NY State Financial Situation

Now that he is getting a closer look at the books, Gov.-elect Eliot Spitzer said yesterday that his initial reviews of the state's fiscal picture show that New York is in worse shape than he first thought."The cupboard is bare," Spitzer said. "There isn't much there that hasn't been sold, given away or spent."

While the state is projected to have a $1.1 billion surplus at the end of this year, Spitzer policy adviser Paul Francis said that money will be exhausted because outgoing Gov. George Pataki and the State Legislature spent some of next year's dollars this year.

One example was a child tax credit they agreed to in this year's budget negotiations. That alone will cost the state roughly $600 million each year.

Pataki's budget advisers project that the state will face a $2.5 billion cash deficit in the 2007 to 2008 fiscal year, but Spitzer aides say the state's long-term spending gaps could be larger."There's very little real revenue growth in the budget," Francis said. "

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Recreational Activities Industry Snapshot

The US recreational activities industry consists of a variety of diverse sectors, such as theme parks (valued at $10 billion in 2004) and fitness centers (valued at $35 billion). Also included are sports entertainment and activities, travel & tourism and video rental. While the sectors within the industry are diverse, all have been affected by a series of generic factors over the last few years. These include the impact of 9/11 and the war on terrorism, rising energy costs and the growing popularity of consumer credit in the US.

The US possesses one of the most highly developed infrastructures of leisure facilities in the world. Private centers dominate the US fitness center market, accounting for 60% of the markets value.

The US theme park market is primarily focused in Florida and California. Theme parks have been heavily affected by the aftermath of the 9/11 attacks, due to their perceived vulnerability to terrorist activity, with revenues declining since 2001. In addition, rising energy and labor costs have placed additional pressure on the margins of operators in this market.

US consumers reduced their travel and tourism activity post-9/11, with both domestic and international leisure trips affected. However, these reductions had been recovered by 2004. The weakening of the dollar during the last few years, which has affectively made the country a cheaper place to visit, has boosted international tourist spending in the US. The falling cost of air travel has also helped to boost revenues from international tourism.

The leading players in the US recreational activities industry include theme park giant Walt Disney, fitness center leader Bally Total Fitness, cruise operators Carnival and Royal Caribbean Cruises, American Express (travel agency) and Blockbuster (video rental).

Key Issues

Rising Energy Costs - Natural gas prices have doubled during the last few years, due to supply shortages, and electricity prices have risen as a result. This has led to significant cost increases for theme park, fitness center and sports stadium operators, leading to falling margins at a time when outdoor leisure activities have experienced a decline in participation.
Weakened Dollar - In order to stimulate economic activity, the US government has allowed the dollar to steadily weaken in comparison to most other major currencies. For example, the dollar lost 24% of its value against the Euro between 2002-2004. This has attracted growing numbers of international tourists to the US, countering the negative impact of the 9/11 terrorist activity

Technology Threat - The rapid growth in the use of the Internet and electronic gaming options as alternatives to outdoor recreational activities, poses a long-term revenue threat to the recreation industry. Both government policy and industry players will need to find ways to integrate new technologies into outdoor leisure activities, in order to maintain participation levels amongst younger Americans.

Significant Trends

Growing Demand for Cruises - Cruises have become increasingly popular with US consumers during the last two decades. In 2004, there were approximately eight million US passengers on cruises, an increase of 39% since 2000 alone. This shows that the cruise market in the US has been relatively sheltered from the economic and political turmoil of the last few years. Through to 2008, the market is expected to achieve passenger growth of 8% per annum.

Online Sales Boom - The Internet has revolutionized the way that consumers spend their money, particularly on leisure products and activities. The majority of low cost flights are now purchased via the Internet, as are significant numbers of hotel reservations and tickets to sports and entertainment events. This has weakened the position of the traditional travel agent. The video rental market has also been drastically affected by the growth of the Internet, with online sites cannibalizing revenues from traditional outlets.

Declining Participation - Prior to 2001, participation in outdoor recreational activities had steadily increased in the US since 1990. However, since that time, most activities have witnessed a decline in both participation numbers and frequency. This is largely due to concerns linked to travel following the 9/11 attacks, although the growth of in-home Internet and pay-TV entertainment has also had an impact, especially on Americans between the ages of 18-29.

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.

Aerospace & Defense Industry Snapshot

Revenues within the US aerospace and defense industry have improved considerably after a 1.4% slump in spending on commercial aircraft caused by a weakened tourism market in the aftermath of 9/11. Increased spending during the recent Gulf War did buffer industry growth rates somewhat and the industry is expected to reach a value of $464.3 billion in 2004.

Defense expenditure is still the leading source of revenue for the US industry, essentially due to the substantial and ever increasing defense budget of the US Government. Projects such as the missile interception network and the revamp of the US armed forces account for a large proportion of this spending whilst providing welcome revenue boosts for companies such as Boeing during the decline in aerospace spending.

Increasing cost pressures within the aerospace industry have resulted in massive reform as aircraft manufacturers attempt to cut costs whilst producing cost-efficient, highly marketable aircraft to promote sales and stimulate growth within the industry. Growth in defense expenditure has served to compound the problems for the aerospace industry as leading players reduce their aircraft production in order to concentrate their resources on their defense outputs.
Major players within the US aerospace and defense markets include Boeing, Northrop Grumman, Lockheed Martin, General Dynamics and Raytheon. The initial reaction towards Boeings prototype 7E7, expected to enter service in 2008, has confirmed the huge market potential for midsize, fuel-efficient aircraft in the US whilst proving that cost-effective air travel does not necessarily rely on high capacity aircraft. However, the launch of the new Airbus A380, the worlds largest passenger jet, is expected to impact on the sales volumes of Boeings 747 in the international market.

Key Issues

Threat of Terrorism - Efforts to prevent terrorism in the US have swelled defense expenditure whilst increasing costs within the aerospace industry. New regulations, in terms of in-flight security and anti weapon systems, are increasing airlines liabilities, spreading the costs throughout the supply chain and affecting the potential purchasing behavior of airlines, reducing their expenditure on new planes.

Cost Pressure - Rising oil prices, augmented by the demand for low cost air travel, have caused deficits for airlines, which have cascaded along the supply chain. In reaction to this, aircraft manufacturers are increasing outsourcing efforts and developing longer-term contracts with more select groups of suppliers in order to cut costs. In addition, the use of alternative materials to aluminum and steel, such as composites and titanium, and the fly-by-wire concept are a growing part of the strategy to offer airlines cost-efficient operation over the lifetime of the aircraft.

Increasing Military Expenditure - The formation of the Homeland Security Department (HSD) and the creation of a missile interception network have come in a period of increased defense spending in reaction to the growing terrorist threat and the Second Gulf War. With a budget of around $40 billion, the HSD has already introduced legislation to improve the safety of air travel, with cost consequences for airlines, which will pass throughout the supply chain.

Significant Trends

Technological Innovation - As NASA continues its development towards a next generation space vehicle, the demand for a publicly accessible space platform has prompted several initiatives within the aerospace sector to produce a viable option. Amongst other projects, the development of high-speed rocket replacement technologies such as anti-matter production chambers and ramjet engines could usher in a new era of space and air transport and possibly provide an answer to the airline industrys dependence on crude oil.

Shift from Aerospace into Defense - In response to escalating cost pressures from airlines and the reduced capacity of the aerospace industry, aircraft manufacturing companies have begun to concentrate their production efforts into the defense industry to exploit the growth in military spending and maintain revenue streams. The development of the F/A 22 and Joint Strike Fighter configurations and the production of the US missile defense network include contributions from most of the aerospace industrys leading players.

Consolidation - Reduced demand and yields within the airline industry have produced cost pressures, which have resulted in consolidation amongst the airlines. This consolidation has increased the airlines buying power, causing a downward pressure on costs, reducing margins for the aircraft manufacturers and promoting consolidation in a cascading effect along the supply chain.

Any values given in this article have been calculated as the collective manufacturers selling price (MSP) of all civil and military aerospace, defense equipment and parts or products, and space equipment sold in the US.

ED Futures Update

Here it is...the latest ED Futures Update.

There are some good stories in this issue about tech-based economic development and some insight views on driving issues for business.

Check it out: ED Futures

Published by
Donald T. Iannone & Associates
Cleveland, Ohio

Election Outcomes and Biotech In Mass.

Deval Patrick could be good for the life-sciences industry, but Congress may not -- at least on the key issue of drug prices. The Mass. governor-elect has reassured biotechnology executives by saying he supports embryonic stem-cell research, and wants to finance it with state bonds.

Mitt Romney opposed embryonic research. So far Patrick hasn't offered specifics about the bonds, except to say that research money would be reserved chiefly for public universities, not private industry.

Whatever happens on Beacon Hill, it is Washington that has the real impact on life-science companies. The federal government is the single largest purchaser of healthcare in the nation, chiefly through Medicare, and what it pays for drugs and medical devices can affect local giants such as Boston Scientific Corp., Genzyme Corp., and Biogen Idec Inc.

In their first 100 hours in the next Congress, Democrats have pledged to let Medicare start negotiating lower prices from drug companies, something now prohibited. This would save money for Medicare patients and taxpayers by pinching profits at drug companies, including major biotech firms. Biotechnology leaders also worry that as Medicare pushes prices down, investors will lose enthusiasm for risky biotech start-ups, whose growth depends on the chance they may profit from future drugs.

In a speech last week, Biogen Idec chief executive James Mullen said that if the government squeezes drug prices, Wall Street could sour on biotech, with "dramatic, detrimental, and irreversible effects."

The newly powerful state delegation would give the industry a louder voice in Washington, and some hope it will increase National Institutes of Health research funding. But it will also give new impetus to the push for lower-priced generic versions of biotechnology drugs.

And if the Senate swings Democratic, Senator Edward M. Kennedy takes over the Senate Committee on Health, Education, Labor, and Pensions , which oversees the Food and Drug Administration and the NIH. Kennedy could help boost local research funding and his former staffers populate the top ranks of life-science companies and lobbying groups. But the senator also is co-author of a bill to tighten safety controls at the FDA, a move companies worry could slow the already lengthy approval process for new drugs and devices.

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Biosciences Florida

The power of biotechnology, a growing force in Florida's economy, will be the focus of a two-day conference in Gainesville, Florida.

BioFlorida, the state's independent bioscience organization, will hold its ninth-annual meeting here. Expectations are that it will be the largest ever, bringing in some 500 people who share an interest in bioscience and biobusiness, advancing medical technology and drug discovery.

With commitments from three major players in the field of biotechnology - the Scripps Research Institute, the Burnham Institute for Medical Research and Torrey Pines Institute for Molecular Studies - to build facilities in Florida, this year's conference is expected to draw more participants than ever before, organizers say. This is the first year BioFlorida has held its meeting in Gainesville.

More here.

Nanotech Resources

Here is a list of some important nanotechnology resources online:

MU’s International Center for Micro/Nano Systems Technology at icnmsn.missouri.edu. The research center was created in April and is the first of its kind in Missouri, according to its Web site. The Web site lists the center’s mission statement and professors and staff who work with the center, in addition to providing a link to a PDF document that describes the equipment used.

National Nanotechnology Initiative at www.nano.gov. This federal entity coordinates and manages nanotechnology research across the U.S. Here, you can find the 2007 budget report for recommended nanotechnology expenditures, definitions of terms and answers to frequently asked questions.

www.nanooze.org. This kid-friendly online magazine, supported by the National Science Foundation, provides articles about the potential of nanotechnology research, from stain-resistant pants to super-powerful microscopes. Also included are links to an online video game and profiles of several scientists working in the field.

U.S. Food and Drug Administration’s Nanotechnology Web site at
www.fda.gov/nanotechnology. The FDA held a public meeting on Oct. 10 to discuss its role in regulating medical and food products that use nanoparticles. You’ll find links to the agenda for the Oct. 10 meeting and PowerPoint presentations on nanotechnology.

Project on Emerging Nanotechnologies at www.nanotechproject.org. This group, based in Washington, D.C., seeks to ensure that potential risks are understood and “effectively managed,” while promoting responsible nanotechnology, according to its Web site. The Web site contains up-to-date links to media coverage of nanotechnology as well as links to news releases and current research.

The Nanoethics Group at www.nanoethics.org. This group is made up of researchers and professors from around the country who are examining the potential ethical implications of nanotechnology.