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7-Business: Biotech industry could turn profitable this decade



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TITLE:  Biotech Industry Could Turn Profitable This Decade
SOURCE: Dow Jones Newswires/The Wall Street Journal, USA
        by David P. Hamilton
        http://www.quicken.com/investments/news_center/story/?
        story=NewsStory/dowJones/20030612/ON200306120120000295.
        var&column=P0DFP
DATE:   June 12, 2003

--------------------- archive: www.gene.ch/genet.html --------------------


Biotech Industry Could Turn Profitable This Decade

SAN FRANCISCO -- The U.S. biotechnology industry could turn a net profit
within five to seven years if it gets a break on both regulatory and
technological fronts, the author of a new report on the industry said.

Profitability would be a first for the quarter-century-old biotechnology
industry, which is dominated by money-losing companies that can take a decade or
more to develop their first products. Only about 50 of the 318 public U.S.
biotechnology companies were profitable in one of the last three years, and of
those only about 20 reported sustained profitability in all three years,
according to data in the report from Ernst & Young, titled "Resilience: Americas
Biotechnology Report 2003."

In 2002, in fact, the entire U.S. biotechnology industry racked up a
collective net loss of $11.6 billion - a 71% increase over the $6.8 billion net loss
it posted the previous year. But Michael Hildreth, E&Y's biotechnology
director for the Americas, said that rising net loss was inflated by restructuring
charges in 2002, and argues that favorable trends will soon buoy the
industry to overall profitability.

E&Y's industry-profit figures include both restructuring charges and
writeoffs related to so-called in-process research and development, Mr. Hildreth
noted. Setting aside those charges, the industry's 2002 net loss would be
roughly the same as its 2001 net loss, he said.

Mr. Hildreth said that several other trends fuel his optimism. U.S.
biotechnology revenues have increased at a compound annual growth rate of 16% since
1989. Revenues rose 14% in 2002 in the midst of the industry's three-year
slump. In addition, he noted, the industry has 250 experimental drugs in late-
stage, "phase III" human trials. Even if only one in four of those drugs are
approved, he said, "you would expect to see revenue growing significantly
between now and the end of the decade."

But the industry will need some lucky breaks in order to eventually break
even, Mr. Hildreth admits. For instance, he expects drug development to become
faster and more efficient thanks to advances in genomics and proteomics over
the last few years, although he admits that so far such efficiency gains are
" promises" rather than a hard fact.

Mr. Hildreth warned that the industry will require some favorable regulatory
decisions as well. In particular, he noted that the Food and Drug
Administration will need to approve new drugs more quickly and Medicare must avoid
crimping drug prices by clamping down on its reimbursement policy. The industry
could also be adversely affected if the FDA permits competition from
"biogeneric" drugs as leading biotech medicines lose their patent protection.

"Personally, I'll be surprised if the industry isn't overall profitable in
the next five to seven years," Mr. Hildreth said. His prediction, however,
isn't stated explicitly in the E&Y report. Mr. Hildreth said the omission was
mostly due to publication deadlines, adding that the firm would continue to
track the industry's progress toward profitability and might include the
information in future reports.

For now, the E&Y report paints a mixed picture of the industry. Its data
show that venture-capital funding in biotechnology declined in 2002 for the
second year in a row, but also noted that each such deal raised an average of $15
million - far more than similar deals yielded in the 1990s. The report also
noted that a full third of public U.S. biotechs had less than a year of cash
on hand at the end of 2002, a level not seen since the end of the industry's
last slump in 1999.

 

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