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EUROPEAN BIOTECH- SURVIVING THE STORM

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					Press release, Wednesday 7th May 2003 EUROPEAN BIOTECH IS SURVIVING THE STORM SECTOR SURVEY OF 2002 SHOWS REVENUES AND EMPLOYEE NUMBERS FALLING FOR THE FIRST TIME Brussels, 7th May 2003 – Ernst & Young publishes the results of its 10th Annual European biotech report ‘Endurance’. This international survey shows an overview of the development and trends in the European biotech sector in 2002. The report reveals that after a decade of 3040% year on year growth in revenues and 10-20% increases in employee numbers, the European biotech sector stalled in 2002. Revenues fell by 2% to 12.9 billion euro and employee numbers fell by 6% to 82,100. Belgium occupies with its 69 biotech companies the 9th position within Europe after biotech countries as Germany, the UK, France and Sweden. In 2002 Belgian and European venture capitalist invested approximately 30 million euro in Belgian biotech entreprises. Collapse in Equity markets drives increasing focus on revenues and profits Dr Glenn Crocker, lead author and editor of the report explains the impact of the economic downturn, “The 50-60% decline in biotech company valuations over the past year has had dramatic knock-on effects throughout the industry. Only 123 million euro was raised by European biotech companies on the public equity markets in 2002, compared to 5.5 billion euro just two years earlier.” The current hostile financing environment is forcing companies to radically rethink their strategies, and Ernst & Young predicts that as the divide between the haves and the have-nots continues to widen, further fall-out in the sector can be expected over the coming twelve months. However this is a cycle that has been experienced several times already in the US and will result in a stronger and more robust industry in Europe. Venture capital investments in biotech start ups only 35% Pol Fivez, Partner Ernst&Young Biotech Belgium says: “Venture capitalists are being forced to continue to fund their later stage portfolio companies at a point when the public markets would otherwise have taken over, resulting in a dramatic reduction in the amount of funding being received by start-up companies; down from around 70% of total funding in 2000 to 35% at the end of 2002. Biotech companies received 26% of all European venture capital investment in 2002. In Belgium approximately 30 million euro of all venture capital investments were made in biotech companies in 2002.” A new sense of realism is entering the sector. Fivez adds, “The days of the long-term loss making biotech business are over. In order to become less subject to the whims of the equity markets, biotech companies must develop strategies based on early revenues and profits. Investors will now rarely fund a business with a 5-10 year delay until it receives its first income.”

Key findings from the annual report include:

Facts  The 10-20% growth rate in the number of biotech companies in Europe of recent years has stalled, with no growth in 2002. The number of employees has fallen by 6% to 82,124 and total revenues have fallen by 2% to 12.9 billion euro in 2002. The first falls in the history of the industry. The number of profitable biotech companies is increasing and the average loss per public company has halved over the past 4 years to 7 million euro (excluding Elan‟s massive swing from a 0.3 billion euro profit in to a 2.4 billion euro loss in 2002). The amount of investment in biotech companies has fallen from 6.7 billion euro in 2000 to just 1.2 billion euro in 2002. There were only three biotech IPOs in 2002, compared to nearly 40 in 2000

Comments  Although painful for individual businesses, the fittest companies will survive and the industry will emerge stronger as a result. Companies are cutting costs and withdrawing from non-core activities to make dwindling cash reserves last longer. Investors are looking for revenues and profits in biotech businesses now. All the top 10 European bioscience companies in 2002 have product sales and 8 are profitable, compared to 5 with products and 4 profitable companies in 1997. Venture capital investment remained strong, at 1.1 billion euro, the third highest year ever. Biotech companies received 26% of all European venture capital investment in 2002, the joint highest proportion along with the Software sector. Cash constraints and political and economic uncertainty has meant companies are reluctant to enter into binding, potentially cash-depleting transactions. US companies are looking mostly within their own borders for any opportunities. The Swiss biotech industry was most active in this area and has become one of the most attractive sectors in Europe. Despite the harsh environment companies are continuing to develop innovative products. A potential tidal wave of product successes is building up, which could transform the industry. Cash constraints could hamper success.

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The level of merger and acquisition activity within the sector has dropped to just 29 deals, the lowest level since 1998, with transatlantic deals suffering the sharpest decline, down 50%.

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Europe‟s public biotech companies now have 53 products in phase III clinical trials.

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European governments still backing biotech Biotech remains highly popular with governments throughout Europe and attempts continue to be made to stimulate the industry locally. There has been a shift away from loans and similar “soft” funding however, towards a restructuring of tax systems intended to encourage entrepreneurial activity and investment.

Ernst & Young believe the industry does still face regulatory challenges and must also address public opinion in areas such as genetically modified organisms and stem cell research, where there is little European unity. Challenges still also remain in areas such as patent protection, drug pricing policies and the drug regulatory approval process. All of these could hamper the ability of the industry to reach its full potential. The future is bright The current downturn is deeper than those in the past, but it is still part of a regular feast and famine that the industry undergoes. Despite the current hardships, Glenn Crocker believes the future remains a very bright one for the biotech industry in Europe. “The size of the European biotech industry is roughly equivalent to that of the US around 1994/95, a time when the sector was going through another of its down cycles. Since then, the US industry has grown more than three-fold. This is the potential future that awaits the European industry when the current storm subsides”. Scope and methodology of the report The report covers only entrepreneurial biotechnology companies. These are defined as companies that use modern biological techniques to develop products or services to serve the needs of human healthcare or animal health, agricultural productivity, food processing, renewable resources or environmental affairs. Medical device and large pharmaceutical companies („big pharma‟) are excluded from the scope of this report. Data for the report was collected using a range of methods employed by Ernst & Young‟s European network of industry professionals. Financing and deal data were obtained from VentureOne, BioCentury, BioWorld, web sites, media and from discussions with funders and companies. Company financial data were obtained from press releases and filed accounts and/or from surveys in certain countries.

For further information please contact: Ernst & Young, Christophe Ballegeer, 02/774 90 07, e-mail: christophe.ballegeer@ey.be. Website: www.ey.be.


				
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