Net profit soared by 231%, reaching in 2014 the highest figure in the entire history of the sector of 14.9 billion US dollars.

R & D expenditures increased by 20% due to investments by US and European companies in products under development.

Companies from the USA and Europe attracted a record amount of capital in 2014 – $ 54.3 billion.

Another record was recorded on an extremely active primary public offerings (IPO) market: for the first time 94 companies from the USA and Europe placed shares on the stock exchanges.

For the biotechnology sector, 2014 was a year of new achievements and records in almost all financial indicators, including revenue, profitability and capital raised. High performance in combination with the success in the market of some well-known products, as well as a positive trend in the approval of new drugs throughout the year brought the total market capitalization of the sector companies to the maximum level in its history exceeding $ 1 trillion. These and other findings are contained in the 29th annual report of the EY Beyond borders: Reaching new heights on the biotechnology sector.

Glen Giovanetti, head of EY’s global practice in providing services to companies in the biomedical industry, explains: “The outstanding results of the global biotechnology sector and the achievement of a high level of maturity by sector companies are encouraging, hoping that a new stage of innovation in this area in the long-term perspective will increase the value for the companies themselves, their investors, as well as patients. Investors are positive about the prospects for the sector, investing a record amount in small market players who can make a breakthrough in the future. ”

But success poses a number of problems. “The unprecedented volume of approved products brought unprecedented pressure on prices,” says Glen Giovanetti. “Companies will have to constantly show the beneficial effects their products bring and how they contribute to the sustainable development of health systems.”

The report reflects the following main results of the biotechnology sector:

Sharp revenue growth. Revenues of companies operating in regions with a developed biotechnology sector (USA, Europe, Canada and Australia) reached a record $ 123 billion, which is 24% higher than the 2013 figure. If we exclude from the calculations the unprecedented high growth rate, which was demonstrated by the industry leader, Gilead Sciences, then revenue growth in 2014 would be 12%, which is also a good indicator.

Solid foundation of high profitability. Net profit reached a record $ 14.9 billion in the sector’s history, soaring 231% over last year. Although this growth was largely due to the result of Gilead Sciences, the cumulative net profit nonetheless doubled even after adjusting for this company’s performance. In contrast to 2009-2012, when biotech companies achieved profits by reducing costs, in 2014 the increase in total net profit was due to the large sales of products that had just been introduced to the market.

Increased R & D costs. R & D expenditures – the main indicator of the state of affairs in the sector – increased by 20%. 2014 was the second year in a row when growth in R & D expenditures in the sector outpaced revenue growth (after adjusting for the effect of the above distorting factors), with small companies from the USA and Europe leading the way.

Record volumes of capital raising. In 2014, biotechnology companies from the United States and Europe attracted $ 54.3 billion, which is 72% more than in 2013 — an impressive increase compared to what would seem to be a good result last year. At the same time, the volume of attracting non-debt financing ($ 28.3 billion) is also a record due to the unusually high activity in the market of primary and subsequent placements. “Innovative capital”, which is defined as the volume of raising equity capital by companies with revenues of up to 500 million US dollars and is a key indicator of the sustainability of biotechnological companies that are in the early stages of development, reached the highest level in its history of 27.6 billion US dollars. This is 120% more than the average for the period 2009-2012.

Close to the record volume of venture capital investments. The amount of venture capital attracted by companies from the USA and Europe amounted to 7.6 billion US dollars, which is 28% more than the volume attracted last year, and only slightly falls short of the all-time record figure of 7.9 billion US dollars reached in 2007 year Companies using primary capital mobilization mechanisms attracted the largest amount in the past decade – $ 1.8 billion, demonstrating the attractiveness of innovations.

Extremely favorable conditions for IPO. In 2014, for the first time, a record number of biotechnology companies from the USA and Europe placed their shares – 94, breaking the previous record of 2000, when 79 IPOs took place. The amount of funds received during the IPO (6.8 billion US dollars) is the second largest indicator in the entire history of the sector, second only to the result of 2000, when companies engaged in genetic research enjoyed incredible popularity and were able to attract 7.8 billion dollars USA. Favorable conditions for the IPO, which were established in 2013, have been preserved for eight quarters in a row, and this can also be classified as a record.

Approval of a large number of new drugs. Thanks to the efforts of the Food and Drug Administration (USA) to ensure the differential supply of drugs on the market, 41 new products were approved in 2014, while in 2013 this figure was only 27. Of the drugs approved in 2014 , more than three quarters successfully passed the approval procedure on the first attempt.

The sharp rise in the market of mergers and acquisitions (M & A). Activity in the M & A market in 2014 reached the highest level in the last decade in terms of the number of transactions against the background of more active acquisitions made by pharmaceutical companies. In total, in 2014, biotechnology companies concluded 68 mergers and acquisitions for a total of $ 49 billion. 2014 was also the most favorable year for biotech companies to form alliances from at least the last eight years. The size of the initial payment reached 11% of the total value of the transaction, while the aggregate amount of initial payments increased by 96%, reaching 5.1 billion US dollars.

Despite impressive successes, in the long term the sector is facing significant problems. “Some mature biotech companies may face additional challenges,” said Jeffrey Green, head of global practice at EY in providing transaction advisory services to biomedical companies. – To overcome price pressure and growing competition, including from biosimilars, they need new sources of growth. Growth through transactions, including asset acquisitions, is likely to be costly and difficult. In the current environment, M & A market conditions are clearly favorable for sellers. Assets that would allow their customers to significantly improve their financial position are rare and expensive. ”

 Main results by region:

USA

The total revenue of biotechnology companies whose shares are listed on stock exchanges in 2014 amounted to 93.1 billion US dollars, which is 29% higher than a year earlier.

R & D expenditures in 2014 increased by 22% to $ 28.8 billion.

Net profit in 2014 increased by 293% to $ 10.6 billion.

In 2014, market capitalization increased by 34%, while 58% of companies showed an increase in their value compared with the previous year.

The total amount of funds raised in the United States in 2014 reached a record-breaking total of $ 45.1 billion. Record indicators were also achieved in the framework of an IPO (4.9 billion US dollars) and debt financing (23.3 billion US dollars). “Innovative capital” – a key indicator of attracting funds by companies in the early stages of development – also set a record of $ 21.1 billion.

The total volume of venture financing amounted to 5.6 billion US dollars, an increase of 27% compared with the average for the previous 10 years (4.4 billion US dollars).

The total value of M & A transactions increased by 50% compared to 2013, reaching $ 42.9 billion, which is the third highest figure since 2007. The number of transactions increased from 42 to 51, the highest in eight years.

Europe

The revenue of European biotechnology companies whose shares are listed on stock exchanges in 2014 increased by 15% to $ 23.9 billion.

R & D expenditures in 2014 amounted to $ 5.6 billion, which is 14% more than a year earlier.

The net profit of public companies increased by 199%, reaching 3.2 billion US dollars.

Market capitalization increased by 41%, this indicator improved in 59% of companies.

The total amount of funds attracted by European companies reached $ 9.2 billion, an increase of 53% compared with 2013 and 97% compared with the average for the previous 10 years. As part of the IPO, companies received $ 1.9 billion – more than the total volume raised over the previous seven years.

The volume of venture financing amounted to 2 billion US dollars, which is only 30 million US dollars less than the record figure for 2006.

2014 was the second successful year for the European M & A market. The total value of 27 transactions concluded on the European market in 2014 amounted to 6.9 billion US dollars. This is the second largest cumulative figure since 2007 (excluding super-large transactions).

Information base of research

The conclusions of our research are made on the basis of the analysis of the activities of companies that are engaged in the industrial application of modern biotechnology. The objects of study were companies operating in regions with a developed biotechnology sector (North America, Europe and Australia). Modern biotechnologies involve the use of a wide range of methods of genetic engineering and molecular biology for the development of new drugs and diagnostics. Our primary research was based on information that is publicly available (companies’ own reports, information posted on corporate websites, etc.). We also relied on published data from third parties and regional sources of information. The names of the sources are indicated in the footnotes for the text of the report, as well as in the notes to the tables.

How can EY’s International Biomedical Services Center help your business?

Without exception, companies in the biomedical industry, starting with startups and ending with large international corporations, face new challenges due to changes in the organization of health care. Regulatory oversight is increasing, and the requirements for the quality of services and products are constantly increasing. The big data and intellectual technologies that are available to patients today are forcing industry participants to fundamentally revise their approaches, paying particular attention to improving the transparency of activities and satisfying consumer demands. With the emergence of players from other sectors in the industry, it is becoming increasingly difficult to establish productive cooperation.

Under today’s conditions, industry participants need confidence that their business model, starting from the development stage of a new product and ending with its launch into the market, is viable and will ensure further growth.