Sweeping Changes Ahead for Biotech, Says Ernst & Young

The global biotechnology industry achieved record levels in financing and deal making in 2007, as investors and strategic partners showed strong confidence in the sector amid tightening global financial conditions that will continue to test the industry in 2008.

The global biotechnology industry achieved record levels in financing and deal making in 2007, as investors and strategic partners showed strong confidence in the sector amid tightening global financial conditions that will continue to test the industry in 2008. These and other findings were highlighted in Beyond Borders: Global Biotechnology Report 2008, Ernst & Young’s annual report on the trends shaping the biotechnology industry.
Key industry findings described in the report include:

  • The global biotechnology industry had a very strong year on the financing front. Companies in the Americas and Europe raised more than $29.9 billion-a new high excluding the outlier genomics bubble year of 2000.

  • Venture financing reached an all-time high in 2007 with investment totaling about $7.5 billion, fueled by a record total of $5.5 billion in the US and 72% growth in Canada.

  • Global public biotechnology company revenue rose by 8% in 2007, crossing the $80 billion threshold for the first time. Absent the acquisition of several leading biotech revenue producers by Big Pharma, revenue would have increased by about 17%-in line with the industry’s historical compound annual growth rate.

  • The global industry’s net loss decreased from $7.4 billion in 2006 to $2.7 billion in 2007. In the US, the industry came closer to aggregate profitability than in any previous year.

  • Deal making reached new heights in 2007. In the US, the total potential value of deals announced during the year-including mergers, acquisitions, and strategic alliances-was close to $60 billion, outdistancing all other years by a wide margin. In Europe, the total potential value of such deals skyrocketed to about $34 billion.

While industry performance was strong on several fronts in 2007, emerging challenges have made the road ahead more difficult for many biotech companies. In the US, product approvals slowed, as safety concerns related to new and already approved products increased, and the US Food and Drug Administration (FDA) faced resource constraints. In the UK, growing pricing pressures brought the first-ever agreement by a company to refund a payor for the cost of treating patients that do not respond to its medication. In China, safety issues prompted a determined regulatory response. Meanwhile, the industry faces more stringent enforcement of numerous regulations-from sales and marketing rules to the US Foreign Corrupt Practices Act.

The Beyond Borders report also examines three key trends that are transforming business models and the nature of competition for biotechnology and pharmaceutical companies. The three trends examined include reinventing Big Pharma, the rise of personalized medicine, and globalization.

Ernst & Young release