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Biotechnology
was once dubbed “one of the biggest money-losing
industries in the history of mankind” by Arthur
Levinson, chief executive officer of Genentech, but right
now the global biotech industry is seemingly undergoing a
sea change.
In 2006,
it heralded advances of historic proportion, according to Beyond
Borders: Global Biotechnology Report 2007, Ernst &
Young’s 21st anniversary report on the
biotechnology industry. The biotechnology sector “is
comfortably on track to become a $100 billion revenue
industry before the end of the decade,” said Glen
Giovannetti, Ernst & Young’s global biotechnology
leader, in a press release.
And the
signs point in that direction: In 2006, global public
biotech company revenues surpassed the $70 billion mark
– a threshold heretofore uncrossed.
US
Biotech: A Hair Trigger Away From Profitability
Last year
was truly monumental for US biotech firms in their pursuit
of bona fide
profitability. If not for the more than $4 billion in
acquired in-process R&D charges related to the
year’s record-breaking deal activity (see
below), the US publicly-traded sector would have
shown an aggregate net profit for the first time.
Amongst
the highlights from 2006, capital raised increased by 38%,
and US revenue increased 13% to $59 billion. On a
worldwide basis, capital raised increased by 42%, to $27.9
billion.
Deals,
Deal,
Deals
… 2006’s Hallmarks
Alliances
struck during 2006, involving US companies, totaled an
unprecedented $23 billion. For the overall global biotech
industry, the average premium in M&A transactions with
values over $500 million increased to 60% in 2006 –
catapulting last year’s M&A values to the
second-highest level in the industry’s history.
In an
interesting trend reversal, biotech’s pharmaceutical
buyers showed a preference for early-stage platforms and
technologies last year.
But even
better, the trend is not likely to wane: An Ernst &
Young survey of over 400 biotechnology CEOs found that a
whopping 99% of Americas CEOs, and 87% of European CEOs,
plan to enter deals within the next two years. Moreover,
more than half of CEOs plan to partner in order to bring
new products to market.
European
Biotech Is Gaining Traction
The
European biotech sector is experiencing a ground swell of
heightened productivity. But just a few years ago, in
2003, it recorded a 12% revenue decline.
Since
then, it has made pivotal progress: In 2006, its revenue
grew 13% – more than twice the 2005 growth rate – to
$16.6 billion. Yet perhaps an even bigger story is the
landmark level of financing enjoyed by European biotechs
in 2006, which increased by 45% to reach $5.9 billion.
Indeed,
venture capital financings set a record at $1.9 billion.
Worldwide, venture capital reached a previously unachieved
figure of $5.4 billion.
The
Rub?
So is
biotech’s upswing accompanied by a dear price?
“Maturity
brings greater responsibilities, including greater
regulatory challenges and heightened investor scrutiny,”
said Giovannetti.
That is,
arguably, true enough. But if 2006 is any indication, the
world’s biotech industry is ripe for the challenge.
Copyright
2007, Cambridge Healthtech Institute. All Rights Reserved.
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