The State of Biotech

WASHINGTON, D.C.--Investors have strayed from technology stocks in the past few years, but despite the limited capital good times are ahead, thanks to strong science. That's the message from a new global overview of biotech by the consulting company Ernst & Young. It was released here 24 June at the Biotechnology Industry Organization (BIO) annual meeting.

Beyond Borders: The Global Biotechnology Report 2003 gives a snapshot of the industry in 2002. During that year, more than 300 products were in late-stage clinical testing, a 50% increase over 2001, according to Ernst & Young health sciences analyst Jürg Zürcher. Research and development expenditures rose 34% to $22 billion. Revenues for the estimated 4362 public and private companies worldwide were up 15% in 2002 to $41.3 billion. But Zürcher acknowledged that there were signs of trouble. Net losses climbed 116% to about $12 billion. And one-third of the 318 U.S. public biotech companies, and 20% of the 102 European public companies, had less than 1 year of cash on hand.

Illustrating the danger, the company that helped clone Dolly the sheep is fighting for survival. PPL Therapeutics of Midlothian, Scotland, announced on 18 June that one of its two main potential products had fallen through. In response, PPL says it will lay off up to 140 of its 165 employees and will scrap plans for a $70 million manufacturing plant.

The report predicts that the industry as a whole will be profitable by 2007 or 2010, but some CEOs say that overall profitability isn't key to sustaining the sector. Blockbuster products will help some companies grow and draw more capital, says Jeffrey Bird, a partner at Sutter Hill Ventures, adding that biotech will always be a high-risk, high-reward business. Industry CEOs agree with the Ernst & Young report that discovery does not seem to be a problem. "There's more good science out there than you can shake a stick at," says James Howard-Tripp, president and CEO of the Canadian company Labopharm.

With reporting by Gretchen Vogel.

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