The Future of Biotechnology for Medical Applications in 2005, Biotech Market

The Biotech Market

What is the structure of biotech industry?

Before answering this question, it is interesting to see which difference in size exists between Biotech and Pharma companies. The market capitalization of the total Biotech industry is 358 billion $ (March 2005). The two largest Pharma companies alone, Merck and Pfizer, have a market capitalization of 275 billion $. This data shows that the Biotech industry still has a long way to go to overhaul the pharma industry. Nevertheless Biotech is growing rapidly in terms of turnover and R&D expenses. In the summary below some key data regarding public companies are displayed that show te structure of the Biotec industry:

Global biotechnology in 2004 Public company Global US Europe Canada Asia-Pacific Growth 2004 vs 2003 Revenues ($m) 54,613 42,740 7,729 2,091 2,052 17% R&D expense ($m) 20,888 15,701 4,151 782 253 12% Net loss ($m) 5,304 4,317 484 408 94 17% Number of emlpoyees 183,820 137,400 25,640 7,370 13,420 5%

Number of companies Public companies 641 330 98 82 131 5% Private companies 3,775 1,114 1,717 390 554 -2% Public and private companies 4,416 1,444 1,815 472 685 -1%

Data of private companies are not disclosed, that is why only public data is mentioned.

As you can read in the table above, the total Biotech industry has been making losses for years now. Ernst&Young estimated in the Resurgence report of 2004 that the Biotech industry will become profitable in 2008. To have an estimation about if this future will come fast enough, the available cash is used as graduated scale to predict: Survival index Global public Biotech companies 2004 2004 2003 2003 Number of companies % of total Number of companies % of total More than 5 years of cash 144 28% 158 32% 3-5 years of cash 81 16% 75 15% 2-3 years of cash 70 14% 66 13% 1-2 years of cash 99 19% 87 18% Less than 1 year of cash 116 23% 105 21% Total of companies 510 314

The major investors can be summarized as: Global financing (in billion $) Year 2004 2003 2002 2001 2000 IPO’s 2.1 0.5 0.5 0.4 0.8 Follow-on and other 13.8 13.9 6.5 7.0 27.4 Venture 5.3 4.1 3.5 4.1 3.9 Total 21.2 18.4 10.5 11.5 39.4

Venture capitalist invested 17.5 billion $ in 2004. This investlevel is on the same level as 1997. Compared with the commitments to Biotechnology that peaked in the year 2000 with 82.6$ per year this level can be seen as moderate.

Overall the US is the largest Biotech player in the world by far. Since the costs of research and development are around 800 million $ to bring a blockbuster medicine to the market, cost cutting trends are expected. As you can see in the survival index cash is floating away rapidly and to continue to invest in R&D the expenses ave to come down. The largest part of costs of R&D are labor costs. A move to lower wage countries is expected, to follow the trends of other industries. China and India are looking from the surface most potential to become R&D labor cost cutting countries. The big question though is, can these countries cope with the high quality requirements of personnel. What is positive in respect of R&D Biotech, is the innovation rate of new products. Compared to R&D investments of Pharma (52 billion $), Biotech invests 15 billion $, but got 100% more new molecular entitities approvals. With this in mind, the industry expects R&D investments to shift from Pharma to Biotech.

Major Biotech companies are: Amgen, Genentech, Genzyme, Wyeth, BiogenIdec, Millenium pharmaceuticals, Millipore, AstraZeneca, Parexel, Cytyc, Abt. Associates Clinical trials, Chiron, Gilead Sciences, MedImmunr, Biovail and Abbott. Major research institutions are: National institute of health (NIH), Chemical abstracts service (CAS), NCBI, National institute of standards and technology, Food and drug administration, European Molecular Biology Laboratory, UC Berkeley, UC San Fransisico, UC Stanford.

The leading places in the world for biotech research for medical applications can be sorted by number of companies as follows: US (1450), Canada (450), Germany (380), UK (370), Australia (210), France (210), Sweden (180), Israel (175), China & Hong Kong (170), Switzerland (165), India 100, Netherlands (90). When you look from a different point of view to the leading Biotech places, you can look at the Biotech-Biotech and Biotech-Pharma alliances: US (337), UK (105), Germany(103), Switserland (70), Canada (53), France (48), Denmark (25), Netherlands (23), China (5), India (4).

What is the role of the traditional medicine industry? Traditional Pharma will defend there market positions that are threathened by new Biotech products. On the other hand Biotech is expected to implement new products on the longer term. Genetically-modified products and biofuels will add value for society in terms of increased productivity, decreasing reliance on pesticides and minimizing the amount of runoff from tilling. Pharma is lobbying against biotech-based medicine and influecing the public opinion. On the other hand The Biotechnology industry organisation is trying to calm down the negative publicity and is participating in every relevant policy debate. The FDA will be the key to succes for Biotech to have good biotech products on the market that don’t hurt the biotech image. As stated before Biotech companies get into alliances with Pharmaceutical companies more and more (813 in 2004 versus 641 in 2003). This implicates that Biotech is at least worth to invest in, also for traditional focussed pharma companies

In 2004 Ernst&Young predicted that the Biotech market would significantly consolidate through mergers and acquisitions. Particularly smaller and undercapitalized companies would be involved. Until now the consolidation did not happen. Instead of merger and acquisitions, strategic alliances were formed, to be able to invest in R&D. For the future it is still expected that a consolidation trend wil occur. Large, well funded pharmaceutical companies might invest in Biotech companies, so that the smaller companies can develop succesful products.

The annual forecasts of the 10 leading companies in the biotechnology sector (marketcapitalization of 271 million $, which is 75% of total market capitalization) show a significant growth expectation of 19% average for 2005.

R&D money currently flows to nanotechnology, molecular cell biology, microbiology, tissue and stem cells, virology, immunology, genetics, bio-fuels.

16. Which research fields are currently ignored? 23. Imagine there was no bio-technology today. How would the world look like? Is the size of the pie just as same/bigger than with bio-tech? 31. Will imposed (stricter) laws in one region (e.g. US) result in a move of R&D fund and expertise to other regions? Where?

Driving Forces: