Global biotech industry continues to sizzle as market capitalization surpasses US$1 trillion

EY LLC, Kyiv, Ukraine, 
Tue, July 07, 2015

u Netincome jumps 231% in 2014 to historic high of US$14.9b

u R&Dspending surged 20% as companies in the US and Europe invested in theirpipelines

u Firmsin the US and Europe raise a record US$54.3b in capital in 2014

u Arecord 94 new US and European companies go public in red hot IPO market

 KYIV, 7 JULY 2015. The global biotechnologyindustry reached new heights in 2014, setting records on virtually every majorfinancial metric, including revenues, profitability and capital raised. Thesepositive performance indicators, combined with several high-profile productsuccesses and a strong year for new drug approvals, drove the industry’s total marketcapitalization above the US$1t threshold for the first time in its history. Theseand other findings were released today in Beyondborders: Reaching new heights, EY’s 29^th annual biotechnologyindustry report.

Glen Giovannetti, EY’s Global Life SciencesLeader, says: “The global biotechnology industry’s outstanding performance and maturationare driving optimism that a new age of biotech innovation will create long-termvalue for companies, their investors and patients. Investors are bullish on thefuture, investing historic amounts in the smaller players that will drive futurebreakthroughs.”

But success can engender its own challenges. “Unprecedentedproduct approvals have also brought unprecedented pricing pressures,” saysGiovannetti. “Companies will need to continually demonstrate how their productsdeliver value and contribute to the overall sustainability of health caresystems.”

Key results highlighted in the report include:

u Revenue jumps:Companies in the industry’s established biotech centers (the US, Europe,Canada and Australia) generated revenues of US$123b, a 24% increase from 2013,and a new high. Excluding the unprecedented growth of one industry leader,Gilead Sciences, revenues in 2014 would have increased a healthy 12%.

u Profitabilityfor all the right reasons: Net income reached a historic high ofUS$14.9b, a 231% increase from the prior year. While much of this increase wasattributable to the strong performance of Gilead Sciences, overall net incomestill doubled even after adjusting for that company’s performance. In contrastto 2009-2012, when biotechnology companies achieved profitability via cost cutting,the increase in aggregate net income in 2014 was driven by solid sales of newlylaunched products.

u Researchand development (R&D)spending grows: R&D spending, a key indicator of the health of thesector, increased by 20%. This was the second year in a row that R&Dspending outpaced the sector’s revenue growth (adjusted for the skewing factorsmentioned above), and smaller companies in both the US and Europe drove theuptick.  

u Fundraising sets records: Biotech companies in the US and Europe raised US$54.3b in 2014, awhopping 72% increase from the strong funding results achieved in 2013. Companies raiseda record US$28.3b in non-debt financing, driven by the booming market for IPOsand follow-on offerings. “Innovationcapital” — defined as the amount of equity capital raised by companies withless than US$500m in revenues and a key metric of the sustainability of earlierstage biotechnology companies — hit an all-time high of US$27.6b. That amountrepresents a 120% increase from the annual average achieved from 2009-2012. 

u Venture financing reaches near-record: US and European companies raised US$7.6b in venture capital, a28% increase from the prior year and just shy of the all-time record of US$7.9braised in 2007. In a positive sign for innovation, companies raising early-stagerounds captured US$1.8b, the greatest amount in at least the last decade.

u A wide-open IPO window: A record-breaking 94 US and European biotech companies wentpublic in 2014, shattering the previous record of 79 IPOs in 2000. The US$6.8braised from these IPOs is the second-highest total in the industry’s history,surpassed only by the US$7.8b raised during the genomic bubble of 2000. The IPOwindow, which began in 2013, remained strong for eight consecutive quarters,another new record.

u Drug approvals surge: Effortsby the U.S. Food and Drug Administration (FDA) to get differentiated medicinesto market contributed to 41 product approvals in 2014, up from the 27 approvalsin 2013. More than three-quarters of these 2014 approvals were on firstfilings.

u Mergersand acquisitions (M&A) skyrocket:M&A activity in 2014 reached a 10-year high in deal volume aspharmaceutical companies increased their buying activity. There were 68biotechnology M&A deals with a total value of US$49b in 2014. 2014 was alsothe most lucrative time in at least the last eight years for biotechs to enter alliances.As a percentage of total deal value, up-front payments reached 11%, while thetotal dollars paid up front soared 96% to US$5.1b. 

For all itssuccesses, the sector has some significant challenges ahead.  “A number of mature biotech companies mayface additional headwinds,” says Jeffrey Greene, EY’s Global Life SciencesTransactions Advisory Services Leader. “As firms deal with pricing pressuresand increased competition, including from biosimilars, they will need newsources of growth. Achieving such growth through deals and acquisitions willlikely be more costly and challenging. Today’s M&A landscape is clearly aseller’s market. Assets that could tangibly affect a buyer’s financialperformance are scarce, and they will command premium prices.” 

 Key regional findings:

United States

u Revenues of publicly traded biotechs were US$93.1bin 2014, a 29% increase from the prior year.

u R&D spending increased by 22% in 2014 toUS$28.8b.

u Net income increased by 293% in 2014 to US$10.6b.

u Market capitalization increased a healthy 34% in2014, with 58% of companies seeing a year-over-year increase in valuation.

u Total US funding reached an all-time record of US$45.1bin 2014. Records were also set for the amount of funds raised through IPOs (US$4.9b)and debt financing (US$23.3b). Innovation capital, a key metric of amountsraised by earlier stage companies, also set a record of $21.1b.   

u Venture financing totaled US$5.6b, a 27% jump fromthe previous 10-year average of $US4.4b.

u Total M&A value rose 50% over 2013, to US$42.9b,the third highest annual deal total since 2007. The number of deals jumped from42 to 51, the highest total in eight years.

Europe

u Revenues of European public biotechs grew by 15% in2014, to US$23.9b.

u R&D expense increased by 14% in 2014, to US$5.6b.

u Net income of public companies jumped 199% to US$3.2b.

u Marketcapitalization increased 41%, with 59% of companies achieving an increase intheir market cap.    

u TotalEuropean funding reached US$9.2b, a 53% increase over 2013 and 97% more thanthe previous 10-year average. IPOs raised US$1.9b, more than the previous seven yearscombined.

u Venturefinancing totaled US$2b, US$30m shy of the record achieved in 2006.     

u Europe enjoyed a second strong year for M&A.The total value of the 27 European M&A deals in 2014 was US$6.9b. Excludingmegadeals, this was the second highest total since 2007.

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Background on report findings

The key findings of thisreport are based on an EY analysis of companies whose main business purpose isthe commercialization of modern biotechnology as applied to health care and wefocus on biotech companies in the “established” biotech centers (North America,Europe and Australia). Modern biotechnology uses genetic technologies and othermolecular biology methods for the production of innovative drugs anddiagnostics. Our primary research is based on publicly available information(company reports, websites, etc.) and is supplemented as needed with datapublished by third-party databases, as well as regional information resources.Specific sources can be found in the report in the source notes for each chart.

How EY’s Global Life Sciences Sector can help your business

Life sciences companies —from emerging startups to multinational enterprises — face new challenges in arapidly changing health care ecosystem. Payers and regulators are increasingscrutiny and accelerating the transition to value and outcomes. Big data andpatient-empowering technologies are driving new approaches and enabling transparencyand consumerism. Players from other sectors are entering health care, makingcollaborations increasingly complex.

These trends challengeevery aspect of the life sciences business model, from R&D to marketing.Our Global Life Sciences Center brings together a worldwide network — more than7,000 sector-focused assurance, tax, transaction and advisory professionals —to anticipate trends, identify implications and develop points of view onresponding to critical issues. We can help you navigate your way forward andachieve success in the new ecosystem.

http://www.ey.com/GL/en/Industries/Life-Sciences