12 June 2003 21:06 [Source: ICIS news]
HOUSTON (CNI)--A "long-awaited consolidation" of North American biotechnology companies appears to be "at hand" with too many companies chasing too few dollars for research and development (R&D), Ernst & Young said Thursday.
Rebounding from the most difficult depression in its history, North American biotechnology faces many challenges, said Ernst & Young in a new report on the industry entitled "Resilience: Americas Biotechnology Report 2003."
After noting the impact of changes sweeping the industry, the Ernst & Young analysts said: "The need to balance risk will lead to an increasing number of partnerships among biotech companies themselves. Balancing risk in the current depressed market environment also will lead to an increased number of mergers and acquisitions."
Despite the challenges, however, Ernst & Young found the pace of progress still accelerating. Product sales rose 13.5% last year to an industry total of $24.3bn (Euro20.8bn) with $21.9bn of that at public biotechnology companies.
But the net loss for the industry rose 71.2% to $11.6bn as R&D expenses jumped 31% to $20.5bn.
Meanwhile, the number of companies and employees remained static at 1466 and 194 600, according to Ernst & Young's review.
"Companies left standing after this first downturn of the 21st century may be those that were most proficient in spotting opportunities for change amid the turmoil, not those that were content to hang on until the next market recovery," said Ernst & Young.
The analysts advise the industry to focus their spending plans by concentrating on "core competencies and partnering programs outside the scope of each company's key strengths."
And they warn that companies must invest in clinical and regulatory expertise in the face of a reorganised US Food and Drug Administration (FDA).
The analysts said that many companies may retreat from the standard goal of becoming a fully integrated pharmaceutical company, warning, however, that this model remains achievable.
Ernst & Young noted that big pharma is being forced to reinvent itself by "juicing its cumbersome R&D engine with a heavy dose of the biotech sector's entrepreneurial spirit." As a result, the analysts believe biotech companies boast a "huge advantage" as big pharmaceutical companies separate their R&D operations into smaller groups that compete with each other.
The analysts listed Gilead Sciences, MedImmune, IDEC Pharmaceuticals, Cephalon, Immunex and Centocor as companies demonstrating "there is room at the top for biotech companies to make it on their own."
They suggest the industry's laggards adopt strategies aimed at generating profitability by cutting operating costs and focusing on products with the best chances of success.
US biotechnology companies must deliver safe and effective products for approval by the FDA and provide cost effective drugs to their customers, according to Ernst & Young.
The analysts said: "In 2003, biotech companies face tough choices about their futures."
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