Biotech future remains bright
11/01/2003
The industry's recent struggles have created a smarter, leaner machine
By Chris Anderson
BOSTON—The coming boom in the biotech market is not without its short-term challenges, including the recession and the bottom falling out of both the public and private equity markets. The result has been a mild increase in merger and acquisition activity as larger, better-funded (usually public) companies look to R&D-focused private firms to fuel their growth and, in essence, cherry-pick the most promising emerging compounds.
Meanwhile, smaller biotechs have been forced to tighten their belts to preserve capital and, in some cases, re-focus their operations in other related areas to survive.
Others have reduced their R&D activity to focus on those efforts, most likely to gain FDA approval and get to market quickly.
Ironically, it's the struggles of the past few years that may ultimately lead the industry to greater health.
Poised for breakthrough?
"Based on the industry's revenue growth, more efficient product development, and belt-tightening in the face of the current cash crunch, the biotech industry as a whole could reach a major milestone within five years—its first profitable year overall since the industry began more than 25 years ago," says Michael Hildreth, Americas biotechnology director, Ernst & Young.
A quick look at the numbers shows how the industry is poised for this breakthrough. In 2002, global biotech revenue increased more than 15 percent to more than $41 billion.
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According to Resilience: Americas Biotechnology Report 2003, Ernst & Young's annual market report, the U.S. slice of that market totaled more than $33 billion. Still, because the industry is R&D-intensive, biotech posted an overall loss of $11 billion in 2002.
That's not to say all the players are weak. To the contrary, the report notes that 50 biotech companies posted profits in at least one of the previous three years and more than 20 posted profits each year from 2000 to 2002.
Further evidence of the potential in the market comes from recent FDA approvals. At press time, 22 product and indication approvals had been granted by the FDA this year, with another 371 in the pipeline at various stages of testing. These are in addition to the 179 biotech products brought to market since 1989, which increased industry revenue in 2002 by more than $4 billion.
Forging new business models
The next step for many R&D-focused biotechs is to prove that they can be just as successful at ramping up production to profitably bring their approved drugs to market.
To that end, Hildreth notes, recent deals between pharmaceutical companies and biotechs could be forging a new business model.
"The biotech industry is undergoing a radical shift," says Hildreth. "Companies are finding it more cost-effective to integrate virtually by forming networks of alliances through which each player contributes an essential element in the development of high-value products and shares in the rewards."
CHRIS ANDERSON is a special correspondent for CleanRooms. He can be contacted: at [email protected]