Biotech industry close to net profit

By Gregory Roumeliotis

- Last updated on GMT

Related tags Revenue Asia-pacific

For the first time in its 30-year history, the biotechnology
industry in 2005 surpassed $60bn (€49bn) in revenues according to
Ernst & Young's 2006 Global Biotechnology Report, an astounding
growth considering that in 1996 industry revenues amounted to
$9.1bn, which shows that thanks to strong sales, new products and
mergers, the long-elusive goal of profitability for biotech firms
is quickly approaching.

In 2005 the global biotechnology industry cut its net loses by a dramatic 30 per cent to $4.3bn, with the United States, Canada, and the Asia-Pacific region collectively improving their bottom line by about $3bn.

Europe saw a particularly impressive performance, as the pipelines of its publicly-traded biotech companies increased by 28 per cent, with strong growth in late-stage development.

Mergers and acquisitions in Europe reached an all-time high of 66, as the sector emerges from a lengthy restructuring period.

Also driving consolidation is the need for new products, since pharma had its biggest patent-expiration year ever in 2005, with an estimated $23bn worth of products losing protection, and recent safety-related product withdrawals have only added to big pharma's pressures.

"The European market had its best showing in years, with double digit revenue growth and the second-strongest financing year on record,"​ said Siegfried Bialojan of Ernst & Young's Health Sciences Germany.

"While the European recovery has taken longer than that of the US, 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."

In the US, the industry delivered strong product approvals and solid financial results, indicating signs of maturation, so continued focus could bring more product success, stable financial results, and predictable valuations, the report finds.

Furthermore, product success inevitably improved financial performance as stronger product sales boosted sector revenues, which grew by about 16 per cent.

"Capital markets thrive on predictability, they demanded product focus and biotechnology companies have delivered,"​ said Mike Hildreth from Ernst & Young's Americas Biotechnology Sector.

"With continued product focus and discipline, the U.S. industry could achieve aggregate profitability in the near future."

The best performance was seen in the Asia-Pacific region however, with a scorching 46 percent increase in revenues.

In particular, Australia's CSL boosted the country's biotech revenues by over 60 per cent, allowing the Australian biotech sector to reach profitability ahead of the US and Europe, and propelling the Asian sector to break-even point as well.

With Asian governments focusing on biotech as a strategic priority and foreign companies attracted to the region by growing drug markets, economic liberalisation and stronger intellectual property protections, competition is fierce.

Of particular interest is the specialisation of many companies there into sectors such 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 from Ernst & Young India.

"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."

With strong pipelines and continued product focus, future global growth could be every bit as strong, bringing new products to patients and solid returns to investors, the report concludes.

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