech as a strategic priority, and foreign companies are attracted to the region by growing drug markets, economic liberalization, and stronger intellectual property protection.
Countries are beginning to distinguish themselves by focusing on competitive niches in such segments as contract research and manufacturing, vaccines, information technology and bio informatics, traditional medicines and stem cells.
“Asian biotechnology executives and policymakers are focusing strategies toward strategic niches in their efforts to remain competitive,” said Utkash Palnitkar, industry leader of health sciences at Ernst & Young India Private Limited.
“In a crowded field, such focused strategies can boost the odds for Asian countries, by giving them niches and revenue streams that can be leveraged for the ultimate, long term objective—developing innovative, globally competitive biotechnology companies.”
The U.S. Remains Strong
For the third consecutive year, the U.S. biotechnology sector delivered strong product approvals and solid financial results. The industry is showing signs of maturation, and continued focus could bring more product success, stable financial results and predictable valuations.
In 2005, product success inevitably improved financial performance as stronger product sales boosted sector revenues by about 16 percent. The industry continues to approach profitability as net loss as a percentage of total revenue fell to four percent in 2005, the first time the ratio has dropped below five per cent.
Europe Gets Back on Track
Last year the European sector finally emerged from a lengthy restructuring period. Public company revenues increased by 17 percent in 2005, compared to a five percent decline the previous year. On the financing front, 2005 was the best year ever for the European biotech sector excluding the genomics bubble of 2000.
European biotech companies raised a total of $4 billion in capital. For the first time ever, the European biotech sector raised more than the U.S. sector through IPOs. The number of IPOs increased to 23, up from eight in 2004, and the aggregate capital raised in 2005 reached $691 million, up from $359 million in 2004.
