Biotechnology & Drugs Industry Snapshot

Consistently strong growth of around 15% is a result of the rapid innovation and massive investment of capital into the US biotechnology and drugs market. The relentless technological advancement within the sector shows no signs of slowing with the biotechnology market set to reach a value of $80 billion by 2008.

Product sales are the most abundant revenue source in the market, although funding initiatives in terms of venture capital are increasingly important to the smaller players in the market. Whilst the markets innovative approaches to discovery offer great potential, the investment community and many strategic investors have been very cautious with recent investments, focusing on late stage development opportunities and products close to approval. However, the introduction of a zero capital gains tax rate on entrepreneurial equities could spur biotech investment into 2005.

Developments within the genomics sector are set to inspire growth as companies begin to incorporate complex genomics into their products, saving huge amounts on drug registration fees and changing the business focus of the sector from simply mapping proteins to catalyze drug discovery. The threat of bioterrorism has provided a substantial government investment into the industry although the misuse of bio-products and the controversy surrounding cloning will continue to provide the industry with negative publicity.

The US is expected to maintain its position as the worlds dominant market for biotechnologies in the near future with Amgen, Biogen Idec, Chiron, Genentech, Biogen Idec and MedImmune amongst the major players. The huge potential of biogenerics, whilst currently limited by existing legislation, is attracting the interest of companies currently faced with limited scope for profitable expansion in the commodity generics markets. The potential introduction of regulatory pathways for the approval of generic versions of biologics by the FDA could promote massive expansion into this sector, driving revenue growth for the industry moving forward.

Key Issues

Bioterrorism - The attacks of 9/11 have exposed the US to the threat of domestic terrorism. The specific hazard posed by bioterrorism has added a sense of urgency to the need for new medicines to prevent and treat infectious diseases. Biotech companies are working with the government to develop weapons against such possible bioterrorist threats as anthrax, smallpox, plague and other diseases, whilst providing a steady revenue stream moving forward.

Bioethics - As research on stem cells and cloning procedures continues to provide technological breakthroughs, the scandal surrounding cloning grows ever stronger. The announcement that the Raelian Sect had produced the first cloned human produced uproar amongst the US population and whilst revenues continue to grow, any persistent negative publicity could have adverse effects upon the industrys future revenues.

Regulatory Change - Legislation providing a zero capital gains tax rate for direct investment into the equities of entrepreneurial firms is likely to spur economic growth, create high wage jobs and ensure the future competitiveness of US biotech entrepreneurial firms, providing them with a source of capital moving forward.

Significant Trends

Restructuring Initiatives - Leading genomics companies are changing the structure of their business models in a push towards profitability. The market for technology agreements is becoming saturated and genomics companies have been forced to develop products in-house in order to continue growth. Companies are increasingly investing in product development and marketing initiatives, reducing the number of in-licensing opportunities for pharmaceutical companies.

Biogenerics - With several blockbuster biological products approaching patent expiry and the emergence of new approval pathways, the biogenerics sector represents an attractive opportunity for companies looking to escape intensifying competition in the commodity generics sector. Despite strong opposition from the biotechnology industry, regulatory bodies are expected to establish approval pathways for biogenerics in the next few years, driven by the potential cost savings for governments and healthcare payers with an access to lower cost biologics.

Agricultural Biotech - Biotech companies have become increasingly important to US agricultural expansion, with biotech soybean, corn, cotton and canola crops reaching a combined value of approximately $28 billion in 2004. Biotechnology in agriculture will continue to grow as farmers face increasing cost pressures into 2005, forcing them to use biotech in order to remain competitive in terms of crop yields thus providing an area of future growth for biotech companies in the US.

Any values given in this article have been calculated as the total revenues resulting from the development, manufacturing and marketing of products based on advanced biotechnology research. The primary sources of revenue in this industry are product sales, licensing fees, royalties and research funding.