Biotech, The Incredible Swelling Industry - Pharmaceutical Executive

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Biotech, The Incredible Swelling Industry


PharmExec Direct

Biotech companies reached record heights of profitability last year--and while Big Pharma is still eyeing these shops hungrily, they'll have to pay higher prices to get the goods. A just-released report from Ernst & Young found that with last year's revenues from public biotechs exceeding $70 billion, the industry is "comfortably on track" to break $100 billion by the end of the decade.

While biotech stalwarts drove much of that growth, "they weren't the only story," said Glen Giovannetti, Ernst & Young's global biotechnology leader. "There's a spreading success for mid-tier companies."

The report, Beyond Borders: The Global Biotechnology Annual Report, calls 2006 the "year of the deal" but notes that no single mega-deal stood out. Still, the potential value of alliances reached a record $23 billion--a 69 percent jump since 2005--and the number of mergers and acquisitions was the second highest in biotech history. Moreover, the number of alliances with $500 million of potential revenue at stake would have been "unheard of even a few years ago," Giovannetti said.

Even though recent industry wisdom has been that it's more lucrative to be sold than to go public, investors have hardly gone into hiding. Biotechs last year raised $28 billion in public and private equity, up 42 percent over 2005. Only in 2000, a year that the report describes as the "height of the genomics bubble," did biotech raise more capital.

But with growth comes growing pains. In a survey of 400 biotech companies, Ernst & Young found that 99 percent of US firms plan to enter into a deal over the next two years. The top reason (cited by 72 percent of respondents) was to add sales and marketing prowess; while 47 percent of respondents already pitch their own products, that number will increase to 68 percent over the next two years. Fifty-four percent said their deals would deliver access to capital.

And the biotech industry can certainly expect its bullish season to continue. "Pharma will stay interested in acquisitions to help fill their pipelines," Giovannetti said. "The level of competition that's driving these prices--I don't see that going away. It's a seller's market--they have more bargaining power."

Biotechs are also getting more concessions from their partners, such as co-promotion and -manufacturing rights. "There's an increased complexity to these deals," Giovannetti said.

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Source: PharmExec Direct,
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