Biotechnology Stocks Soar Despite Losses

Although the biotechnology industry continues to generate huge losses, the market value of publicly owned biotechnology stocks jumped 75%, to $35 billion through the year ended June 30, according to a study released Tuesday by Ernst & Young.

Since June, publicly held biotechnology companies have added 10% in market value because of a recent wave of investor interest, said Steven Burrill, director of manufacturing and high-technology industry services for the accounting firm.

At the same time, the growth in new biotech companies has slowed because start-up capital has become scarce, according to the study.

The increase in value comes even though publicly owned biotechnology stocks reported losses of $800 million during the 12 months surveyed by Ernst & Young. In total, private and public biotechnology companies lost $2.9 billion. The industry as a whole is not expected to become profitable until 1993, Burrill said.

The growing value of the industry is a result of increased product revenues, which grew 38% to $4 billion from the previous year. Twelve new drugs and vaccines have received federal Food and Drug Administration approval since June, 1990, nearly equaling the 13 approvals granted during the preceding eight years.

Among those products receiving FDA imprimaturs this year were Amgen’s erythropoietin, or EPO, and Neupogen, two drugs whose annual combined market is in the hundreds of millions of dollars. As a result, Amgen’s stock price has tripled since the first of the year, Burrill said.

The pipeline of new biotechnology drugs is relatively full: Twenty new drugs have cleared tests and are in position to receive FDA approval, and 100 more are in various stages of clinical trials, said Ernst & Young’s Kenneth B. Lee, the firm’s Life Sciences Industry Services director.

But the formation of new companies has slowed considerably as capital availability has tightened. The number of biotechnology companies--roughly 1,100--is about the same as last year and may actually decrease in coming years as the industry consolidates, Lee said. Total employees in the industry increased only 4,000 over the year, to 70,000.

Jim Pope, a parter at Ernst & Young’s San Diego office, said there are now 100 biotechnology companies in the San Diego area, a net gain of five from last year. Employees at San Diego-based biotechnology companies totaled 5,063 as of June 30, up 13% from the previous year.

A big reason for the higher market value of publicly owned biotechnology companies was that more companies went public, encouraged by the tremendous increase in investor appetite for biotechnology stocks. Nineteen companies held initial public stock offerings over the 12-month survey period, raising $552 million. That’s up from the $135 million raised in IPOs over the preceding year.

But initial seed capital is becoming more difficult for start-up biotechnology companies to find because of the squeeze on the venture capital market. For that reason, more companies are forming strategic alliances with other pharmaceutical or biotechnology companies, Burrill said.