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    ernst & young on biotechs Ernst & Young Biotechnology Reports Foresee an Industry Poised for Profitability



    Challenges Continue as Global Industry Undergoes Extraordinary Changes

    WASHINGTON, June 12 /PRNewswire/ -- Ernst & Young today released two
    reports, entitled Beyond Borders: The Global Biotechnology Report 2003, and
    Resilience: Americas Biotechnology Report 2003, depicting an industry that is
    simultaneously struggling and succeeding. The reports indicate the industry
    may achieve profitability by 2010 if regulatory and reimbursement issues can
    be dealt with effectively over the next few years. These reports also reveal
    that biotechnology companies worldwide are struggling with a prolonged capital
    market depression that caused industry stock prices to plummet and created
    severe cash shortages for many companies. Despite these challenges, biotech
    industry fundamentals remain strong. Overall global biotech revenues increased
    15 percent to more than $41 billion, and R&D expenses jumped 34 percent to
    more than $22 billion in the past year, with more than 50 percent of revenues
    being reinvested in research and development activities.

    Biotech's Future Bright
    Michael Hildreth, Ernst & Young's Americas Biotechnology Director, said,
    "Based on the industry's revenue growth, robust pipeline, more efficient
    product development, and belt-tightening in the face of the current cash
    crunch, the biotech industry as a whole could reach a major milestone within
    five years: its first profitable year overall since the industry began more
    than 25 years ago."
    Ernst & Young's biotech reports provide strong evidence that more biotech
    companies are on the verge of profitability than ever before. More than 50
    companies, or about 15 percent of publicly traded U.S. companies, posted
    profits in at least one year during the past three years. In the same period
    more than 20 companies recorded sustained profitability over all three years.
    "When the industry achieves profitability, the roller coaster ride of manic
    highs and lows on Wall Street should end and investment dollars will flow
    regardless of economic conditions. The biotech industry has been
    characterized by remarkable scientific innovation. Companies are now on the
    brink of proving they are as successful in the business of drug development as
    they are in research," said Hildreth.
    Jurg Zurcher, Ernst & Young's Biotechnology Leader in Switzerland, said,
    "The biotech industry is proving it can succeed as an economic enterprise. The
    industry is at the beginning of its technology curve, and innovation is
    accelerating. Biotechnology is the driver of innovation not only in health
    care, but also agriculture, industrial production, and environmental
    management. Over the past five years, revenues in Europe have soared 845
    percent, nearly 200 percent in Canada, and more than 80 percent in the U.S."
    The U.S. industry has recorded a 16 percent compounded annual growth rate
    in revenues since 1989. Biotech companies have brought more than 150
    breakthrough medicines to patients in less than three decades and have
    increased revenues by $4 billion in the last year alone. If historical
    approval rates continue, the industry could increase its current stream of
    revenues dramatically over the next few years.

    Strength in Consolidation and Integration
    Although 2002 was the industry's third-best financing year in history,
    investors are increasingly more selective about where and how to invest. The
    competitive financing environment is convincing companies to do something
    investment experts have urged for years--consolidate strengths by finding
    merger partners with complementary technologies. This consolidation will
    continue and many struggling companies likely will emerge stronger
    financially. Moreover, the reliance of big biotech and big pharma on genomics
    innovation for new products continues to drive investment in emerging biotech
    companies. During the market downturn, biotech companies with proven product
    development capabilities have negotiated mega-deals from pharmaceutical
    companies. The resultant capital infusion, a combination of equity
    investment, R&D funding, and profit sharing in marketed products, is creating
    a new model for biotech business development.
    "The biotech industry is undergoing a radical shift," said Hildreth.
    "Companies recognize that 10- to 15-year timelines to profitability are no
    longer acceptable for many investors. Biotech is evolving much the same way
    the information technology industry did. Companies are finding it more cost-
    effective and beneficial to integrate virtually by forming networks of
    alliances through which each player contributes an essential element in the
    development of high-value products and shares in the rewards."

    Globalization Continues
    Globally, the total number of biotech companies grew about two percent;
    however, the number of publicly traded companies actually declined by three
    percent. Past year-over-year increases in company totals in Europe and the
    U.S. have been significantly higher, suggesting the down cycle in the capital
    markets is taking its toll on new company formation.
    Zurcher noted, "Europe may be the hardest hit in this market depression.
    The market capitalization of Europe's publicly traded companies dropped more
    than 50 percent in 2002. Total market caps for the U.S. industry were down 35
    percent; for the Canadian industry, 31 percent; and for Australia, 18 percent.
    The Asia/Pacific industry revenues were up 28 percent, the number of employees
    increased 24 percent, and the number of public and private companies grew by
    17 percent."
    A key challenge to the industry's global growth is the high cost and
    complexity associated with addressing the regulatory hurdles of multiple
    countries. Efforts to harmonize regulations worldwide will overcome this
    barrier to industry expansion. Ongoing critical drivers furthering the
    globalization of biotechnology include:

    * Biotech and pharmaceutical companies are spanning the globe for
    partnerships, R&D alliances, and engaging in outsourcing to help bring
    products to market more efficiently.

    * Governments are staking much of their 21st century economic development
    on biotechnology innovation.

    * Venture capital investors are seeking new opportunities with less of an
    emphasis on location and more attention paid to the experience of the
    people involved and the quality of the intellectual property.

    * University scientists have increased access to rich public databases of
    biological information, which also enhances researcher-to-researcher
    collaboration.

    Progress will continue to accelerate and successful companies will be
    those that focus on their strengths and improve efficiencies in translating
    research discoveries into innovative products.


 
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