From the Editor: On the Cusp of Profitability

The annual BIO convention in May drew a record attendance of 22,366—an increase of almost 15% over last year's 19,479. Does this suggest the biopharmaceutical industry is thriving? It depends on how you look at it.

Laura Bush

According to Ernst & Young's 2007 biotechnology report, "Beyond Borders," which was released at the show, the industry is "approaching profitability." In the absence of charges for several large merger deals, the report said, the publicly traded US industry would have been profitable in 2006—for the first time.

Of course, these numbers can give the false impression that profits are rolling in everywhere, but they refer only to publicly traded companies in the US. Hundreds of small biotechs continue to struggle and ultimately close shop when their venture capital burns up before positive clinical results can be achieved.

The bigger question is, does overall profitability matter? Ernst & Young itself raises this issue, noting that aggregate profitability is "not the goal so much as a measure of progress toward the real goal—that of a mature, sustainable biotech industry."

So, where are we on the path to "mature and sustainable"? During his keynote presentation at the Interphex conference in late April, Steven Burrill said 2006 was a good year for the industry, though not great.Wall Street, he noted, is increasingly cautious about funding biotech IPOs, even as Big Pharma continues to rely on small biotechs for pipeline. Yet, when asked if that means research monies could dry up, or be insufficient, Burrill replied confidently, "Venture capital will continue to fund discovery."

If we agree then that discovery funding is not at risk, the next question is, will companies continue to survive long enough to bring their new products to market?

Given the 30+ years of the industry's history, and supported by what I saw and heard at BIO, I believe the answer is yes. Because regardless of the challenges inherent in the biopharmaceuticals business, the industry continues to possess a key element that keeps it moving forward: optimism. At the show, I heard from many companies who expressed deep pride and strong faith in their developing products and technologies, confident of their future success. The results of a 2006–2007 Ernst & Young survey of more than 400 biotechnology executives back up the view that the industry is hopeful. For example, 97% of the executives surveyed said they expected to hire more staff in the next two years. And although more than half do not yet have an approved product, 88% expect to bring a product to market in the next two years. Of the 99% of North American companies who said they are planning a merger or strategic alliance transaction in that same timeframe, most expect to enter those deals as acquirers—not acquirees.

This optimism—fueled, I believe, by the industry's strong conviction in the value of its science and the importance of its developing products for saving and improving lives—is what really keeps the industry going. As long at that optimism continues to flourish, the industry will be successful, profitable or not.

Laura Bush is the editor in chief of BioPharm International, lbush@advanstar.com