In fact, financing topped $21.3 billion for US biotechs last year, the $5.5 billion contributed by venture capital firms beat the record set of $39.4 million in 2000, according to Ernst & Young's annual financial report card on the industry.
Whether this pace will continue is less certain, Scott Morrison, E&Y's US life sciences director, tells The San Francisco Chronicle, because new product approvals will slow as regulators scrutinize applications. And drug prices may face more pressure in a political environment focused on health care reform and the federal budget deficit.
Beyond that, constriction in the larger capital markets has finally started to affect biotech companies this year. "Biotech has not been immune from the ills of the subprime mortgage meltdown," he tells the paper. "Total fundraising year to date in 2008 is down by 60 percent."
However, the financing squeeze may not hit biotech as hard as it does some other industries. Companies in the sector will be buoyed by the reserves of cash they have already accumulated, Morrison adds. Of the 386 publicly traded US biotechs, 49 percent have more than two years of cash on hand, E&Y reported. Of those, 27 percent have more than five years of cash.
"It's an indication that the industry as a whole is well positioned to weather a downturn in the fundraising environment," Morrison tells the paper, adding that venture capital firms are also well financed, and are still eager to invest in innovative biotechs.
The enthusiasm of VC firms is driven by the healthy rewards flowing to young biomedical companies that often attract rich development deals or acquisition bids from pharma. The total potential value of mergers, acquisitions and drug development alliances was nearly $60 billion in the United States in 2007, surpassing levels in all prior years, E&Y reported.
The Bay Area biotech cluster continues to outdistance competing regions by several measures, according to E&Y. The market capitalization of the Bay Area's 77 public companies in 2007 was $148.6 billion, which comprised 40 percent of the market value of US biotechs.
The region closest behind was the New England cluster centered in Boston, where 62 public companies were worth $65.1 billion or 17.6 percent of the US biotech market capitalization.