Biotech Business Model “Unsustainable” in Financial Crisis, E&Y Says

5/5/09Follow @xconomy

Biotechnology by its nature goes through booms and busts driven by hope and fear, but now the industry is really in deep trouble. That’s the big headline coming out of this year’s Ernst & Young annual biotech survey, Beyond Borders.

Common sense would tell you that in a global economic meltdown, where mainstays like Citigroup hang by a thread, investors might not want to park their capital in an industry in which 90 percent of product candidates fail. Not to mention that, it also takes hundreds of millions of dollars and a decade or more to determine who the real winners are in developing new drugs. So it should come as no surprise that biotech companies in the U.S. and Europe raised $16 billion last year, a whopping 46 percent drop from the prior year, according to the Ernst & Young report.

Digging deeping into the report, I found the handy table where E&Y breaks down regional biotech clusters every year, which I know is of great interest to our readers in Boston, Seattle, and San Diego. This data is compiled from public company annual reports, so it leaves out private companies, but it will give you a sense that the pain is widespread, and some areas are being hurt more than others. It’s also annual data, so it may disguise how ugly things really turned in the second half of the year.

—New England. This is the second-largest biotech region in the U.S., behind the San Francisco Bay Area, when ranked by the number of public biotech companies (73 to 59). New England biotech companies had a combined market value of $49.7 billion on the last trading day of 2008—down 24 percent from a year earlier.

Still, all was not completely lost. The region’s biotech companies reported $13 billion in revenues, a 15 percent increase from the previous year. And even though new investment capital was hard to come by, New England biotech companies actually were able to sock away 5 percent more cash last year, with a total of $5.1 billion stashed away, according to the report. (For Xconomy’s company-by-company analysis of the balance sheets among Boston biotech companies, click here.)

—San Diego. The Southern California biotech hub was the nation’s third-biggest … Next Page »

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