Biotechnology now profiting for the first time: The industry reaps the rewards of past investment

Biotechnology now profiting for the first time: The industry reaps the rewards of past investment

Biotechnology now profiting for the first time: The industry reaps the rewards of past investment

The UK Biotechnology industry is expected to generate 7.0 billion in 2010-11, up 6.3% on 2009-10. A young industry, biotechnology is only now beginning to approach overall profitability, with a slowly expanding number of firms that are reaping the rewards of past investment into commercialising biotech products. However, there remain many young firms that are enduring losses as they invest in research and development in the early stages of bringing products to market.

The essential nature of many of the industry's products, like those for the human health market, has meant that the financial crisis has had only a minimal affect on industry revenue. Where the crisis has hit the industry is in attracting financing. At the height of the crisis, investors rapidly retreated from capital markets, particularly from risky investments such as biotechnology companies. The crisis caused the number of biotech IPOs and secondary raisings to plunge. Many biotechs raise capital frequently, each time aiming to secure enough funds to finance their research and operations for another couple of years. Those due to tap the markets at the height of the crisis faced difficulties attracting capital, with some forced to seek a merger, scale back operations or cease operating altogether.

While financial markets are now recovering, high levels of government debt pose a risk of a further credit squeeze. With so many governments concurrently carrying high levels of debt, the fallout from a major government default would have the potential to send the global financial system back into crisis, reducing the flow of credit and increasing its cost. Conditions for biotech financing could revert toward a scenario similar to 2008 and 2009, when raising capital was extremely difficult.

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:

Ability to quickly adopt new technology: Companies need to ensure they are up to date with the latest research and breakthroughs.

Highly trained workforce: Employees involved in industry research and development generally need to hold a science degree or equivalent.

Ready access to investment funding: The high cost of developing new biotechnology products means that companies need to secure finance in order to ensure successful research and development.

Ability to educate the wider community: Many companies face strong opposition to their activities. Educating the public as to the benefits of biotechnology and the extent of problems (and how they are addressed) is essential to public acceptance and legislative change.

Concentration on core business: Most firms limit the scope of their research and development activities as a means of reducing operating costs. As such, most industry operators are highly specialised.

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