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Quantifying the Biotech Boom
New England asserts leadership position
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Business New Haven
11/13/2000
By: Michael C. Bingham
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Biotechnology will become this century's most dynamic industry - affecting disciplines from agriculture to chemicals, drug discovery to computer nanotechnology - creating platforms for new products and markets.
So says a new report, “Convergence: Ernst & Young's Biotechnology Industry Report, Millennium Edition.” Ernst & Young, LLP unveiled the new study at the CALBIO Summit October 31 in San Diego, Calif.
The report asserts that innovations and a convergence in finance, market sectors, technologies and products - as well as heightened public awareness - are breathing new life into biotechnology stocks. According to the study, in the first six months of 2000, 19 companies went public, raising $2.2 billion with an average of $114 million per initial public offering (IPO). In the same period, follow-on offerings for 27 companies raised an additional $7 billion. Notable among these was Genentech's late 1999 public re-offering, which raised $2.1 billion.
With regard to New England, the six-state region ranks second in the nation in biotechnology IPO activity, raising more than $600 million in IPO efforts in the 24 months leading up to June 30 of this year. Only northern California - with nearly $1.2 billion in IPO activity over the same period - outpaced the six-state New England region.
The “Millennium” report also reveals that advances in genomics are directly linked to a rise in biotechnology stock prices, spurring investment and IPO activity. For example, earlier this year Genaissance, a New Haven-based genomics company, raised $78 million in its initial public offering. This revelation contradicts Ernst & Young's 1999 report, which lamented that the market was severely undervaluing the biotechnology industry.
“For the full year ending June 30, market capitalization of the biotech industry was $353 billion, a 156-percent increase” over the previous 12 months, says Scott Morrison, Ernst & Young's national director of life sciences and an author of the report. “In the calendar year 2000, the industry is certain to raise in excess of $30 billion - more than three times the 'best-ever' record of just under $9 billion.”
According to Janice Wolf, a principal in Ernst & Young's life-sciences practice in Hartford, market capitalization for the New England area is up nearly 137 perent from last year.
Innovation and Investment
Convergence - the cross-industry spread of technology and market strategies - is playing a larger role in the growth of the biotech sector and other industries than ever before. As noted in the report, convergence of the high-technology and health-care industries and with broader industrial sectors has led to a flood of new technologies, new company formations and new business models that have the potential to revolutionize the entire sector.
“In a meaningful way, the biotechnology industry is becoming an information science,” adds Wolf. The human genome project as well as the genomic and proteomic research efforts at academic institutions and biotechnology companies have generated vast amounts of data which will enable the drug-discovery and -development process as never before.
Advances in computer technology have driven much of this progress, with high technology companies now participating in the biotechnology revolution both as suppliers and through direct entry to specific markets.
“The biotechnology industry has become the intersection for convergence in the health-care marketplace, helping to fuel our economy and accelerate the drug-discovery process,” says Wolf. “As a result, new growth opportunities are created, while at the same time, improving the quality of life by bringing new medical therapies to the public.”
As of this June, according to the Ernst & Young report, biotechnology companies had almost 300 products in pivotal trials with cancer, infectious diseases and neurology studies leading the way. Advances in genomics, proteomics and the drug-discovery process could lead to an explosion in the pipeline in the next decade.
With more biotechnology companies located here than in any other region in the U.S., New England will undoubtedly be a focal point when this explosion occurs, given the research and technology strongholds in the area. “Massachusetts is the top recipient, per-capita, of research grants from the National Institutes of Health,” says Wolf, “and of the nation's top biotech companies, 20 are based in Massachusetts.”
And Connecticut is not far behind. According to Connecticut United for Research Excellence (CURE), which charts the fortunes of the state's bioscience “cluster,” the most recent four years have seen a 75-percent hike in research and development spending within the industry, which now amounts to more than $2.6 billion.
Regional Differences
New England, the San Francisco Bay area and San Diego have the largest concentration of public and private biotechnology companies, with several areas of the country having increasingly larger concentrations. However, the companies vary greatly in size and market capitalization.
Specifically, New England leads the regions with the largest concentration of biotech companies, logging more than 180 public and private concerns. In addition, the total 1999 revenue from public companies in the area tops $3.1 billion, a 15-percent hike over 1998.
“One thing of which we can all be certain is that biotech will continue to grow and affect our business ventures, our communities and our population. Those who can leverage and understand the opportunities at hand will discover unlimited possibilities,” says Wolf.
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