Biotech firms somewhat upbeat

SAN FRANCISCO—Renewed strength in the financial markets and key product approvals are driving a restrained sense of optimism at the Biotechnology Industry Organization's annual conference here in California.Global industry revenues for public companies grew from $39.7 billion to $46.5 billion last year, and net losses improved by 65%, dropping to $4.5 billion from $12.8 billion, according to Ernst & Young's 18th annual industry report.Overall, industry employment grew 9% to more than 200,000, said Donn Szaro, Ernst & Young's global health sciences director. "We recognize the importance biotech has for the US economy and the global economy now," he said. Szaro said the aging of the Baby Boom generation and pressure on governments to reduce costs will continue to make biotech a critical part of the healthcare delivery system. "It is no longer just the research arm," he said.The number of publicly held companies dropped slightly from 619 to 611 in 2003, with more than half—314—located in the United States. The publicly traded US companies accounted for 90% of US biotechnology revenues of $35.8 billion. The number of privately held companies rose 3% to 3860 globally, according to Ernst & Young.William Powlet Smith, Leader of Ernst & Young's European life science practice, forecasted that the number of companies would decline with future mergers and a "flight to quality" by investors that will shake out weaker companies. "As the industry matures, we can expect a decline in the number of companies," he said. According to Ernst & Young's survivability index, which measures the amount of cash companies have on hand against the amount they are spending, 55% of US biotech companies can manage for the next 3 years. In Europe, only a third of companies have enough cash to survive for the next 3 years. "The US is showing the way," said Powlet Smith.Michael Hildreth, Ernst & Young's Americas Biology director, said the biotech boom of 2000 was fueled by interest in genomics and platform technology firms, while today's rebound is based in new products. "The pathway to success if driven by the product pipeline," he said, pointing to a 25% increase last year of products in the final phases of human testing to more than 400.After a 2-year dry spell, Hildreth noted that seven companies were able to go public last year, although the success of the offerings has been mixed. He said the public markets have not returned with anywhere near the strength of 2000. "There is a new austerity in the industry," he said.Biotech's greatest challenge, Hildreth said, will be to convince payers that its products are worth prices necessary to sustain continued investment. "The value story needs to be told," he said.Steven Burrill, chief executive of Burrill & Company, the San Francisco consulting and biotech fund management firm, also said a new generation of products, speedier regulatory review, and new enthusiasm among investors have strengthened the industry fundamentally. "Intrinsically, the industry's never been in better shape than it is today," he told The Scientist."The industry is much more broadly based than just healthcare," said Burrill, who was scheduled to present a report on the state of the industry today (June 8).Biotechnology is at an inflection point where it is poised to generate strong returns for investors who have suffered disappointing losses for years, Burrill said. He compared the industry to a person who has reached age 30 and, after passing through adolescence and a career-training period, is now ready to make a major contribution.Burrill warned, however, that the financial markets might retreat from biotech over US election year concerns or fears of another major terrorist attack on the scale of the Madrid bombing. "We have had robust capital markets, but they will continue to be choppy," he said.In another assessment of the biotechnology industry, Finnegan, Henderson, Garabow, Garrett & Dunner, a Washington, DC, law firm, released its 2004 Biotechnology Innovation Report, which found that the number of biotechnology and pharmaceutical patents has leveled off in the past few years, after rising sharply in the mid 1990s.Arie Michelson, editor of the report, said the firm's research comes up against the common perception that patenting has "run amok."The report also found a shift in the number of patents secured by the US government and universities to the private sector, with the exception of the University of California.Research on patent litigation showed that patent holders have a difficult time defending against US District Court lawsuits, losing at a ratio of 2 to 1. Lower court rulings were affirmed in 56% of biotech patent cases, while lower court decisions were affirmed in 82% of patent cases related to generic competition. "It's a big hurdle to get through the District Court if you are a patentee," said Michelson.

Biotech firms somewhat upbeat

At BIO, one report shows sector growth, while another finds that patents have leveled off

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