Strong product pipelines and “unprecedented deal activity” have led to “historic industry advances” in the biotechnology sector, according to Ernst & Young.
The consultant group made the claims as it presented its Beyond Borders: Global Biotechnology Report 2007 at the BIO 2007 convention in Boston, USA, and Glen Giovannetti, E&Y’s ‘global biotechnology leader’, noted that the industry in the USA has never been stronger and we’re seeing its success story spreading to other parts of the world — particularly Europe.”
The report noted that “by virtually every performance indicator”, the industry showed robust growth in 2006. Deal values soared, with alliances involving US companies totaling $23 billion — an all-time record — while high premiums (the difference between the price per share paid by a buyer and the company’s share price before the deal was announced) drove the value of mergers and acquisitions to the second-highest level in the industry’s history.
Capital raised by the world’s biotechnology companies grew by 42%, to $27.9 billion and venture capital reached $5.4 billion, an all-time high. Global public company revenues crossed the $70 billion threshold for the first time, with double-digit growth being achieved in Canada (22%), the US (14%) and in Europe (14%) and net losses of biotech firms fell by 37% in Europe and 43% in Canada, “creating momentum toward profitability. E&Y also noted that US product approvals increased from 33 in 2005 to 36 in 2006. New Drug and Biologic License application approvals grew from 21 to 25.
The report also noted that “intense competition, particularly among pharmaceutical buyers, created a robust deal environment in 2006,” and several companies in the USA were acquired for premiums in the 50% range, “with some crossing the 100% threshold.” Also, in a reversal of recent trends, “pharmaceutical buyers gravitated towards early-stage platforms and technologies,” the study stated.
On this side of the Atlantic, the European biotech sector sustained the recovery it had begun in 2005, with revenue growth of 13% — more then twice the 2005 growth rate of 6% — contributing to revenues of 13.3 billion euros, marking a four-year turnaround from the 12% turnover decline recorded in 2003. Financing increased by a robust 45% to reach 4.7 billion euros and VC financings reached an all-time high of 1.5 billion euros.
The pipelines of publicly-traded companies grew 30%, bringing the overall number to almost 700 compounds, plus 27 in registration and awaiting regulatory approval. In addition, Europe’s privately-held biotechs have nearly 800 compounds in their pipelines, and 12 compounds in registration, E&Y said.
“Maturation brings greater responsibilities, including greater regulatory challenges and heightened investor scrutiny,” Mr Giovannetti said. “Despite these challenges, the biotechnology sector still holds great promise for innovative companies and is comfortably on track to become a $100 billion revenue industry before the end of the decade.” He concluded by noting that “time will determine whether these trends will be sustained, but there’s reason for optimism. Innovation is being rewarded with record revenues and unprecedented premiums in M&A transactions.”
Picture less rosy for emerging companies
However, E&Y also noted that the funding gap for preclinical and early stages of clinical development is “still a persistent roadblock for many emerging companies,” and it has become difficult for VCs to fund discovery-stage research and make the economic model work. The report also noted that the traditional model of venture capitalists funding a company from discovery through to an initial public offering “is under pressure, if not broken”.
Commenting on this part of the report, Aisling Burnand, chief executive of the UK’s BioIndustry Association said that “although 2006 saw some bioscience companies making headline grabbing deals, the general funding environment for early-stage companies remains challenging.” She added that “if we are to secure the future of the bioscience industry in the UK, these companies will need to find alternative sources of funding until venture capitalists are prepared to invest.”
These could include government grants and incentives to help
early-stage companies reach proof of concept, Ms Burnand argued, saying that other countries, such as France, India, South Korea and the USA, “are investing heavily in their bioscience industries. For the UK to maintain its lead in Europe, we must develop innovative funding solutions.”
