BioPharma

#BIO2017 kicks off with a new report highlighting the industry’s resilience

Despite reimbursement, regulatory, and political uncertainty, the global biotech industry held steady in 2016, according to a new report by professional services firm EY (formerly Ernst & Young).

Daisy flower in the desert

Despite reimbursement, regulatory, and political uncertainty, the global biotech industry held steady in 2016, according to a new report by professional services firm EY (formerly Ernst & Young).

Released on Monday, the first day of the 2017 BIO International Convention, the 100-page report dives into a range of global trends, from early-stage financing to product sales and M&A activity.

In a phone interview, EY Global Biotechnology Leader Glen Giovannetti said the overarching message is captured in this year’s theme of “staying the course.” More than anything, the industry showed resilience in the face of shifting trade winds both internally and externally.

He also stressed that the industry has been exceptionally strong in recent years, which makes the 2016 comparisons look a little weaker than they are overall.

“If you look at data compared to recent years, a lot of the key industry metrics either declined or the rate of growth declined,” Giovannetti said. “You could look at that as negative, but in context…  the industry is still performing quite well.”

As an example, total capital raised by the industry was down by almost a third (27 percent), but it was still the second best year in the 31 years EY has tracked.

Merger and acquisition (M&A) activity followed a similar pattern. In 2016, there were 79 deals, worth a combined $94.4 billion. It was a decline from the record highs of 2015, but still the second-best year historically in regards to total value and volume.

Things were a little rockier for companies with products on the market.

“If you’re one of the few commercial companies, you’re much more impacted by, for example, where does healthcare reform go and does reimbursement for your product change?” Giovannetti explained.

Net income dropped 52 percent year-over-year to $7.9 billion. And while revenue was up seven percent from the previous year, the rate of increase declined. All told, U.S. and European biotechs pulled in $139.4 billion in 2016.

For the first time in three years, the industry’s cumulative market capitalization slipped under $1 trillion to $863 billion, a 17 percent decline. In the U.S. alone, 29 companies each had more than $1 billion shaved off their market cap.

“Guaranteed money” in alliances also dropped sharply. Instead of paying everything up front, 17 percent of all M&A value was tied to milestones that may not materialize. The authors believe this reflects “the tightening capital environment and declining biotech valuations that characterize a buyer’s market.”

A bit of hesitation is to be expected. From Brexit to the U.S. presidential election, debates about drug pricing and looming healthcare reform; there was plenty to preoccupy investors in 2016.

In this light, the industry’s broad resilience is reassuring. And there are plenty of signs for optimism in 2017 in beyond.

In the U.S. alone, 24 biotechs went public during 2016, raising a combined $1.3 billion in fresh capital for the sector.

R&D spending, a key indicator of the future health of the sector, hit an all-time high of $45.7 billion in 2016, up 12 percent from the previous year.

Investment in seed and Series A biotech venture rounds totaled $3.6 billion in 2016, a record 36 percent chunk of the $10 billion of venture capital raised.

For Giovannetti, the evolving flow of money globally is also an important trend.

“What was interesting to us is the rising prominence of China,” he said, noting that the local ecosystem attracted over $1 billion in “innovation capital” invested in companies with annual revenues less than $500 million. 

A final major theme centered around technologies that can help optimize the drug and product development process. To stay competitive and innovative, companies of all sizes need to adopt technologies like artificial intelligence (AI), Giovannetti said.

“We certainly think that, broadly, AI will have a big impact,” he confirmed, though he added that it won’t be the solution for every company. “I think the larger point is one of a needing to address R&D productivity.”

It also highlights the industry’s symbolic shift from clinical science supported by data, to data-driven science supported by clinicians.

Photo: masik0553, Getty Images

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