Biotech Product Approvals at an All-Time High

Contents
Introduction
Technology Advances Soar
Financing Down, Alliances Up
Public Policy Making Headlines
Change in European Biotech Landscape

Introduction (Back to Top)
A report issued by the professional services firm Ernst & Young LLP (San Francisco) points to a record growth in the number of biotechnology product approvals during 1998. According to the Ernst & Young 13th Biotechnology Industry Annual Report, Bridging The Gap ‘99, the FDA approved 24 new biotech products in 1998, and growth is likely to continue with over 300 products in pivotal stage trials, double the amount in 1997.

Product sales exceeded $13 billion, a 17% increase over the prior year with total industry revenue of $18.6 billion. The 24 industry drug approvals represents a twelve-fold increase since 1994, with antibodies leading the recent string of successes.

Biotech companies now have over 1,200 product candidates in clinical trials, up from approximately 700 last year. In November 1998, the FDA pace accelerated with the approval of three products in a single day. "With over 80 biotechnology drugs on the market, the industry is addressing the plethora of medical needs, significantly improving the quality of life for many people," said Scott Morrison, the report co-author and an Ernst & Young Life Sciences partner. "The accelerating pace of discovery and a rapidly aging population with associated healthcare demands, ensures that biotechnology will be a leading industry in the next century."

Technology Advances Soar (Back to Top)
Aggregate research and development expenditures approached $10 billion, an increase of over 16% from the prior year. New technologies hit the newsstands with a bang in 1998 as the rapid acceleration of the Human Genome Project grabbed the headlines. The project report predicts that sequencing the complete human genome may be one of the most significant milestones for the biotechnology industry. Research has shown that genetic data may be of limited use without the knowledge of a gene's protein products, and so technologies are beginning to bridge the gap between gene and protein.

Pharmacogenomics continued to gain acceptance as a model for drug development in the future with the potential to significantly shorten development times by capitalizing on advances in genomics and bioinformatics technologies.

"The allure of the pharmacogenomics model is clear," says report co-author and Ernst & Young Life Sciences Partner Glen Giovannetti. "As a greater knowledge of the compound's efficacy in subsets of patients increases, so does a company's ability to achieve greater success in the clinic. An enhanced ability to predict clinical outcomes could shorten development cycles and improve product economics."

Financing Down, Alliances Up (Back to Top)
The equity markets cooled off by posting their worst performance in years in 1998. The $2.8 billion raised in the latter half of 1997, and the $2.6 billion in the first half of 1998, helped to mask the growing weakness in the public equity markets. Few significant public financings were completed in the second half of the year. In fact, a significant gap emerged as investors appeared unwilling to recognize and reward the value being created in smaller capitalization companies during the development process of a product.

"Over 200 of the 327 public companies tracked by Ernst & Young had market valuations of less than $100 million. It has become apparent that there is a fundamental shift in investor interest," noted Kenneth B. Lee, Jr., a senior advisory partner in the Life Sciences Practice of Ernst & Young and a partner in the firm's Center for Strategic Transactions. "Structural changes on Wall Street and a need for greater liquidity among investors in a volatile market have recently driven many institutional investors from all but the largest biotech companies. This phenomenon seems likely to be the driving force for financing and transaction strategies of a significant portion of the industry."

Public Policy Making Headlines (Back to Top)
The passage into law of the Food and Drug Administration Modernization Act (Fdama), in addition to the reauthorization of the Prescription Drug User Fee Act (Pdufa), put the finishing touches on what was arguably the year's single most productive area for the biotechnology industry. These implementations affect the industry positively with continued reductions in drug approval times and developments on fast-track drug approval status.

Cloning continues to be a contention among members of the industry and is likely to remain the subject of legislative debate for some time. The developing technologies in 1998 raised awareness of such issues as the fact that genetic data may become a commodity for families with therapeutically important genotype.

Change in European Biotech Landscape (Back to Top)
Europe's biotech landscape witnessed dramatic change with such Continental European companies as Innogenetics (Ghent, Belgium), Qiagen (Venlo, The Netherlands), Genset (Paris), and NeuroSearch (Glostrup, Denmark) emerging to demand equal recognition as large market capital companies. By contrast, the BioCentury London Index of leading U.K. bioscience companies declined dramatically (almost 50% by June 1998). Several companies lost chief executives and many U.K. biotech companies were trading close to their cash levels as investors assigned no value to the technology.

This lack of enthusiasm was reflected in London's IPO market, where only three companies completed offerings. On the other hand, the small supply of biotech stocks compared to investor demand meant that continental firms listed on domestic exchanges did not have to struggle to find buyers.

For more information: Krista C. Gulbransen, Ernst & Young, 550 California St., Suite 1100, San Francisco, CA 94104. Tel: 415-951-1224. Email: krista.gulbransen@ey.com.