By Donald Zuhn --
On Wednesday, less than a week before the industry congregates in Chicago for the 2010 BIO International Convention,
Ernst & Young issued its 24th annual report
on the biotech sector. In the report,
entitled "Beyond Borders: Global Biotechnology Report 2010," the
professional services firm concludes that "[t]he global biotechnology
industry was able to weather the continued worldwide economic turmoil and
deliver a strong financial performance in 2009, with the world's established
biotech centers reaching profitability for the first time in history." Despite the good news, Glen
Giovannetti, Ernst & Young's Global Biotechnology Leader, predicted that
biotech companies would continue to face a challenging funding environment for
the foreseeable future. Mr.
Giovannetti's comments about biotech funding align with the results of the
latest MoneyTree report issued by the National Venture Capital Association
(NVCA), which showed that biotech venture funding between the fourth quarter of
2009 and the first quarter of 2010 dropped by 24% (see "NVCA Report Shows First Quarter Drop in Venture Funding").
The
report concludes that biotech companies are now operating in a "new
normal," where access to capital will remain difficult. In this new normal, venture capitalists
are being more selective and are directing funding to existing projects rather
than to new companies. In
addition, IPO investors appear to be looking for "de-risked investments,"
and consequently, IPOs are pricing below companies' expectations. The report lists five guiding
principles for biotech companies operating in the new normal:
(1) Broadening the search for capital to include nontraditional sources of funding;
(2) Learning to use scarce capital more efficiently;
(3) Focusing on reimbursement (payor acceptance) as an end goal in product development rather than marketing approval;
(4) Using more creative partnering approaches; and
(5) Attracting potential buyers by demonstrating what truly differentiates one company's products or platforms from those of its competitors.
In
breaking down the results by region, the report indicates that the U.S. biotech
industry's net income skyrocketed from about $400 million in 2008 to a record $3.7
billion in 2009, which was driven by revenue growth, cost cutting, and a change
in the accounting rules for acquisitions.
Despite the positive results for the U.S. biotech industry's net income,
revenues of U.S. public companies fell 13% in 2009 to $56.6 billion. The report also noted that total U.S.
capital for the biotech industry increased by 39% in 2009 to $18.0 billion. Of this amount, venture capital constituted
$4.6 billion, which was the second-highest venture funding total in history,
behind the $5.5 billion raised in 2007.
In
Europe, revenues of public biotechs rose 8% to €11.9 billion, which was below
the 17% growth seen in 2008. Total
funding for the European biotech industry was up 48% to €2.9 billion in 2009,
with venture capital constituting €800 million of this total (a 21% decrease
from 2008 and the lowest amount since 2003). The Canadian biotech industry, meanwhile, raised more than $733
million in 2009, an increase of $255 million.
How will the ACLU fiasco affect biotech investment?
Posted by: crelboyne | April 30, 2010 at 02:26 PM
It's fantastic to be a critical raw material supplier (for more than 30 years now) to an Industry that is finally profitable! We've been fortunate to have been able to supply most of the leading biotechnology companies and helping them to support their commercial drugs - but it is still great to see the Industry in the BLACK - especially after my own 20+ yr career in it.
Posted by: BigRedBruce | April 30, 2010 at 08:24 PM