For biotechs, it's business as usual-So said Mr Glenn Giovannetti,
Global Biotechnology Leader at Ernst & Young. He was assessing the
impact of economic downturn and the approaches biotech firms are using
to remain afloat and make a dash for growth. The context: He was
chairing the session on: “Biotech: The New Normal” at the world's
largest biotechnology event BIO International Convention 2010 (May 3-6,
2010) at McCormick Place in Chicago, US.
Overall, last year has been very tough. In the US, 50 publicly traded
companies went bankrupt for lack of access to capital. However, biotech
industry has weathered the storm and stands pretty much in good shape.
“Biotech stocks have outperformed virtually every other index in the
first quarter of 2010 and the Nasdaq Biotech Index has climbed back to
a point even higher than it was when the market peaked in 2007. The
markets are coming back and biotech has come back faster and stronger,”
said BIO President and CEO Mr James Greenwood.
The “Oracle of biotech industry”, Mr G Steven Burrill, at his customary
90-minute address echoed the same sentiment. According to Burrill, the
most remarkable development was the fact that in such a tough year US
biotechnology companies raised over $55 billion ($18 billion in
financing and $37 billion in partnerships), and saw an increase in
market capitalization of over 21 percent. Today, 56 of the 312 publicly
traded biotech companies have a market capitalization of greater than 1
billion. The year before 49 biotechs made the cut to billion dollar
club. What's even better is that these successes were not limited to
traditional segments such as industrial biotechnology.
Just compare this with the traditional big pharmaceutical firms. Over
the last 10-year period big pharmas have lost 51 percent ($516 billion)
in market capitalization and total financial returns for several
companies such as Eli Lilly, Pfizer and Merck was negative over this
In the changing business environment the companies that will be
successful are the ones that adapt fast. Take a look at what all has
changed in the last couple of years-pharma industry blockbuster model
has run its course; industry is restructuring and refocusing; Emerging
markets (BRIC plus MENA) have trumped traditional markets
(US/Europe/Japan); Technology and what it is enabling is redefining the
world. Nobody has any doubts that by 2020 the future will be very
different from today. Just what exactly will it be, is what everybody
is grappling with. The biotechs at this point have to contend living
with the “New Normal”.
So, what is this “new normal”?
While industry analysts agree upon that biotech companies in the US,
Europe and Canada have raised more capital in 2009 than for the
corresponding period in 2008 a significant portion of this was raised
by a handful of established public companies via follow-on offerings.
Access to capital remained scarce. Emerging companies with early stage
projects continue face the same challenges. In fact, they face the same
set of challenges even more intensely in today's business environment.
On top of that IPOs are not what they used to be.
After plummeting down during the financial crisis, IPOs are beginning
to come back in the US with about seven companies having IPOs in 2010.
However, the amounts raised were much less than what similar IPOs had
commanded prior to 2008, and the share price for more than half of
these companies had dropped from 1-22 percent from the offering
price. Even though, another six biotech companies are set for
IPOs in 2010.
Adapt = Success
According to Mr Burrill, the key to success, in this changing business
environment is adaptation. “It is not the strongest of the species that
survives, nor the most intelligent, but the one most responsive to
change.” Drilling this core message, originally made famous by Charles
Darwin, Burrill recapped the environment for the industry leaders.
Adapting for success essentially involves being aware of the direction
changes are taking place and aligning with these. Healthcare reforms in
the US, which currently is more of an insurance reform; emerging
markets which are changing the global focus; regulation on genomics
which is probably slowing the pace and above all technology which is
constantly evolving dynamically changing the way healthcare is
delivered and throwing up many possibilities with a great potential to
affect the quality of life, the world over.
Key changes that businesses can look
• Continued impressive developments in science/technology-More genomes
sequenced, human genome sequencing will become affordable.
• Regenerative medicines/stem cells will see real progress;
consequently personalized, predictive, preventative medicine will also
progress; Antibodies vaccines will be big;
• Regulatory world more complex, more international-Pharmacovigilance
and cost effectiveness will acquire more importance; manufacturing/QC
issues will spur action;
• Growth of generics/ biosimilars
• Dramatic changes in pricing/reimbursement on Rx side; Dx generating
• Global markets increasingly important-China/India/Brazil (and all of
Latin America), MENA
• Bio pharma consolidation continues evolution from vertically
integrated to more virtually integrated; more distribution focused
• Biogreentech is hot
• Funding world improving-Capital is available, but expensive and
demand overwhelms supply of capital
• Increased globalness-arbitrage value difference
• Technology convergence is driving the way healthcare is
delivered-making a difference on many fronts and this integration is
something businesses need to look at as an opportunity to deliver
better products. According to Burrill, essentially, a focus on
delivering for the future is required. The businesses that will survive
and succeed are the ones that will adapt and respond to these
developments in their environment with speed.
Nandita Singh in Chicago, US
|Some interesting facts
|When Roche bought Genentech, it was valued at $100B,
and Pfizer was $91B
|• Today's market caps:
| • Roche $142B
| • Amgen $56B
| • Gilead $43B
| • Pfizer $145B
| • Bristol Myers Squibb – $49B
| • Eli Lilly $40B/ Bayer $39B
| • The top 5 pharma companies
have lost 15% of their market capital in the last five years
| • Biotechs have appreciated
22% from market lows in March
| • 312 biotechs are publicly
traded on major US markets today with an
cap of $356 (In 2009, 356 companies, $391B
| • 56 of those have market
caps greater than $1B (2009 – 49)
| • 10% are trading below their
cash level (70 companies 12/31/08, ~20%)
| • 40% have a market cap below
$100M (2009 – 38%)