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Report: S.D. Biotechs Slip Nationwide

Report: S.D. Biotechs Slip Nationwide

Still, Local Publicly Traded Firms Report Increase in Revenues

BY MARION WEBB

Senior Staff Writer

San Diego’s biotechnology industry fell behind the mid-Atlantic region last year to become the fourth-largest biotechnology sector in the country, according an Ernst & Young report released at the Biotechnology Industry Organization conference in Toronto.

The slide, however, is relative, said Rich Mejia, head of Ernst & Young’s Pacific Southwest health science practice in San Diego.

“When you look at all the other factors , revenues, number of employees and market capitalization, we are clearly still ahead of them (the Mid-Atlantic region),” Mejia said.

San Diego’s 30 publicly traded biotechs reported a 57 percent increase in revenues to $1.4 billion, which was largely driven by such company leaders as Idec Pharmaceuticals Corp. and Isis Pharmaceuticals, Inc., he said.

The accumulated 2001 net loss of $640 million by the industry was about the same as in 2000.

The big news was the dramatic drop in financing, Ernst & Young reported.

Total capital raised by the industry in the United States fell to $7.9 billion in 2001 from an all-time high of $32.7 billion in 2000.

Many small biotech companies were unable to raise cash and were trading significantly lower than two years ago, when excitement over the decoding of the human genome sent investors into a biotech-buying frenzy, Mejia said.

San Diego’s public biotechs had a total market capitalization of $17 billion in 2001, which marked a 27 percent drop from two years ago.

The decline, however, was consistent with the industry across the country, Mejia said.

By the same token, biotech stocks didn’t decrease in value as much as other sectors.

The American Stock Exchange’s biotech stock index remained flat in 2001 from two years ago, while its Internet stock index lost 40 percent and the Nasdaq fell 15 percent in 2001, Mejia said.

The biotech bubble burst in late 2000 and by 2001 the public markets were virtually closed for biotech financing, Ernst & Young reported. Still, there was some good news in late 2001, Mejia said. That’s when the window for public offerings briefly opened, allowing several companies to raise additional cash.

Private Firms Healthy

Local biotechs benefiting from public offerings included Isis, which raised $115 million, and Neurocrine Biosciences, Inc., which raised $160 million, Mejia said.

Private offerings, including financing by capital investors, remained relatively healthy.

San Diego’s biotechs struck 51 venture-financing deals worth $650 million last year.

Biotechs with good management and a good track record will continue to get financed, Mejia predicted.

Still, if a new financing window doesn’t open up soon, the number of mergers and acquisitions will rise, he said.

Smaller biotechs will become targets of larger biotech companies looking to expand their product offerings or fill their pipeline of drugs, Ernst & Young reported.

Mejia said large drug companies, which have also seen their market value decline last year as they are faced with patents set to expire on their blockbuster drugs, will also look to biotechs to fill their pipeline of drugs.

“According to the research, there are 300 products in stage three clinical trials in the nation and we know quite a few are within our region,” Mejia said.

This indicates that the local industry is poised for continued growth and likely to see increases in revenue, employment, and possible initial public offerings in 2003 and 2004, he said.

San Diego has a total of 109 biotech companies. This includes 30 publicly traded biotechs with 7,500 employees .

That compares to 116 companies in the mid-Atlantic region, 252 in New England and 226 in San Francisco.

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