BioWorld International Correspondent

LONDON - It may seem unlikely, in the face of the sharp downturn in global markets in general and technology stocks in particular, but the biotechnology industry worldwide is not only financially sound, it is also experiencing significant growth, according to Ernst & Young's latest report, published Monday.

The report, "Beyond Borders," analyzed the status of more than 4,200 companies in 25 countries. Of them the 622 publicly quoted companies had combined revenues of $35 billion, spent $16 billion on R&D and employed more than 188,000 people in 2001.

As it matures biotechnology is becoming less dependent on cozying up to big pharma. While more than 480 biotech/pharma collaborations were announced in 2001, there were almost 550 biotech/biotech deals.

Glenn Crocker, European editor of the report and UK head of biotechnology at Ernst & Young, said despite the state of the capital markets, biotechnology companies have found ways to reach critical mass and remain independent, through cross-border alliances, mergers, acquisitions and spin-offs.

"This reflects a continuing trend in which biotechs are becoming less dependent on the large pharma companies, at a time when the pharma companies are more in need of biotechs to help fill gaping holes in product pipelines," he said.

In Europe the impact of market volatility is reflected in one stark statistic: IPOs were significantly down, with only US$175 million of financing raised in 2001, compared to over $3.1 billion in 2000.

In part, private capital moved in to fill the vacuum left by the public markets, and in total Europe's biotechnology companies raised $2 billion in 2001, a big drop from 2000, but still the second best year to date.

There was a rise in big-ticket private equity fund raisings, with 23 companies raising more that $20 million, compared to 15 in 2000. Private capital was fueled in part by an expansion in cross-border venture capital financing.

"However, much of that funding is focused on two countries, Germany and the UK, together accounting for 70 percent of European funds raised," Crocker said.

"There is some concern over the sheer number of early-stage companies now in existence in Europe," he added. While it is encouraging to see research getting funding, the future demands for venture capital will be huge. "If the biotech venture capital community doesn't have the appetite to sustain all 1,700 private companies in the sector, a significant shakeout could be on the horizon."

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