Biotech Industry Revenues Surpass $60 Billion According To Ernst & Young

Boston, MA - In the 20th anniversary edition of Beyond Borders: The Global Biotechnology Report 2006, Ernst & Young reports that the revenues of publicly-traded biotechnology companies surpassed $60 billion for the first time in the sector's 30-year history.

"The global biotechnology industry's revenues are growing at strong rates, product approvals are bringing innovative drugs to market, and the long-elusive goal of profitability is quickly approaching," said Donn Szaro, leader, Global Biotechnology and Pharmaceutical sectors, Ernst & Young.

Strong Performance and Growth
By virtually every performance indicator, the global biotechnology industry showed robust growth in 2005. Significant global milestones include:

• Revenues of the world's publicly-traded biotech companies grew 18 percent in 2005, reaching an all-time high of $63.1 billion.
  
• As revenues increased, the industry's net loss decreased by a dramatic 30 percent, to $4.3 billion. The United States, Canada, and the Asia-Pacific region collectively improved their bottom line by about $3 billion.
  
• The industry secured 32 new product approvals in the United States, including 17 first-time approvals.
  
• The pipelines of Europe's publicly-traded biotech companies increased by 28 percent, with the strong growth in late-stage development.
  
• The global biotech industry raised $19.7 billion in capital in 2005, its second highest total since the bubble of 2000.

"Since our first report 20 years ago, we've seen historic scientific advances and dramatic changes in market conditions combine to produce a rapidly maturing industry," said Szaro. "Companies from around the globe are pioneering new technologies, platforms, industry segments, and business models."

Deals, Deals, Deals
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 to 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 an all-time high of 66. China and India continued to attract attention and deals, motivated by the desire to increase access to these large and growing drug markets, and by the need to lower the costs of drug development. The number of deals in vaccines was energized by concerns around the avian flu, SARS, and biodefense 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 Szaro. "There was unprecedented consolidation among Japan's largest pharmaceutical companies, as well as noteworthy deals across the region."

U.S. Sector Strong and Stable
For the third consecutive year, the U.S. biotechnology sector has 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, which grew by about 16 percent. The industry continues to approach profitability as net loss as a percentage of total revenue fell to 4 percent in 2005, the first time the ratio has dropped below 5 percent.

"Demonstrating to investors the ability to maintain consistent growth represents real progress for a sector long characterized by boom and bust financing cycles," said Mike Hildreth, leader, Americas Biotechnology Sector, Ernst & Young LLP. "Capital markets thrive on predictability. The markets demanded product focus, and biotechnology companies have delivered. With continued product focus and discipline, the U.S. industry could achieve aggregate profitability in the near future."

European Market Back on Track
The year 2005 saw the European sector finally emerge from a lengthy restructuring period. Public company revenues increased by 17 percent in 2005, compared to a 5 percent decrease in 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 €3.2 billion ($4.0 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 8 in 2004, and the aggregate capital raised in 2005 reached €560 million ($691 million), up from €291 million ($359 million) in 2004.

"The European market had its best showing in years, with double digit revenue growth and the second-strongest financing year on record. While the European recovery has taken longer than that of the U.S., with continued focus the success of 2005 can now be leveraged into sustainable growth and the creation of a profitable industry in the years to come," said Siegfried Bialojan, Industry Leader, Health Sciences Germany, Ernst & Young AG.

Strong Competition and Aggressive Growth Drive Asia-Pacific
The biotechnology sector's growth in the Asia-Pacific region outpaces its performance in other parts of the world. The sector recorded a scorching 46 percent increase in revenues. 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 break-even point as well. Competition is stiff, as Asian governments 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 protections. Countries are beginning to distinguish themselves by focusing on competitive niches in such segments as contract research and manufacturing, vaccines, information technology and bioinformatics, traditional medicines, and stem cells.

"Asian biotechnology executives and policymakers are focusing strategies toward strategic niches in their efforts to remain competitive," said Utkarsh Palnitkar, Industry Leader - Health Sciences, 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."

SOURCE: Ernst & Young