May 11, 2009

Volume 87, Number 19

p. 9

Biotech Outlook

As access to most types of capital disappears, industry consolidation is likely in 2009

Rick Mullin

ALTHOUGH the global biotechnology industry fared well in 2008, the recession is likely to spark consolidation in the year ahead as traditional sources of public funding go into long-term decline.

Thus states Ernst & Young's annual report on the industry. The consulting firm found that revenues of publicly traded biotech firms grew 12% to $90 billion in 2008. The global industry's net loss shrank from $3.0 billion in 2007 to $1.4 billion last year, and the U.S. industry reached aggregate profitability for the first time.

Capital raised by publicly traded firms in the U.S. and Europe declined by 46%, however, to $16 billion in 2008. Funding for initial public offerings fell 95% to $116 million; other forms of public funding also dropped off almost entirely. Venture capital funding, on the other hand, remained relatively strong last year, falling only 19% from 2007's all-time record of $6 billion.

Glen T. Giovannetti, who coauthored the report, says Ernst & Young uncovered a spike in the number of companies that have less than a year's worth of capital on hand. This is a concern, he says, given the difficulty these firms will now have in raising capital through the usual venues.

The annual report has consistently found 20–25% of public biotech companies with less than a year's worth of capital on hand, but Ernst & Young counted 44% of them in this position in 2008. Giovannetti estimates that that number has since risen to more than 50% and that the sector could shrink by as much as a quarter during the downturn.

Chemical & Engineering News

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