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Volume 87 Issue 19 | p. 9 | News of The Week
Issue Date: May 11, 2009

Biotech Outlook

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

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.

 
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