Docs at BIO: Ernst & Young Hosts Super Session Addressing Financial Performance of Biotech Industry

    By Sherri Oslick --

In a Super Session held Tuesday morning at the BIO 2009 conference, Ernst & Young hosted "Beyond Borders -- Ernst & Young's Global Biotechnology Report 2009," a presentation that summarized the financial performance of the biotechnology industry in 2008 and addressed related issues and trends.  The session consisted of brief presentations by representatives of Ernst & Young as well as a panel discussion.  Members of the panel included Samantha Du of Hutchison MediPharma, Colin Goddard of OSI Pharmaceuticals, Adelene Perkins of Infinity Pharmaceuticals, and Peter Wirth of Genzyme, with Glen Giovannetti of Ernst & Young as the moderator.

Two primary themes emerged throughout the course of the presentation:  1) the industry has faced unprecedented challenges as a result of the global financial crisis, including a significant funding drought and an uncertain landscape, and 2) innovation (both technologically and in business models) is key.

Some of the take-home messages, data, and predictions from the session include:

• The financial crisis has resulted in a real separation between the "haves" (large corporations) and "have nots" (restructuring, rifts, and refocusing have been prevalent in smaller companies).
• Globally, financing was down 46% in 2008.  IPO funding fell 95%, however Venture Capital funding fell only 19%.
• Despite the financial crisis, financial performance was quite strong:  Globally, revenues were up by 12%, losses were cut by 53%, and the U.S. industry reached aggregate profitability for the first time.  Additionally, 2008 was a strong year for deals and alliances -- total value of M&As involving U.S. biotechs reached more than $28.5 billion.
• While the biotech industry has been through funding cycles before (this is the 5th significant funding drought), the current cycle is different.  Prior funding drops have been the result of a decline in investor enthusiasm.  The current drop is not driven by biotechnology but rather by the U.S. housing market which triggered a global recession; biotech is one of many sectors that are suffering as a result.
• Expect contraction ahead, likely protracted.  Expect pricing pressure.
• The business model as it now exists for biotech ("world's longest relay race:  of passing the funding baton along) is not sustainable.  Rather, the future of biotechnology will be Darwinian, a survival of the fittest as companies work to shift to more workable business models.
• The industry will return to "a new normal" as soon as the appetite for risk returns to the market, perhaps within a couple of years.
• A tight capital market will remain.  Deal space will remain active.  The rules of the game will change and companies will need to adapt -- to innovate both technologically and in their business model.
• IPOs will not return for at least 12 months.

The speakers also noted four paradigm-shifting trends that show promise for the industry:

• Generics:  Generics of today's top-selling drugs will provide relief to the government and health insurers' budgetary restrictions, paving the way to pay for new innovative drugs.
• Healthcare Reform:  Will likely include pay-for-performance metrics that reward innovation and can create opportunities for companies that develop truly innovative products.
• Personalized Medicine:  Will lead to more efficient drug development and improved bargaining power of small companies, boosting valuation and returns and making for more sustainable funding.
• Globalization:  Creates new opportunities for partnering and funding sources.

More information -- including some representative data as well as a link to request a copy of the Ernst & Young report -- may be found here.