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Biotech industry is on the mend

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After two years of facing a "perfect storm," local and national experts say the biotechnology industry is poised to make a comeback.

In its annual biotech report, Ernst & Young found "significant cause for optimism" in the American biotech industry, which the investment firm believes is on the mend.

Chris Nolet, Ernst & Young's area life sciences leader, said Friday that the second half of 2003 looks promising, both in terms of progress at existing companies and the possibility that the industry will see its first initial public offerings in more than a year.

"Our industry was structurally in pretty good shape in 2001 and 2002, but everything was working against us," Nolet said during a presentation in Salt Lake City. "Is there a silver lining? Are we coming back? Maybe, and maybe more so than we thought a couple of months ago."

The industry has weathered a slumping global economy, depressed capital markets, government spending cuts and growing regulatory hurdles, Nolet said. All contributed to widespread corporate reconstruction, belt-tightening and a yearlong IPO void.

Biotech companies struggled to find financing as the pool of venture capital and other monies shrank. The industry reported a 71 percent increase in net losses in 2001-2002, while at the same time research and development expenses jumped 30.8 percent. Many smaller, less stable or undercapitalized companies faded into the night, while others merged or were acquired.

"Fundamentally, our industry was, and is, in great shape, but we did find ourself in a kind of 'perfect storm' in 2002," Nolet said.

Utah felt a good part of that storm, said Brian Moss, president of the Utah Life Science Association. While the state did lose some of its burgeoning firms, Moss said the bulk of Utah's biotech companies "hunkered down and held out."

"We have lost a few, but we also have a lot that are doing very well," Moss said, pointing to Salt Lake-based Myriad Genetics and NPS Pharmaceuticals. "In terms of net jobs, we have not lost jobs in our industry."

Preliminary results from the first half of 2003 are promising, Nolet said.

"In 2002, we kept getting more and more bad news," he said. "In 2003, we've finally had some good news. There's a tremendous number of good product approvals, which should help give us a tremendous tailwind in the market place."

Additionally, Nolet said, companies have started testing the IPO waters, more products are in final testing, pre-market stages, and Ernst & Young projects the industry as a whole will be profitable by 2010.

"We're starting to see some real economic growth, at least in our country, some return in regulatory environment to a more rational way of thinking and more receptivity to our products," Nolet said. "We think this is a great time for our space, and to the extent that we can balance private equity and public equity and see some activity in the IPO market, we should be in great shape."

E-mail: jnii@desnews.com