American biotech sector bounces back

A report from Ernst & Young shows a resurgence in the US biotech industry, with companies rebounding in dramatic fashion in 2003 and 2004 from a precipitous stock market decline that had left many facing severe cash shortages. Ernst & Young predicts that the industry should achieve the first net income in its 30-year history in 2008.

Company analysts say recovery is all about real products, life-saving medicines on the market; by mid-2004 there were 190 awaiting approval by the FDA, or in late-stage clinical trials. The surge, begun in the second quarter of 2003, strengthened in the first half of 2004 and the momentum, bolstered by more positive product news and an invigorated initial public offering (IPO) market, is expected to continue into 2005. Ernst & Young says the biotech industry has moved from technology-driven to product-driven: 'with a robust pipeline of products, the industry is on track year-after-year to set new standards of medical care and revenue growth.

'Biotech has achieved a critical mass of products. Companies are judged by higher sales, first-in-class approvals, and ground-breaking successes in Phase II and Phase III trials. Emerging technologies are valued for their contributions in creating products in the near-term.'

However, the company suggests that two things could affect biotech's pace of growth: the industry's response to pressure from governments around the world to contain drug costs; and from the public to limit some research because of ethical concerns. As the industry works toward profitability in 2008, government agencies will be critical in determining if it succeeds. Predictions on profitability will be affected by FDA product review and approval times and the reimbursement policies of individual countries.

Overall the industry has experienced its second best financing years in history: US companies raised $14.4bn in total equity financings, better than the pre-1999 years; European companies raised more than $2.6bn.

'The US biotechnology industry is clearly undergoing a resurgence and acceleration in productivity,' said Mike Hildreth, Americas biotechnology director, Ernst & Young. 'This growth, combined with a robust product pipeline, should continue to produce first-in-class therapeutic advances year after year. We believe that, for the first time in its history, the US industry will be profitable by 2008.

'Underpinning our projections is the fact that the biotech industry has a critical mass of products on the market and in late-stage clinical trials that are driving industry performance to a higher level of stability and predictability,' said Hildreth. 'Biotech's best days are still to come. It's an industry full of fundamentally sound companies creating essential products that will continually improve the health and quality of life worldwide.'