Biotech industry in shape to endure slump, study says

Fund raising in 2000 left nice nest egg, Ernst & Young finds

October 05, 2001|By Julie Bell | Julie Bell,SUN STAFF

The biotechnology industry entered 2001 "in the strongest financial shape in its 25-year history" thanks to fund raising last year, positioning it to weather an economic slowdown that has made raising money on Wall Street all but impossible, according to Ernst & Young's annual report on the sector, released yesterday.

"The window has shut," E. Rene Salas, senior manager of the accounting firm's life sciences practice, said about the drastically narrowed opportunity to raise money through the stock market. "But balance sheets have never been stronger."

The $33 billion raised on Wall Street last year was more than biotechnology companies had raised in the previous five years combined, the report said. The additional money meant 54 percent of publicly traded companies had at least three years of cash on hand at the beginning of this year - and 42 percent had more than five years' worth, the report said. By comparison, 55 percent of publicly traded biotechs had less than two years' worth of cash in 1999, and nearly 36 percent had less than a year's worth.

The report, released amid a sharp slowdown in the pace of venture capital deals and one in which initial public offerings have come to a virtual standstill, nonetheless painted a bright picture of a maturing biotechnology industry. Last year, 60 of the 339 public biotechnology companies reported a profit, the report said, while sector revenues jumped to $25 billion from $22.3 billion in 1999. In 1996, revenues were $13 billion.

While venture capital deals have slowed overall, the report said the struggles of information technology companies have prompted investors to look more closely at biotechnology companies. The biopharmaceutical and health care sector accounted for 9 percent of the $71.4 billion in venture capital financing last year and is likely to make up a double-digit percentage this year, the report predicted.

Ernst & Young predicted a continuation of mergers and acquisitions within the industry, noting that cash-poor companies that had failed to raise enough money before the economy dipped will be looking for suitors. That was evident yesterday at BIO VentureForum, the two-day Washington conference at which Ernst & Young released the report. There, young biotechnology companies courted venture capitalists and each other.

"We've been approached by companies that were folding," said Michael G. Palfreyman, president and chief scientific officer of Gaithersburg-based Psychiatric Genomics Inc., though Palfreyman said his 1 1/2 -year-old company wasn't interested.

While consolidation and startups kept the number of biotechnology firms relatively constant during the past decade - 1,379 last year - the number of employees more than doubled, from 80,000 in 1993 to 174,000 in 2000, the report said. Maryland companies continue to look for workers despite the slow economy, with more than 40 companies posting ads for a total of at least 230 jobs on an Internet site sponsored by industry organization MdBio.

For the first time, the Ernst & Young report also contained detailed regional breakdowns. According to the report:

Maryland ranked third among the states last year in number of biotechnology companies, with 84. California ranked first with 403, and Massachusetts was third with 197. The firm's definition of a biotechnology company encompasses only those that make drugs or craft technologies that enable drug development.

Also, Maryland ranked second in the number of biotechnology companies per million residents with 15.86. Only Massachusetts had more companies per million, with 31.02.

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