Global biotech sector posted $3.7 billion profit in 2009

Biotech companies return to profitability

Biotechnology companies worldwide turned a profit last year for the first time since at least 1985 due to reduced spending on research and increased revenue.

Profit in the industry was $3.7 billion, compared with a loss of $1.8 billion in 2008, according to a report Wednesday on biotechnology in the United States, Europe, Canada and Australia by London-based Ernst & Young Global. The company has compiled its report annually for 24 years.

Research and development spending in the U.S. fell 13 percent last year, with about two-thirds of companies cutting those expenses as capital for some grew scarcer, said Glen Giovannetti, leader of Ernst & Young's global biotech unit. Sixty percent of European firms reduced research costs.

At the same time, overall sales increased in the industry, driven primarily by a small number of large companies with well-performing existing products, he said.

"What we don't know is whether it was just fat that was cut or if some of these cutbacks in spending got into the muscle," Giovannetti said. "Unfortunately it could be planting the seeds for a slowdown several years out."

The comparisons exclude Genentech, which was fully purchased by Roche Holding in March 2009 for $44 billion. Roche had already owned part of the company.

Celgene, the maker of the cancer treatment Revlimid, spent $794.8 million on research and development last year, down 15 percent from 2008, the company said in a statement. Sales increased 20 percent to $2.57 billion. Amgen, which bought Seattle-based Immunex in 2002 and is now the maker of Enbrel for arthritis and psoriasis, spent $2.86 billion on research and development in 2009, down 5.5 percent from the previous year.

Some larger companies reduced spending to increase efficiency, while smaller ones had to cut costs as they saw less access to capital, Giovannetti said. Though capital raised last year increased 42 percent from 2008 to $23.2 billion, most went to established companies, he said.

The value of mergers and acquisitions in the U.S., excluding Roche-Genentech, decreased by half to $14.1 billion, according to the report. Three of those transactions had a value of more than $1 billion. In Europe, the value of merger and acquisition deals declined 42 percent to $2.37 billion.

"There have been three mergers of large pharmaceutical companies, including Roche-Genentech," Giovannetti said, citing Pfizer's October acquisition of Wyeth for $64.4 billion and Merck's November purchase of Schering-Plough for $51 billion.

"You have fewer potential buyers, and those companies themselves — from a post-merger integration perspective — are looking at rationalizing their own product pipelines and areas of focus."