Global Biotechnology IBIS

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IBISWorld Industry Report 13 January 2011 Global Biotechnology: L6724-GL DISCLAIMER This product has been supplied by IBISWorld Inc. ('IBISWorld') solely for use by its authorized licenses strictly in accordance with their license agreements with IBISWorld. IBISWorld makes no representation to any person with regard to the completeness or accuracy of the data or information contained herein, and it accepts no responsibility and disclaims all liability (save for liability which cannot be lawfully disclaimed) for loss or damage whatsoever suffered or incurred by any other person resulting from the use of, or reliance upon, the data or information contained herein. Copyright in this publication is owned by IBISWorld Inc. The publication is sold on the basis that the purchaser agrees not to copy the material contained within it for other than the purchasers own purposes. In the event that the purchaser uses or quotes from the material in this publication - in papers, reports, or opinions prepared for any other person - it is agreed that it will be sourced to: IBISWorld Inc.

Transcript of Global Biotechnology IBIS

Page 1: Global Biotechnology IBIS

IBISWorld Industry Report 13 January 2011 Global Biotechnology: L6724-GL DISCLAIMER This product has been supplied by IBISWorld Inc. ('IBISWorld') solely for use by its authorized licenses strictly in accordance with their license agreements with IBISWorld. IBISWorld makes no representation to any person with regard to the completeness or accuracy of the data or information contained herein, and it accepts no responsibility and disclaims all liability (save for liability which cannot be lawfully disclaimed) for loss or damage whatsoever suffered or incurred by any other person resulting from the use of, or reliance upon, the data or information contained herein. Copyright in this publication is owned by IBISWorld Inc. The publication is sold on the basis that the purchaser agrees not to copy the material contained within it for other than the purchasers own purposes. In the event that the purchaser uses or quotes from the material in this publication - in papers, reports, or opinions prepared for any other person - it is agreed that it will be sourced to: IBISWorld Inc.

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Contents Industry Definition................................................................................................................................................. 3

ACTIVITIES (PRODUCTS AND SERVICES) ......................................................................................................................................3 SIMILAR INDUSTRIES ........................................................................................................................................................................3 DEMAND & SUPPLY INDUSTRIES ....................................................................................................................................................3

Key Statistics ........................................................................................................................................................ 4 CONSTANT PRICES ...........................................................................................................................................................................4 CURRENT PRICES .............................................................................................................................................................................4 REAL GROWTH...................................................................................................................................................................................5 RATIO TABLE......................................................................................................................................................................................5 GRAPHS ..............................................................................................................................................................................................5

Segmentation ....................................................................................................................................................... 7 PRODUCTS AND SERVICE SEGMENTATION..................................................................................................................................7 MAJOR MARKET SEGMENTS..........................................................................................................................................................10 INDUSTRY CONCENTRATION.........................................................................................................................................................11 GEOGRAPHIC SPREAD ...................................................................................................................................................................13

Market Characteristics........................................................................................................................................ 17 MARKET SIZE ...................................................................................................................................................................................17 LINKAGES .........................................................................................................................................................................................17 DEMAND DETERMINANTS ..............................................................................................................................................................18 DOMESTIC AND INTERNATIONAL MARKETS................................................................................................................................19 BASIS OF COMPETITION.................................................................................................................................................................20 LIFE CYCLE.......................................................................................................................................................................................22

Industry Conditions............................................................................................................................................. 23 BARRIERS TO ENTRY......................................................................................................................................................................23 TAXATION .........................................................................................................................................................................................24 INDUSTRY ASSISTANCE .................................................................................................................................................................25 REGULATION AND DEREGULATION..............................................................................................................................................25 COST STRUCTURE ..........................................................................................................................................................................27 CAPITAL AND LABOR INTENSITY...................................................................................................................................................28 TECHNOLOGY AND SYSTEMS .......................................................................................................................................................29 INDUSTRY VOLATILITY....................................................................................................................................................................31 GLOBALIZATION...............................................................................................................................................................................31

Key Factors ........................................................................................................................................................ 33 KEY SENSITIVITIES..........................................................................................................................................................................33 KEY SUCCESS FACTORS................................................................................................................................................................33

Key Competitors ................................................................................................................................................. 35 MAJOR PLAYERS .............................................................................................................................................................................35 PLAYER PERFORMANCE ................................................................................................................................................................35 OTHER PLAYERS .............................................................................................................................................................................41

Industry Performance ......................................................................................................................................... 44 CURRENT PERFORMANCE.............................................................................................................................................................44 HISTORICAL PERFORMANCE.........................................................................................................................................................45

Outlook ............................................................................................................................................................... 49

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INDUSTRY DEFINITION Global Biotechnology

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Industry Definition Biotechnology is the application of science and technology to living organisms as well as parts, products and models thereof, to alter living or non-living materials for the production of knowledge and biotechnology products and services. The definition of biotechnology as used by the US Census Bureau and the National Science Foundation is the application of molecular and cellular processes to solve problems, conduct research, and create goods and services.

ACTIVITIES (PRODUCTS AND SERVICES) The primary activities of this industry are: • Cell and tissue culture and engineering • DNA coding, mapping and sequencing • Process biotechnologies • Protein sequencing, synthesis and engineering • Subcellular organism research The major products and services in this industry are: • Human health technologies • Biotechnology services • Agriculture and environment biotechnology • Animal health technologies • Biodiagnostics

SIMILAR INDUSTRIES Industry: C1932-GL - Global Fertilizers and Agricultural Chemicals Manufacturing Description: Firms in this industry formulate and prepare fertilizer products, pesticides and other agricultural chemicals. Industry: C1933-GL - Global Pharmaceuticals and Medicine Manufacturing Description: Companies in this industry manufacture biological, medicinal and pharmaceutical products in various forms including ampoules, tablets, capsules, vials, ointments, powders, solutions and suspensions.

DEMAND & SUPPLY INDUSTRIES A-GL - Global Agriculture, Hunting, Forestry and Fishing C1119-GL - Other Global Food Product Manufacturing C1921-GL - Global Basic Inorganic Chemicals Manufacturing C1922-GL - Global Basic Organic Chemicals Manufacturing C1931-GL - Global Resin and Synthetic Rubber Manufacturing C1932-GL - Global Fertilizers and Agricultural Chemicals Manufacturing C1933-GL - Global Pharmaceuticals and Medicine Manufacturing C2111-GL - Global Glass and Glass Products Manufacturing C2526-GL - Global Health Care Equipment Manufacturing

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KEY STATISTICS Global Biotechnology

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Key Statistics CONSTANT PRICES 2006 2007 2008 2009 2010 Industry Revenue *121,209.3 *135,602.3 *148,631.8 *160,968.2 *180,767.5 $Mill Industry Gross Product *75,995.1 *85,019.3 *94,906.5 *103,448.1 *119,379.1 $Mill Number of Establishments *9,775 *9,850 *9,895 *9,923 *10,012 Units Number of Enterprises *7,280 *7,400 *7,495 *7,517 *7,585 Units Employment *365,000.0 *380,000.0 *394,060.0 *409,822.0 *440,559.0 People Exports N/A N/A N/A N/A N/A $Mill Imports N/A N/A N/A N/A N/A $Mill Total Wages *32,814.4 *34,642.9 *35,415.3 *37,314.6 *38,854.1 $Mill Total Assets N/A N/A N/A N/A N/A $Mill Domestic Demand NC NC NC NC NC $Mill

CURRENT PRICES 2006 2007 2008 2009 2010 Industry Revenue *111,737.1 *128,585.2 *143,951.3 *158,122.1 *180,767.5 $Mill Industry Gross Product *70,056.3 *80,619.7 *91,917.8 *101,619.0 *119,379.1 $Mill Number of Establishments *9,775 *9,850 *9,895 *9,923 *10,012 Units Number of Enterprises *7,280 *7,400 *7,495 *7,517 *7,585 Units Employment *365,000.0 *380,000.0 *394,060.0 *409,822.0 *440,559.0 People Exports N/A N/A N/A N/A N/A $Mill Imports N/A N/A N/A N/A N/A $Mill Total Wages *30,250.0 *32,850.2 *34,300.0 *36,654.8 *38,854.1 $Mill Total Assets N/A N/A N/A N/A N/A $Mill Domestic Demand NC NC NC NC NC $Mill

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KEY STATISTICS Global Biotechnology

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REAL GROWTH 2006 2007 2008 2009 2010 Industry Revenue *5.8 *11.9 *9.6 *8.3 *12.3 % Industry Gross Product *8.2 *11.9 *11.6 *9.0 *15.4 % Number of Establishments *0.8 *0.8 *0.5 *0.3 *0.9 % Number of Enterprises *2.1 *1.6 *1.3 *0.3 *0.9 % Employment *6.0 *4.1 *3.7 *4.0 *7.5 % Exports N/A N/A N/A N/A N/A % Imports N/A N/A N/A N/A N/A % Total Wages *5.0 *5.6 *2.2 *5.4 *4.1 % Total Assets N/A N/A N/A N/A N/A % Domestic Demand NC NC NC NC NC %

RATIO TABLE 2006 2007 2008 2009 2010 Imports share of domestic demand N/A N/A N/A N/A N/A % Exports Share of Revenue N/A N/A N/A N/A N/A % Average Revenue per Employee *0.33 *0.36 *0.38 *0.39 *0.41 $Mill Wages and Salaries Share of Revenue *27.07 *25.55 *23.83 *23.18 *21.49 %

GRAPHS Revenue

Revenue Growth Rate

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KEY STATISTICS Global Biotechnology

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Employment

Note: Unless specified, an asterisk (*) associated with a number in a table indicates an IBISWorld estimate and references to dollars are to US dollars.

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SEGMENTATION Global Biotechnology

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Segmentation PRODUCTS AND SERVICE SEGMENTATION

Product/Services Share

Agriculture and environment biotechnology 14.0%

Animal health technologies 10.0%

Biodiagnostics 10.0%

Biotechnology services 18.0%

Human health technologies 48.0%

The vast majority of industry companies research and develop products for the human health market; products from this segment account for some 48% of global industry revenue. As with other industry segments, the range and experiences of companies are highly diverse and many make a significant financial loss until regulatory approval of a product or process. Companies in this industry include small R&D-intensive establishments that license out technologies or develop products in conjunction with larger entities and major pharmaceutical or chemical firms with product lines in other industries.

As R&D is concentrated in this product line, IBISWorld assumes that its share of total income will grow over the next five years. As the industry expands away from treatments for chronic disorders – mainly in the oncology segment – and into elective treatments, for such things as obesity and other non-fatal conditions, then sales are likely to increase even faster (as there is a bigger market). Furthermore, development of pharmacogenomics (the use of genomic or genetic information to predict a drug's efficacy or toxicity and to explain inter-individual differences in response to a drug) will also open the way to personalized drug use.

Industry products are mainly targeted at diseases such cancer, Alzheimer's, heart disease, diabetes, multiple sclerosis, HIV/AIDS and arthritis. R&D activities in human health are broadly directed at therapeutics (e.g. biopharmaceuticals such as biotechnology-derived proteins, antibodies and enzymes and genetic therapies), medical diagnostics (e.g. tests for specific gene or protein markers) and preventives (e.g. new vaccines developed through recombinant DNA methods). A further 10% of companies work in the biodiagnostics segment, which comprises the development and manufacture of biologically based diagnostics largely for the diagnosis of human disease.

Research in this area can often be controversial. For example, in the United States, during his time in office, President George W Bush prevented federal funding being used for testing on stem cell research. Private financing of research, however, advanced and in 2004, the state of California bucked the national trend and voted for state financing of embryonic stem cell research. The vote helped create the California Institute for Regenerative Medicine, which is to distribute about $300 million annually in stem cell funds until 2014. Stem cell research may revolutionize through a new technique that became public in 2007. Researchers in the United States and Japan discovered that ordinary human skin

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cells could be transformed into what appear to be embryonic stem cells by the addition of four genes, without the need to create an embryo.

Animal health, and marine and terrestrial microbial

R&D into animal health technologies accounts for about 10% of total industry revenue. Biotechnology applications related to animal health are largely the same as in human health. These are namely, applying advances in genetics and molecular biology to discover and create new and more powerful therapeutic products (proteins, antibodies, enzymes, genetic therapies), diagnostic tools (e.g. for gene or protein markers of disease conditions) and preventive measures such as vaccines.

In addition, biotechnology provides powerful new tools for improving farm animal breeding programs, including genetic mapping methods to identify both disease-resistant animals and certain specific genes related to health weaknesses and defects. In livestock production, biotechnology is used to develop animals that have better growth and muscle mass and improved disease resistance.

Marine and terrestrial microbial technology is another product line in this segment. Companies primarily investigate marine and terrestrial organisms adapted to extreme conditions such as high pressure, heat or total darkness. Such organisms can provide commercial biotech products. Industry research is focused on microbiology, virology and microbial ecology, followed by extractions, purifications and separations. Microbes also hold promise in diagnostic tests (and antibiotics) and in the synthesis and sequencing of proteins and peptides.

Agriculture

Most commercial agricultural biotechnology products have production-enhancing traits that complement or replace traditional agricultural chemical inputs. Crops are designed to be herbicide-tolerant or pest-, virus- or fungus-resistant. Soybean is the largest biotech crop (in planted acre terms) in the world, followed by maize, cotton and canola. Biotechnology is also used to improve agronomic characteristics of crops, including crops that use nitrogen more efficiently or are developed to better tolerate stress, such as drought, alkaline soils or frost.

In 2008, the global area of approved biotech crops was 309 million acres – up from 282 million acres in 2007. More than 90% of farmers growing biotech crops are located in developing nations, although the US dominates all others in terms of biotech crop area. In 2007, the United States had 142.6 million acres of biotech crops (primarily soybean, maize and cotton), compared with the second largest, Argentina – with 47.2 million acres. In 2005, the rice genome was mapped and projects to sequence soybean, corn, and sheep genomes were also announced. Researchers use genetic maps to improve the nutrient quality of food crops and strengthen plants' abilities to resist drought conditions, insect infestation and plant disease.

In addition, by understanding the makeup of animals at a cellular level, scientists can develop leaner and more nutritious dairy and meat products, as well as help animals to live healthier lives. In December 2006, the Food and Drug Administration (FDA) in the United States concluded that there is no difference between food from cloned animals and food from conventional livestock. The Federal Government may soon declare that cloned animals are safe for human food supply, allowing grocery stores and supermarkets to sell these products.

The application of biotechnology to industrial and agricultural processes works by applying natural or engineered microbes to other products in order to extend shelf life, enhance nutritional characteristics, or preserve or create foods and industrial products. Company activities center on food processing, specialty chemicals (such as amino acids, which is the largest product segment) or other commodity chemicals and applications. Some examples of quality-enhanced foods

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being developed through research into agricultural production include foods with lower saturated fats, increased vitamin content and improved flavor and shelf life.

Environment

Environmental Remediation and Natural Resource Recovery (ERNR) firms apply life-science tools, such as genomics, proteomics and gene shuffling, to conventional manufacturing. These firms have to goal discovering new or improved production methods to make industrial raw materials, intermediate and consumer goods. The economic and social effects of ERNR applications include greater manufacturing efficiency and lower production costs, less industrial pollution and resource conservation. Enzyme-catalyzed processes are generally more efficient than chemical processes because input yields are higher and fewer steps are involved. Current ERNR research is focused on manipulation of enzymes or enzymatic reactions, but some firms are working to create new industrial products from engineered bacteria or cells.

In the immediate future, one of the most promising ERNR applications may be for plastics and fuels. Especially so given the positive environmental implications of cleaner fuel, the reality of finite petroleum resources and the national security issues of dependence on Middle Eastern and Venezuelan fuel. However, ERNR firms are also working on applications in optics, materials and human health. As with other biotechnology applications, identifying the full range of ERNR firms' research and products is complicated by the fact that ERNR applications are developed and adopted within a wide range of industrial sectors. These include minerals and fuel, energy, chemicals, textiles, food and feed and pulp and paper.

The United States has been trying to rapidly establish a sustainable biofuel industry. In 2005, President Bush signed the Energy Policy Act, which contains almost $1,000 million in funding authorizations for bioenergy projects and further R&D. Moreover, the National Security and Bioenergy Investment Act of 2005 updated the Biomass Research and Development Act, with the goal of rapidly boosting the production of bio-based fuels at competitive prices and developing a broad range of bio-based products that replace petroleum-based products. The bill also established incentives to increase the production of ethanol from cellulose-containing crops and crop wastes and provided investment tax credits for the construction of biorefineries that convert cellulose to transportation fuel and bio-based products. The Renewable Fuels, Consumer Protection and Energy Efficiency Act of 2007 set the production target at 13.2 billion gallons of renewable fuels by 2012 - compared with four billion gallons produced in 2006.

Biotechnology services

This product segment is very broad and companies may earn income in any of the aforementioned areas. Services in this case largely comprise the provision of technical, manufacturing or research services that are specifically biotechnology oriented. As such, legal, consultancy or public relations services are not included, as biotechnology specialists do not undertake them. IBISWorld estimates that services account for about 18% of revenue. The segment grew relatively robustly in recent years due to the outsourcing of labor-intensive or niche research functions. Moreover, as companies develop a sound financial base and solid product pipeline (especially the larger and faster growing US companies) they tend to employ more revenue-earning labor (e.g. in sales). Services are often outsourced to developing countries.

Growth by segment

Human health is the dominant segment within the Biotechnology industry and as such, was largely responsible for growth over the past five years. The US industry derives more than 60% of its revenue from human health products, compared with about 40% in the EU. In developed countries, this segment is facing increasing pressures to cut the cost of its products, which led to higher demand for generic versions of biotech drugs or biosimilars. Since 2005, the rising demand for biofuels saw very strong growth in the agricultural segment. For example, in 2007, Monsanto experienced a 57% rise

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in demand for corn seeds and traits due to the substantial increase in demand for ethanol, which is manufactured from corn.

Comparing growth rates across nations demonstrates the various stages of industry development. For example, in 2007, the Australian human health segment expanded by an estimated 8%, while in India, growth reached 27% (Financial Express, 15 June 2007). The agricultural sector grew by only about 3% in Australia, where GM plantings are still at a very early stage. Meanwhile in India, this segment experienced 55% growth.

MAJOR MARKET SEGMENTS

Market Segment Share

Pharma and medical manufacturers and wholesalers 36.0%

Public sector 36.0%

Agriculture and food sector 20.0%

Resource industries 8.0%

Pharmaceutical and medical manufacturers and wholesalers

Companies in the pharmaceutical industry often require the use of organisms, processes or other technologies, including drugs/products, which have been developed by smaller biotech entities. Small biotech companies may also have discovered and patented technology that is then licensed to pharmaceutical producers for use in medicines etc. Pharmaceutical firms have struggled to develop new, safer and cheaper drugs for market and most major product lines are challenged by the sale of cheaper generic products (when the patent expires) especially in areas of the world where intellectual property is less well protected. As a result, biotechnology drugs have been the main drivers of growth, particularly in developed market such as the US.

Many pharmaceutical companies have acquired late stage development drugs from biotechnology companies to invigorate their own biotech offshoots, or use their marketing and financial muscle to encourage joint ventures. Big Pharma is attracted by the patent protection offered to new biotech drugs, the huge growth potential of the market and the sidestepping of regulatory challenges (at least for late stage developed products). Over the long term, the difficulties associated with competitors making generic copies of biotech products is also attractive - the process of synthesizing living cells is prone to contamination and is highly variable; as such, the regulation of biotech generics will be significantly tougher than for normal pharmaceutical products.

Public sector

The public sector in developed countries spends significant sums on public health. Sales of therapeutic and other pharmaceutical products are dependent on the availability of reimbursement to the physician or consumer from third-party

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payers, such as the government or private insurance plans, and products may be affected by price controls, product formularies (lists of recommended or approved products), and competitive tenders that require the submission of a bid to sell products. If the public sector chooses to reduce the reimbursement rate for a particular product, is slow in making a product available through reimbursement schemes, or allows reimbursement for a competitor's product, a company in this industry could face significant financial problems. Given that healthcare reform is a major government policy issue, the size of the public sector market could change significantly (see Current Performance section).

Agriculture and food producers

Buyers in this segment focus on purchases of genetically modified crop seeds that increase yields, reduce the cost of farming by cutting expenditure on insecticides, and protect against crop failure due to adverse environmental conditions. The market for GM crops is highly global - and is especially prevalent in Latin America; however, the US remains the main growing area with around three times more acreage under seed than the second placed country. The agriculture sector is also a major buyer of animal health products and other drugs that increase disease resistance and improve meat quality. Growth in this market segment is limited by legislative and regulatory approval of products and public acceptance of genetically modified foodstuffs. Food producers in the food, beverage and tobacco manufacturing sector use a number of industry products to modify the nutritional value of foods or to extend shelf life.

Resource industries

Biotechnology products and processes are used in the chemical and fuel sectors to develop new materials. Customers include oil giants exploring ways that biotechnology can reduce dependence on fuel. Thanks to biotechnology, ethanol can be made from everything from wood chips to corn and promises to be a viable alternative to petroleum.

INDUSTRY CONCENTRATION Industry concentration is low

Industry concentration indicates the extent to which major players dominate the industry; IBISWorld determines industry concentration by such measures as the proportion of industry revenue earned by the four largest industry players, the geographic spread of establishments, and the size of company by employee numbers. IBISWorld believes that the Global Biotechnology Industry exhibits a low level of industry concentration.

Factors that contribute to a low level of concentration in this industry include: (1) specialization in certain diseases or products that are not transferable across other industry segments; (2) access to patents for anyone that can accurately prove the worth of their discovery; (3) the fact that the industry is in the "growth" stage of its economic life cycle and new players are constantly entering the market to provide niche services; (4) the rapid rate of technological change that increases industry capabilities; (5) the rapid growth of new markets (for instance, the move away from oncology products to drugs for non-chronic illnesses and for selective procedures); and (6) the speedy development of the industry in many emerging markets that have cheap labor costs and a more liberal regulatory environment.

Major players

IBISWorld data show that the top four industry players account for around 30% of industry revenue; a low concentration level is anything below 40%, while between 40% and 70% is considered a medium level of concentration. Moreover, major players are split into the human therapeutics segment and agriculture segment, which further undermines industry concentration. Over the next five years, IBISWorld believes that the industry will increase in concentration; as the industry matures and companies seek to gain market share, they will acquire domestic and foreign competitors. One example of

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this is Monsanto, whose sales have increased considerably as a result of acquisitions in the seed development segment of this industry.

Income

This industry displays a medium level of geographic concentration with 60% of revenue earned by companies based in the US. The EU earns 27.5% although this is spread among a number of countries with Denmark, the UK and Germany leading the way. The EU industry is well developed, although it lags the US industry in many key measures (namely, revenue, employees, R&D spend and venture capital funding); biotechnology in developing countries is growing quickly, but too many legal and bureaucratic factors will temper growth in coming years. As such, income generation is likely to remain dominated by the US. IBISWorld data show that average revenue per enterprise is about $16.92 million; this reflects a few very large companies and many smaller ones with much reduced revenue.

Employees

IBISWorld data show that the average number of industry employees per enterprise was 50.1 workers. This is relatively standard across all regions; data show that the largest companies (by workers) are located in Austria (79.2), followed by Ireland (73.7) and the US (67.6); the average UK company has 52 workers. The average number of employees per enterprise has increased over the past five years, from 45 in 2004. The increase reflects industry growth - as companies earn more revenue they tend to employ more people; moreover, mergers and acquisitions weed out smaller operators to the benefit of internationally competitive entities.

Outlook

Over the medium to long term, the industry is expected to experience growing industry concentration. Factors that cause and perpetuate such a change include: (1) acquisition and merger activity caused by the high levels of sunken costs into R&D, labor and equipment; (2) acquisition and merger activity caused by the limited purse of venture and stock market capital fleeing to quality; (3) the tendency towards applying patents to a variety of products and processes, which makes start up operations more difficult and costly; (4) government/private funding that tends to go to established firms with a proven record of delivery; and (5) a market leader's position for many drugs/products in major industry segments (and the difficulty in making generic biotech products).

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GEOGRAPHIC SPREAD Year: 2008 Enterprises

Region Percentage

North America 53.5

Europe 29.4

North Asia 7.0

Oceania 4.7

India & Central Asia 3.5

South America 1.9

Africa & Middle East 0.0

South East Asia 0.0 Revenue

Region Percentage

North America 61.6

Europe 27.5

North Asia 5.8

Oceania 0.9

India & Central Asia 2.4

South America 1.8

Africa & Middle East 0.0

South East Asia 0.0

Biotechnology industry operators tend to develop in geographic clusters that comprise biotechnology and connected firms, specialized suppliers and associated research institutions (such as universities and hospitals). This is largely because companies are small, young, reliant on consistent flows of investment capital or are affiliated (or spun off from) a university. Geographic proximity allows reduced storage and transport/travel costs and the development of professional and personal relationships. A dominant industry business model shows that geographic industry clusters 'churn' work - i.e. they feature sustainable and consistent levels of innovation through the development cycle of new products. As such, labor and investors are retained and profit and knowledge can be reinvested in new work. Six factors appear critical to the development of a biotechnology presence:

The availability of private venture capital and local entrepreneurship; the availability of public sector funding, the level of industry regulation and local tax laws; a strong research presence, primarily related to the presence of universities, hospitals and government agencies; proximity to highly skilled personnel (again, this is often provided by universities);

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proximity to large private enterprises in a number of related industries with which close relationships develop; proximity to the subject of research (i.e. rural areas for agricultural studies and water for marine and aquatic studies).

As companies grow (or become part of larger pharmaceutical company networks), the necessity for geographic clustering is likely to diminish. Many large companies in the industry already use several locations due to the technical expertise that each location can provide - for instance, animal health laboratories and human health testing facilities may all be located at different places around the world. Division of labor theory will also promote the out-sourcing of labor intensive or niche R&D services to emerging markets and (as companies become larger) purchase costs will be reduced thanks to growing economies of scale. Moreover, communication technology allows the development of virtual networks across the globe.

There has been a marked difference in growth rates between the various regions. Major players, particularly those operating in the human health market, have reported slower growth in the US that has been offset by an improvement in other regions. This can be related to slower growth in the US economy, as well as increasing funding in other areas.

The United States

The US is the major Global Biotechnology industry player with around 53.5% of all enterprises and 61.6% of industry revenue. Data show that this industry is highly skewed towards certain regions of the country (clustering). According to the US Department of Commerce, the Biotechnology Industry is highly geographically concentrated in six states - namely, California (25% of total firms), Massachusetts (9%), Maryland (7.5%), North Carolina (5.5%), Pennsylvania (4.5%), and New Jersey (6%). The top 10 (rounded out by Texas, Washington, New York and Wisconsin with 3-4% each), account for approximately 70% of biotechnology-related establishments and employment.

On a per capita basis, California dominates the industry with around 25% of industry establishments and 12.2% of the US population - a significant 13-percentage point discrepancy. Establishment numbers are buoyed by the presence of Federal Government agencies, universities, international agencies, industry associations and biotech-related policy 'think tanks' (also in New York), and major corporations (also in New York). The State Government has also spent resources on biotechnology research - taking advantage of established companies and infrastructure by enacting legislative change that increases industry opportunities. In 2004, California bucked the Federal Government decision and voted for state financing of embryonic stem cell research. The vote helped create the California Institute for Regenerative Medicine, which is to distribute around $300 million annually in stem cell funds until 2014.

Major universities that have active biotechnology interests include Stanford and Berkeley (both California) and the University of California. The Mid East region boasts Georgetown in DC, Cornell and Columbia in New York, Johns Hopkins and the University of Maryland in Maryland, Princeton and Rutgers in New Jersey and Carnegie Mellon and the University of Pennsylvania in Pennsylvania. New Jersey, Massachusetts and Pennsylvania are also home to a number of large pharmaceutical and chemical manufacturing companies.

European Union

The European Biotechnology industry is substantial, but trails that of the US. The EU comprises around 29.4% of industry enterprises and about 27.5% of industry revenue. The European industry follows the clustering model with major centers in London, Edinburgh and Dublin, and in Continental Europe, Medicon Valley (Sweden/Denmark), Biovalley (France/Germany/Switzerland), BioAlps, (France/Switzerland), and BioRhine, BioTech Munich, and BioCon Valley (all Germany). The industry is buttressed in many areas by the strength of pharmaceutical companies with biotechnology interests (such as Novo Nordisk and Novozymes in Denmark).

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Germany holds the largest share of industry establishments in the region, with 22% (according to an Ernst & Young study from 2006), followed by the UK (17%), France (11%) and Sweden (7%). Switzerland, The Netherlands and Denmark each hold 5%. The industry is at different stages of its economic life across the continent with the industry most mature in Germany and the UK. In these countries, the number of enterprises has fallen in recent years as companies merge or are acquired by other biotechs (often from the US), or pharmaceutical companies. However, growth has been strong in the Iberian Peninsula, Italy, Belgium and Ireland (which has been one of the most prominent marketers of the industry to foreign investors). The leading revenue earners are Denmark (around 6% of the global total), the UK (5.9%) and Germany (3.8%).

According to a research report produced by Critical I (Biotechnology in Europe: 2006 Comparative Study), European companies are under-funded compared to their US counterparts. This means that companies tend to be smaller and grow more slowly (in terms of revenue and employees) than those in the US. This is also reflected by the fact that 92.4% of European biotechnology companies are privately owned - compared with only 76.7% in the US, and 84% globally. Even the most mature European companies tend to be smaller than comparable enterprises in the US. This slow transition to maturity means that they are uncompetitive in attracting international finance. The better European firms tend to be attractive acquisition targets for faster growing US concerns; meanwhile some European firms actively look to enter the US market in order to access US regulators, healthcare markets and capital funding. On the plus side, the continent continues to produce a large number of new companies, suggesting that entrepreneurism, research, intellectual property incorporation and technology transfer are in healthy shape.

Asia

According to Ernst & Young, biotechnology companies in Asia have been growing at a very fast rate. In transitional countries, this has been supported by government policy that emphasized intellectual property protection. In developed countries, such as Japan, Taiwan and South Korea, biotechnology is viewed as the next generation of high technology, after telecommunications and computer equipment have been commoditized.

According to E&Y, Asian countries, and in particular transitional countries such as India and China, can focus on the following competitive areas in order to boost their biotechnology sectors: contract research or manufacturing, low-cost vaccines, generics, bioinformatics, traditional Chinese medicine and technologies which have been slow to develop in Western countries, such as stem-cell research. South Korea and Singapore have made this research area a priority, given the reluctance of the US Federal Government to fund companies working on stem-cell research.

India has around 270 biotechnology companies earning around $2,500 million per year - on a par with small-medium EU countries. The industry is growing speedily due to domestic R&D spending - the public sector has keenly supported the industry and offers some foreign investors access to finance, a highly educated workforce and new laboratories. The industry is primarily located (in clusters) at Genome Valley in Hyderabad and in Bangalore. Like other developing producers, India produces niche research into domestic health problems, as well as more widespread conditions.

On the negative side the industry is hampered by a bureaucratic regulatory system; moreover, with India's entry to the WTO came more stringent intellectual property rights legislation that will undermine the country's generic drug production (with potential flow-on effects for the biotech industry). At the same time, many foreign investors are likely to see how well IP rules are enforced before disclosing manufacturing techniques and other processes to Indian contractors (or any foreign contractor).

IBISWorld believes that the Chinese biotechnology market is slightly smaller than that of India - with 175 companies generating around $2,200 million per year. Much of this came in the form of services provided to US and European companies at a fraction of the labor cost. However, as expertise has increased and emigrant labor has been encouraged

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SEGMENTATION Global Biotechnology

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back with funding and a more lenient regulatory regime than in other countries, early drug development work and toxicology studies have been increasingly popular. Government support for the industry has been forthcoming in the form of tax incentives and the creation of high-tech clusters at Beijing, Shanghai, and Shenzhen.

Oceania

This region is dominated by Australia, where the local Biotechnology industry has been growing at about 3.7% per annum in the past five years. The sector is dominated by CSL Limited, which developed Gardasil, a vaccine to prevent cervical cancer. In June 2006, Gardasil was approved by US Food & Drug Administration for vaccination of women aged between the ages of 9 and 26. In November 2006, the Australian Federal Government signed a $400-million deal with CSL, which ensures Gardasil will be freely available to school girls and women under 26. The sharp increase in CSL's profits saw this region become the first worldwide to achieve profitability in 2005.

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MARKET CHARACTERISTICS Global Biotechnology

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Market Characteristics MARKET SIZE

IBISWorld estimates that Global Biotechnology industry revenue will reach $180.8 billion in 2010, having increased at an average rate of 9.6% per annum over the five years to the end of 2010. Growth in 2010 is expected to recover to 12.3%. The recovery follows a relatively modest 8.3% rise in 2009 as the global recession eroded demand for non-essential health products and easing fuel prices tempered the biofuels craze. The greater effect on the industry in 2009, however, was the reluctance of private investors to provide capital as the collapse in stock prices prompted increased risk aversion. This investor reluctance will ease in 2010, although investors will remain highly sensitive to any economic weakness. Any prolonged lack of funding would result in reduced research and development (R&D) spending, which, if not reversed, will jeopardize the industry's future revenue growth.

The vast majority of revenue is generated in the EU and the United States, where the industry showed growth over the past five years. In recent years however, the industry's major players reported slower growth rates for US sales compared with other parts of the world. This trend is expected to continue into the over the next five years as standards of living and healthcare access improve in developing nations.

Firms engaged in biotechnology activities cover a large range. On one end are small, dedicated biotechnology companies that are R&D-intensive and operate primarily with venture capital, grants, initial public offerings and collaborative agreements. On the other end are large, diversified companies with significant in-house R&D resources and well-established production, commercialization and distribution processes.

Unless otherwise stated, all financial data is presented in constant 2010 US dollars, converted from national currencies using average annual exchange rates.

LINKAGES Demand Linkages

A-GL - Global Agriculture, Hunting, Forestry and Fishing This industry demands therapeutic products (proteins, antibodies, enzymes, genetic therapies) and diagnostic tools (e.g. for gene or protein markers of disease).

C1119-GL - Other Global Food Product Manufacturing Companies in this industry demand the products produced and developed by companies in the Biotechnology industry in order to extend shelf life, enhance nutritional characteristics or preserve or create foods or industrial products.

C1932-GL - Global Fertilizers and Agricultural Chemicals Manufacturing Businesses in this industry demand the products produced and developed by companies in the Biotechnology industry to make products more eco-friendly.

C1933-GL - Global Pharmaceuticals and Medicine Manufacturing R&D activities in human health are directed at therapeutics (e.g. biopharmaceuticals such as biotechnology-derived proteins, antibodies and enzymes, and genetic therapies), medical diagnostics and preventives. Supply Linkages

C1921-GL - Global Basic Inorganic Chemicals Manufacturing

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MARKET CHARACTERISTICS Global Biotechnology

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Companies in this industry supply products used in research experiments.

C1922-GL - Global Basic Organic Chemicals Manufacturing This industry supplies products used in research experiments.

C1931-GL - Global Resin and Synthetic Rubber Manufacturing This industry supplies rubber hose and/or plastics (reinforced) hose and belting from natural and synthetic rubber and/or plastics resins for use in experiments.

C2111-GL - Global Glass and Glass Products Manufacturing Businesses in this industry supply glass and/or glass products such as beakers, test tubes and slides for microscopes.

C2526-GL - Global Health Care Equipment Manufacturing Operators in this industry supply medical testing equipment.

DEMAND DETERMINANTS

Demand determinants for the Global Biotechnology industry can be examined in two ways: (1) the factors that encourage companies to undertake biotechnology R&D and ultimately manufacture and sell biotech products; and (2) the drivers of consumer and public sector demand for those biotechnology products.

R&D in the Global Biotechnology industry occurs if companies think that the fruits of that R&D will be:

Cost-effective

In its simplest formulation (ignoring taxes), the service value of an asset, including biotechnology R&D, should equal the reduction in the value of the asset due to its use during the past five years (depreciation), plus a net return equal to the current value the asset could earn if invested elsewhere (opportunity cost). According to the theory of the firm, investments will be made only if the expected gross return from those investments over the long-run, at a minimum, covers depreciation, plus a net return equal to the opportunity cost of the funds. Governments seek to make R&D profitable by offering incentives to private firms, such as tax exemptions and grants.

Patentable

Companies engage in R&D activities if they can easily patent technology, and if they have confidence in the protection offered to the patented product. A company can use a patent to corner a particular market, or can earn money through licensing the patented technology. Without the level of patent protection offered to the industry in the US, Japan and European Union, R&D spending would be significantly less, thereby curtailing technological advances.

Socially beneficial

Establishments that conduct biotechnology R&D hope to improve the functioning of society and to improve a person's quality of life through advances in health or environmental knowledge - the most obvious example of this was the multinational Human Genome Project. Moreover, biotechnology firms develop genetically modified crops for the agriculture sector; genetically modified crops should increase agricultural yields through crops that are resilient to pests and weather. As such, GM crops have the potential to increase food supply to poor countries.

Technically possible

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Ever more intensive R&D activity will be demanded if appropriate labor skills, materials and processes are available. Advances in one area of biotechnology can have important implications for many other areas by allowing for the development of new products. The rate at which industry revenue, product development and patent applications have increased in recent years supports this idea. Furthermore, the geographic clustering of industry participants (and related companies) also backs the claim that collaborative research and development can be more effective than isolated industry enclaves.

Meanwhile, demand for biotechnology products is driven by:

An aging population

The US, Japanese and European populations are aging rapidly and greater life expectancy has increased the incidence of age-related illnesses, such as various cancers, Alzheimer's disease, heart disease and diabetes. Such trends mean that demand for medical treatments will increase (as more people get ill). Governments and private health providers will seek to reduce the cost of treatment by demanding more effective drugs (such as those genetically compatible with the user) and preventative treatments developed by the industry.

Personal wealth

Not only is the developed world population aging, but retirees are generally better off financially and in better health than in any previous period. This feature not only increases demand for ameliorative or curative treatments, but also demand for preventive treatments, such as those developed by biotechnology companies. Furthermore, the increasing incidence of elective surgeries and treatments will spur demand for safer and less invasive medical technologies. Demand for industry products will grow as drugs for non-chronic illnesses appear such as those that fight obesity and herpes.

Attitudinal changes

Such things as DNA fingerprinting are also well established on a legal and social level, as are the technologies that make detergents and other industrial processes more environmentally friendly. However, moral, religious or health concerns persist regarding certain technologies. For instance, stem cell research is curtailed by US legislation and while the use of genetically modified crops and biopesticides has increased rapidly, concerns about the environmental and health effect of such things have limited development (particularly in the European Union).

DOMESTIC AND INTERNATIONAL MARKETS Domestic and International Markets Trade Trade in this industry is medium The trade trend is increasing Domestic and International Markets Analysis

IBISWorld believes that trade in biotechnology products is important to industry growth. The main importer and exporter countries are those that have large domestic biotech industries, such as the United States, Japan and countries of the EU. This is due to regulatory infrastructure in major producers being sophisticated enough to monitor and regulate imports (and exports) of biotech goods; and similar regulatory standards in most countries due to the global nature of industry learning and experience and also precedents from the pharmaceutical industry. Countries with large biotech industries are also the main importers and exports because of a significant number of joint or shared technologies essential to new

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MARKET CHARACTERISTICS Global Biotechnology

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product development; the existence of highly developed health systems in Western countries; and high per capita income that encourages the private purchase of biotech products not covered by the public health system.

European countries dominate biotechnology exports. The EU share of global biotechnology exports is around 66%, while the United States accounts for 13.3%. In the EU, Germany is the largest exporter, at about 14% of the global market, followed by France and the United Kingdom, with a combined share of 9-11%.

In Asia, China and Japan are the major exporters, each accounting for 2% to 3% of exports, while India and Singapore account for about 1%. In countries with a less well-developed industry, the import of industry goods is often a necessity. A significant level of technology transfer also occurs (intellectual property rights protection permitting) as producers seek to find skilled (and cheaper) labor. Many companies use biotech research facilities in India, China and South Korea (in particular) to reduce the burden of early stage R&D work.

Technological expertise (sold as intellectual property) should also be factored into international market transactions. The United States is a net exporter of intellectual property (which properly reflects the significant size of the US industry compared to other nations), and is the first port of call for patent applications. IBISWorld estimates that around 60-70% of all biotechnology patents made in OECD countries are initially registered in the United Sates. This generally means that they were discovered there. Moreover, the United States also records a high number of highly significant patents based on the number of inter-patent citations (the number of citations a patent receives from later patents serves as an indicator of technical importance and value).

Regulatory barriers have been restricting trade in certain biotech products. For instance, Genetically Modified Organisms (GMOs), for both human food and animal feed, are particularly widespread in the US and a number of developing countries; regulation in the US is not prohibitive to commercial operation (above the normal high boundaries of this industry). However, regulation of GMO products is more stringent in the European Union. In 2003, the EU was taken to the World Trade Organization by the United States, Argentina and Canada due to a moratorium placed on the approval of new GMOs after 1999 (on human health and environmental grounds). In response, the EU introduced tough and complex rules on GMO labeling; moreover, some EU states retain a unilateral ban on the import and growing of many GMO varieties. In 2006, the World Trade Organization found that the EU ban was inconsistent with the free trade rules of the WTO. Some GM crops and other products have been approved by the EU, and are grown in Spain, Portugal, Germany, France, the Czech Republic, Slovakia and Romania on a relatively small scale.

BASIS OF COMPETITION Industry competition is medium Industry competition is increasing

IBISWorld believes that competition within the industry is at a medium level. Competition between establishments is based on:

Innovation

Developing a wholly new product offers a company significant competitive advantage in the market place. The development of innovative products is facilitated by: (1) labor - the reputation of key research employees is a major advantage in the market place; skills for work at the top tier of biotechnology research are limited and there is significant international competition to attract the best labor; and (2) technology use - an organization that owns proprietary technology, or has access to advanced technology appropriate to the R&D being undertaken, will have a competitive

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advantage. Extremely expensive technology may only exist in one place because replicating it elsewhere would be economically inefficient.

Budget

Superior financial resources allow entities to: (1) operate and manage large-scale R&D projects and conduct trials on a global basis; (2) undertake a full range of database, statistical and regulatory functions; (3) deploy and integrate high-specification information technology systems; (4) exploit an international network of strategically located facilities; and (5) sidestep waning investor confidence or misunderstandings of industry processes. Companies that do not exploit research for private financial gain will be more likely to receive public funds, but less likely to win private sector money. Organizations with a revenue stream not derived from public monies may be financially more sustainable (and competitive) over the long run.

Patent protection

In a commercial environment, bringing a discovery to light and successfully applying for a patent for that discovery is essential to recovering R&D costs. Meanwhile, being first-to-market with a new product significantly boosts name recognition (and therefore funding - either as direct grants of investment or through a rising share price). If a product is first to market (and patented) then a company will enjoy monopoly conditions and grow brand loyalty. Many firms develop technologies that can be licensed to others - again, speed in winning patent approval is essential to the competitiveness (and profitability) of that product.

Product quality

A biotechnology product may take 10 to 15 years to develop and bring to market. A (human health) product must undergo a number of pre-clinical and clinical testing before facing the relevant national agency. To achieve a prominent market position - i.e. the product is adopted by public and private health providers, industry, or commercial farmers etc. - it must demonstrate significant quality advantages over existing products. A product may be withdrawn from market on the basis of any adverse post-marketing testing data; re-establishing that brand (if possible) will be extremely difficult.

Product price

In the human health sector (the dominant segment of the biotechnology industry), a high number of products are supplied through the public sector. Products will only be supplied if they are cost effective in delivering better health outcomes. The best quality drugs may not be prescribed if the health benefits do not cover the extra cost of the product. Moreover, in the agriculture sector, a significant proportion of GM seed is sold in developing countries; increasing the use of such crops is dependent on the price to farmers.

Marketing

The take up of drugs by private and public health providers, prescriptions by doctors and specialists, use by industry and farmers, and acceptance by the general public is in large part dependent on the effective marketing of the product. Often small biotechnology firms are forced to sell intellectual property or enter joint marketing ventures with larger (pharmaceutical) companies in order to effectively market a product.

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MARKET CHARACTERISTICS Global Biotechnology

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LIFE CYCLE Life Cycle Stage This industry is in the growth stage of its life cycle Life Cycle Reasons • Revenue and industry value-added growth rates have consistently outperformed real world GDP growth rates over

the past decade • The development of advanced technology increases the range of industry services • Many areas of life and bioscience research that have yet to gain large-scale public acceptance • The number of industry establishments has increased at a low rate over the past five years Life Cycle Analysis

IBISWorld believes that the Global Biotechnology industry is in the growth phase of the economic life cycle. Over the five years thorugh 2010, revenue and value added growth have out-stripped real world GDP growth by a significant margin. Revenue and value added are expected to grow by an average of 9.6% and 11.2% per annum respectively over the five years to December 2010, well in excess of global GDP growth. The rapid growth of demand for the industry reflects the significant increase in the products it supplies. Product lines increase as new technology is developed, processes are learned and products commercialized. The industry benefits from a rapid rate of technological change.

As the industry exhibits medium and increasing barriers to industry entry, the number of companies tends to expand at a subdued rate and (coupled with speedy industry revenue growth) the rise in average income per enterprise has been relatively bullish. In turn this promotes merger and acquisition activity as larger (more successful) companies seek to short cut the drug development phase and acquire smaller companies (thereby reaching commercialization earlier).

Because US companies have found access to high and smooth levels of venture capital easier than other companies (even in the EU), US companies tend to be more mature than the global average. According to a report by Critical I, some 55% of European companies in 2004 were five years old or less and 23% were two years old or younger. The equivalent figures for the US were 41% and 17% respectively.

The industry has a growing level of market acceptance for the products it supplies. However, there remain significant obstacles to wholehearted market acceptance of such things as embryonic stem cell research (limited by legislation in the United States), cloning and genetically modified foodstuffs. Nonetheless, demand for therapeutic products and genetically modified crops increased.

After years of heavy losses, the industry has begun to show signs of financial improvement in all geographic regions, as losses have fallen substantially and revenues from external sources (as opposed to government grants and investor capital) have been increasing. The move towards maturity is also evident in the moderate growth in patent applications. However, the industry is not expected to enter the mature stage of its life cycle over the coming years. Because this industry is at the top of the technology pyramid (developing the products and processes that feed other industries), and innovation continues at a very fast pace, the industry will remain in the "growth" stage of its economic life cycle for some time to come.

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INDUSTRY CONDITIONS Global Biotechnology

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Industry Conditions BARRIERS TO ENTRY Barriers to entry in this industry are medium These barriers are increasing

Barriers to entry in the Global Biotechnology industry are at a medium level. The level does not reach 'high' because of the significant number of new product developments that create markets for new firms; small firms with only a handful of employees are often responsible for innovative biotechnology products. The out-sourcing of some R&D functions, from larger biotechnology firms or pharmaceuticals manufacturers, as a means of cutting costs also allows smaller companies to specialize in certain industry tasks.

However, the industry is maturing speedily and a number of major players are well established and acquisitive of smaller companies in complimentary sectors and with a full product pipeline. Because commercialization of a product occurs over the long term, firms require high and smooth levels of financing in order to grow and increase market share - very few companies have such luxury, especially outside the US where there is less available capital. Barriers to industry entry include:

Factors of production

Access to specialist staff, buildings and equipment is often limited. Moreover, sufficient long-term capital is extremely difficult to access and new establishments must rely on the patience of investors over the long-term because a product may take 10 to 15 years to come to market. Startups are therefore vulnerable to fickle investor sentiment. Competition for adequate levels of start-up, long-term capital will eventually lead to greater industry merger and acquisition activity.

Regulatory process

Industry regulation is heavy and often prohibitive to industry development (insofar as the legal environment reflects the moral judgments of legislators). As such, R&D using embryonic stem cells is hampered in the US by Federal legislation, and further growing of Genetically Modified Organisms is restrained by EU law. Moreover, the regulatory process is long, costly and sometimes unclear (about which biotechnology products can and cannot be patented, for example). Some questionable patents already exist, thereby blurring the transparency of the process and making research more expensive by forcing companies to pay royalties.

First-to-market benefits

The industry exhibits bias towards first-to-market companies. For instance, many patents are now beginning to expire on the first generation of biotechnology products. In the pharmaceutical products manufacturing industry, this saw the production of cheap, generic drug copies. This will not happen to the same extent in the biotech industry due to a complex production process that is prone to contamination and the results of which are variable. Because of this, regulators may increase the number of conditions for any generic product approval. Furthermore, biotechnology products are largely dispensed by doctors and cannot be sold through pharmacies (as are many conventional generics) - this will increase marketing costs for generic drug producers.

Globalization

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INDUSTRY CONDITIONS Global Biotechnology

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Industry R&D is highly collaborative and innovative research in China, India, parts of South East Asia and Latin America is progressing fast thanks to domestic and imported labor working under the auspices of public sector funding and a benign regulatory environment. If developing countries can continue to increase innovative scientific output and improve biotechnology manufacturing plant (using relatively cheap labor) then barriers to market entry in the US and EU could grow.

TAXATION

In most countries scientific research and development is partly sponsored by the public sector. Biotechnology is a major recipient of public finance either as direct R&D funding (often granted by a national scientific institution), tax exemptions, or funding/subsidies for facilities that are used to attract researchers. Aside from public support for research (paid for indirectly through taxation), the following are common examples of how taxation mechanisms are used to promote the industry:

Tax Exemption: governments rarely tax not-for-profit institutions on the basis that they deserve government support because they provide greater 'community benefit' than their for-profit counterparts. Many establishments with links to this industry are not-for-profit entities - such as universities, hospitals or private educational institutions.

R&D Tax Credit: an R&D tax credit may refer to all research expenditures, or those exceeding a company's forecast R&D expenditures throughout a fiscal year. The R&D tax credit is designed to stimulate investment into experimental and basic and applied science by making R&D less expensive.

Investment Tax Breaks: these may take the form of offering tax breaks to investors that purchase shares in companies that spend a determined proportion of income on R&D and that have a limited number of employees. The break would help new, small and R&D-intensive companies survive the early stages of development.

Other Tax Credits: such as those designed to encourage R&D into developing therapies for rare diseases and conditions that affect few patients and that would otherwise be commercially unviable to develop - in the US the scheme is known as the Orphan Drug Tax Credit.

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INDUSTRY CONDITIONS Global Biotechnology

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INDUSTRY ASSISTANCE The level of Industry Assistance is high The trend of Industry Assistance is steady

There are no specific tariffs for this industry

The industry receives a high level of assistance from governments through tax systems (see Taxation) and through non-tax mechanisms related to direct funding (conducted by national scientific bodies) and the building of facilities and other hubs of research.

Governments hope that a domestic Biotechnology industry will increase economic growth and productivity by increasing technical innovation, scientific investment and the number of skilled jobs. A thriving industry will also develop and strengthen links between industry and universities, and industry and healthcare providers.

One of the ways in which developing countries - such as Singapore - have gained an international advantage in biotech research is by the creation of high tech laboratories with linkages to related industries (clustering) and liberal legislation. Public funding helps to kick start companies toward growth and (ultimately) private sector venture capital.

REGULATION AND DEREGULATION The level of Regulation is heavy The trend of Regulation is increasing

Biotechnology products are authorized on the basis of a scientific risk assessment undertaken by a national agency, such as the Federal Drug Administration in the US or the European Food Safety Authority. If found to be safe for human, animal or plant life and health, and the environment then the biotech product will be passed for use and sale.

In cases where scientific evidence is insufficient, inconclusive or uncertain, and where possible risks are judged unacceptable, regulators generally err on the side of caution. Procedures for authorization in major biotech producing countries are generally predictable, efficient and transparent (risk assessments are usually published and made available for public comment). In line with the speedy adoption of technology and technological processes used by the industry, guidelines in the US, EU and Japan are frequently amended within the framework of protecting the public and environmental good.

Patents

Biotechnology patents are usually awarded by the domestic office of the discoverer. However, the increasing level of industry globalization, the concentration of industry revenue and the efficacy of certain patent offices, mean that only three main offices are used; these are the US Patent and Trademark Office (USPTO) in the Department of Commerce, the European Patent Office and the Japan Patent Office. The vast majority of patents are issued in the US.

A patent application is generally judged on four criteria. The invention must be: (1) 'useful' in a practical sense; the inventor must identify some useful purpose for it; (2) 'novel', as in not having been known or used before the patent filing; (3) 'non-obvious', as such, it cannot be an improvement made by someone trained in the relevant area; and (4) 'enabled',

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meaning that the invention also must be described in sufficient detail to enable one skilled in the field to use it for the stated purpose. In general, raw products of nature are not patentable. DNA usually becomes patentable when it has been isolated, purified, or modified to produce a unique form not found in nature. Patents are good for 20 years from filing date and patent priority is based on the 'first to invent' principle: whoever made the invention first (and can prove it) is awarded property rights for the 20-year period.

Recent studies showed that many patents may be problematic – insofar that the science used in the patent process has been superseded (a problem caused by the significant speed of technology change in this industry), or the claims made by scientists have not fulfilled the criteria necessary for a patent to be correct. Such problems will remain over the forecast period and could hinder industry technology change by stunting (or making more expensive) research using incorrectly patented technologies.

Stem cells

One of the most controversial subjects related to the Global Biotechnology industry is the use and patentability of stem cells. Human stem cells can be used to study human development and treat disease because they can be used to generate virtually any type of specialized cell in the human body. Many researchers hope that one day, stem cells can be used to serve as replacement cells to treat heart disease, Alzheimer's, cancer, and other diseases.

One of the major points of concern is the lack of official government regulation pertaining to research on human embryonic stem cells (as opposed to adult stem cells) in the foremost biotechnology provider - the US. In August 2001, President George W Bush announced that scientists could use stem-cell lines already in existence, but banned research using federal money for embryonic lines created after that date. Research was permitted on about 60 stem cell lines that existed before August 2001; the restrictions have hampered US research in this area. Such legislative torpor has encouraged many scientists to lobby for clear legislative direction. In July 2006 Bush used his veto (the first of his six years as president) to prevent expanded federal funding for embryonic stem-cell research. The Senate challenged this veto in April 2007, passing measures that should expand funding for stem-cell research, but the President vetoed the legislation in June 2007.

Regulatory restrictions are forcing many researchers in the US, the UK, Australia and elsewhere, to relocate operations. One of major beneficiaries is Singapore, which has some of the most liberal laws relating to stem cell research. Some Australian states also allow some stem cell research.

Meanwhile, patents for stem cells from monkeys and other organisms have already been issued. Therefore, based on past court rulings, human embryonic stem cells are technically patentable, which is socially and legally controversial. A major concern is that patents for human stem cells and human cloning techniques violate the principle against the ownership of human beings. In the US patent system, patents are granted based on existing technical patent criteria. Ethical concerns have not influenced this process in the past, but the stem cell debate may change this.

In November 2007, scientists in Japan and the US announced that they have discovered a way to create stem cells from ordinary skin cells, without the need to create an embryo. This discovery may have significant effects on future legislation.

Genetically modified foods and organisms

Genetically modified organisms (GMOs), for both human food and animal feed, are particularly widespread in the US and a number of less-developed countries (primarily in Latin America); regulation in the US is not prohibitive to commercial operation (above the normal high boundaries of this industry). However, regulation of GMO products is more stringent in the European Union. In 2003, the EU was taken to the World Trade Organization by the US, Argentina and Canada due to

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a moratorium placed on the approval of new GMOs after 1999 (on human health and environmental grounds). In response, the EU introduced tough and complex rules on GMO labeling; moreover, some EU states retain a unilateral ban on the import and growing of many GMO varieties. In 2006, the World Trade Organization has found that the EU ban was inconsistent with the free trade rules of the WTO.

The European Food Safety Authority is responsible for approving GMOs and putting them to market. An approval remains valid for ten years. The compulsory labeling of all GMO products, including those intended for animal feed, is intended to inform the consumer, and to ensure that the product is traceable throughout the food chain. In addition, Regulation (EC) No 1830/2003 broadens the concept of GMO foodstuffs to include all types of foodstuffs containing or produced from GMOs, including proteins derived from GMOs, and incorporates additives and flavorings for human consumption, previously subject to specific legislation, as well as GMO animal feed.

In 2008, the planting of GM food crops is set to begin in Australia. For many years, this country - which is a major exporter of various food crops - planted only GM cotton and carnations. From 2008, it is expected to allow farmers to plant any GM crop, and regulators have been examining various genetically modified grains, fruit and vegetables.

COST STRUCTURE

Year: 2010

Item Cost %

Purchases 27.0%*

Depreciation 23.0%*

Wages 21.5%*

Rent 2.0%*

Utilities 2.0%*

Other 15.5%*

Profit 9.0%*

IBISWorld believes that the cost structure of companies in the Global Biotechnology industry varies depending on the size of the company; the type of research undertaken and equipment used; the level and sources of financial funding; the value of contracts gained and type of products developed; the speed of product development; the level of charges for third party services; and the type of intellectual property attained. Overall, according to the Tufts Center for the Study of Drug Development in the US, the average cost to develop a new biotechnology product is $1.2 billion. This includes $615 million spent on the pre-clinical period (research and development) and $626 million spent on the clinical period (trials and experiments). These costs are higher than traditional pharmaceutical costs, as the average time to develop a biotech drug is longer and the capital cost involved is higher. However, this also results in a higher rate of regulatory approval for biotech drugs, compared with traditional drugs.

In general, depreciation accounts for around 23% of revenue. This includes the depreciation of machinery, equipment, computer technology and software that loses value over time. Investment in technology ultimately improves the quality of research, speeds product development and reduces labor inputs relative to capital, thereby increasing productivity and

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safety. The level of capital investment varies on an annual basis depending on the level of funding a company receives from the private or public sector. Biotechnology investors have become more bearish over the past two years due to the global financial crisis, with fewer funds flowing in leading to less investment in capital equipment.

Labor costs account for 21.5% of revenue. For larger companies, out-sourcing, employment of part-time workers and maximum use of technology and labor-saving machinery can lead to more efficient management of labor costs. For small-scale operators in the industry, labor costs are more difficult to control and firms can generally only reduce the proportion of labor expense to revenue by working longer hours and charging higher prices. Education, training and qualifications are all important attributes required for employment in research fields. The educational attainment of scientists is among the highest of all occupations. A Ph.D. or equivalent degree is a minimum requirement for many positions in colleges and universities and is important for advancement to many top-level non-academic research posts. As such, the average industry wage is high at close to $90,000 per person, per annum.

Operators in developing countries have lower labor costs - reflecting lower average wages and a lower cost of living; wages account for around 15-16% of revenue in China, India and Latin America. A number of operators in the US and the EU have sought to exploit cheaper labor in developing countries, especially for early drug development work and toxicology studies. Some data suggest that the cost of these services can be as low as 30% of the cost in the US. Manufacturing of biotechnology products in cheap labor countries has yet to gain momentum - this is largely due to the specialist processes used to develop proteins (that would significantly increase management costs) and also stringent regulatory guidelines imposed by the FDA and other government bodies.

Another major cost center is purchases, which account for about 27% of industry revenue. Industry operators require specialized inputs into experimentation, such as chemicals and other materials for laboratory work, design and investigation. The relatively high cost of purchases favors larger entities - that may have regular pharmaceutical functions - that can purchase in bulk and negotiate lower prices. Access to raw materials is generally unfettered and not a huge weight on the cost structure.

Other expenses include insurance, advertising (mostly in trade publications and in the form of merchandise, such as hats, shirts and stationery), cleaning costs and repairs, and maintenance of equipment, which account for around 15% of industry revenue. Most firms in the industry rent facilities near major industrial, military or scientific locations and laboratories must be extremely secure (both in physical terms and through computer terminals). Rent expenses account for an estimated 2% of industry revenue. Finally, average returns within the industry are low at around 9%; many firms within the industry are not-for-profit and others post significant losses as they research and develop products for future commercialization. Over the medium to long term, profitability will increase significantly, as the research undertaken in the past five to 10 years comes to fruition.

CAPITAL AND LABOR INTENSITY The level of Capital Intensity is high

• Highly skilled (and educated) staff are required to design and perform rigorous testing and research; thus, average

labor costs are high • The complex creative and technological process required to meet customer needs involves many different

competencies that cannot be met by one employee • At the same time, expensive computer equipment, machinery and materials are used to conduct experiments and

fulfill research criteria

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Industry wages account for 21.5% of revenue; a similar proportion of revenue as does capital expenditure. A typical establishment in the industry therefore uses approximately one unit of labor for each unit of capital.

Generally, for companies with fewer than 50 employees, scientists constitute a slightly larger share of the technical workforce. This is consistent with the more research-focused nature of smaller firms. Larger firms tend to have more engineers largely due to their heavier focus on manufacturing and revenue earning positions (such as sales). General operations, marketing, and financial managers make up almost half of the workforce. Legal workers, including lawyers and paralegals, account for around 5% of the administrative and production workforce. This may be because lawyers and other legal workers involved in intellectual property and regulatory issues often do not work directly for the biotechnology companies themselves. Rather, companies (especially smaller firms) are likely to engage the services of law firms specializing in this type of work on an as-needed basis. Companies tend to be heavily reliant on domestic workers, although out-sourcing to India, China, South Korea, and other places is growing.

Staff employed in this industry perform a range of activities, from simple manual tasks to high-tech experimental procedures. There is a need for staff to conduct tests and procedures, to interpret results and to provide marketing, collection and distribution networks. High wage rates reflect the skilled labor used in the industry and the value of key employees (whose reputation alone can generate business). The industry must maintain competitive wages to prevent talent leaving for corporate in-house R&D departments and jobs overseas (especially in the European Union). Meanwhile, capital equipment costs in the industry are very high; new equipment must be purchased to improve competitive capabilities when designing cutting-edge equipment and to ensure the reliability of current experimentation.

TECHNOLOGY AND SYSTEMS The level of Technology Change is high

This industry - along with one or two others - is at the top of the technology pyramid. Developments in this industry feed the equipment and processes used in virtually all other industries. Being at the cutting edge of scientific development, the speed of technology change is fast, but can be hindered by a number of factors:

An inadequate Legal/Regulatory Environment: obstacles include the legal definition of patentability (see Regulation section), and the number of different agencies involved in the regulation and registration of discoveries. Discoveries can also be hindered by third-party patents that make the use of those patents prohibitively expensive.

Research Costs: industries further down the technology pyramid are able to free ride on the back of industry research. Often processes can be synthesized from a variety of discoveries, or generic copies made, which works against first-to-market developers. Most R&D projects end in failure and capital is never recouped.

Timescale: there are long lead times to commercial exploitation of a discovery. In general, the biotechnology drug development and marketing cycle takes around 10-15 years: (1) discovery of a drug can range from 2-10 years; (2) three years of preclinical testing; (3) phase I development (testing the drug on 20-50 healthy volunteers to check safety and dosage) can last 1-2 years; (4) phase II (testing on 100-300 patient volunteers for 2-3 years to check for efficacy and side effects); (5) phase III (1000-5000 patient volunteers to check long-term effects of drug use - three years); (6) review and approval - one year; and (7) post-marketing testing.

Public Opinion: some areas of biotechnology research, such as embryonic stem cells, continue to encounter substantial public opposition, which tends to limit the availability of both government and private funding. This is particularly important as industry firms rely on large amounts of start-up capital in order to fund research.

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Some of the most challenging issues of technology change are discussed.

Cloning

One of the most controversial subjects related to the Biotechnology Industry is the use and patentability of human stem cells. Human stem cells can be used to study human development and treat disease because scientists can use them to generate virtually any type of specialized cell in the human body. Researchers can use adult stem cells or the preferred embryonic stem cells, which are extracted from the egg. The extraction process destroys the embryo, which raises a variety of ethical concerns.

Biotechnology scientists believe that therapeutic cloning can be used to generate tissues and organs for transplants. To do this, DNA must be extracted from a person in need of a transplant and inserted into an enucleated egg. After the egg containing the patient's DNA starts to divide, embryonic stem cells would be harvested. The stem cells could then be used to generate an organ or tissue that is a genetic match to the recipient. In theory, the cloned organ could then be transplanted into the patient without the risk of tissue rejection. If organs could be generated from cloned human embryos, the need for organ donation could be significantly reduced.

Stem cell research may be revolutionized by a new technique, which was made public in 2007. Researchers in the US and Japan discovered that ordinary human skin cells can be transformed into what appear to be embryonic stem cells by the addition of four genes, without the need to create an embryo.

Some researchers fear that stem cell therapy could pass viruses and other disease-causing agents to people who receive cell transplants. There is particular concern that stem cells are currently cultivated using nutrients taken from animal sources, and that these could harbor diseases which could be passed on to humans. Moreover, some research has also raised the possibility that stem cells may turn cancerous. There are a number of stem cell related products in development at present, though some 80% are in the developmental phase (and could be 10-15 years from commercial use).

Gene therapy

Explorations into the functions of each human gene show how faulty genes play a role in causing disease. With this knowledge, commercial efforts are shifting away from diagnostics and toward developing a new generation of therapeutics based on genes. Biotechnology researchers are creating new classes of medicines based on gene sequence and protein structure function rather than the traditional trial-and-error method. Drugs targeted to specific sites in the body promise to have fewer side effects than many of today's medicines. The potential for using genes themselves to treat disease - gene therapy - remains a potential application of DNA science. Gene therapy could be used to treat or even cure genetic and acquired diseases. Gene therapy uses normal genes to replace or supplement a defective gene, or bolster immunity to disease (e.g. by adding a gene that suppresses tumor growth).

Pharmacogenomics

Pharmacogenomics is the study of how an individual's genetic inheritance affects the body's response to drugs. Pharmacogenomics could provide people with access to more powerful medicines that are better able to treat their illness within the limitations proscribed by the patient's genetic profile. Not only will this remove guesswork from the drug selection process, but also speed up recovery time and increase safety as the likelihood of adverse reactions is eliminated. Moreover, knowing one's genetic code will allow a person to make adequate lifestyle and environmental changes at an early age to avoid or lessen the severity of a genetic disease. Likewise, advance knowledge of particular disease susceptibility will allow careful monitoring, and treatments can be introduced at the most appropriate stage to maximize their effect.

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Genetically modified foods and organisms

In 2008, the global area of approved biotech crops was 309 million acres, up from 282 million acres in 2007. The principal Genetically Modified crops are herbicide- and insecticide-resistant soybeans, corn, cotton, and canola. Other crops grown commercially or field-tested are virus-resistant sweet potato, rice with increased iron and vitamins that may alleviate malnutrition, and a variety of plants able to survive weather extremes. Further developments could include: bananas that produce human vaccines against infectious diseases such as hepatitis B; fruit and nut trees that yield years earlier; and plants that produce new plastics with unique properties.

Moreover, there are extensive non-food related GM crops. At present, cotton is the premier non-food GM crop, but others may follow, including trees that better suit the requirements of the paper industry, sheep that grow better wool and oilseed that makes better detergents and lubricants. Both plants and animals can also be modified to produce drugs (biopharming), and biofuels and bioplastics can be developed from maize or sugar (rather than finite natural resources such as petroleum). Since 2005, the increase in oil prices has seen rapidly increasing interest in biofuel production, and a sharp rise in plantings of corn, which is used to produce ethanol.

Controversies that need to be overcome include: (1) safety - such as the potential human health effect, such as the transfer of antibiotic resistance markers, unknown effects on other organisms (e.g., soil microbes), and loss of flora and fauna biodiversity; (2) lack of developing country access to intellectual property that may lead to the control of world food production by a few companies; and (3) public opposition to engineered foods.

INDUSTRY VOLATILITY Industry revenue volatility is medium

Medium-level industry revenue volatility largely reflects significant growth rates; the industry is in the 'growth' stage of its economic life cycle. Public sector funding and R&D out-sourcing activity reduce industry volatility. However, changes in public sector policies and priorities can negatively affect the industry. The broad range of research disciplines classified under the biotechnology umbrella reduces the volatility of the industry as a whole. Many establishments are not-for-profit, which insulates them from short-term economic fluctuations. Most industry projects - whether commercial or not - have long lead times. The industry is vulnerable to changes in investor sentiment; many firms are reliant on shareholders and venture capitalists.

GLOBALIZATION The level of Globalization is medium The trend of Globalization is increasing

The industry has a medium level of globalization; however, this is rising rapidly. The industry is concentrated in the US, and IBISWorld estimates that around 85-90% of companies in the country are US-owned. European Union nations account for the vast majority of non-US owned companies, with the UK, Germany, and France outweighing all others, while Japan is also well-represented. The increasing outsourcing of work to India, China, and South Korea (in particular) by fast-growing US biotech companies, and the development of sustainable industries in these countries and others, account for the rising level of globalization.

Clustering

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A primary industry business model is "clustering" - this refers to geographic centers of biotechnology companies and connected firms, specialized suppliers and associated research institutions (such as universities, hospitals etc). Industry clustering reduces company costs (such as product storage and travel), but also increases knowledge transfer and helps develop industry relationships. Successful industry clusters tend to "churn" work - i.e. they feature sustainable and consistent levels of innovation through the development cycle of new products. As such, industry labor (an extremely valuable commodity) and investors are retained and profit and knowledge can be reinvested in new work. Clustering is particularly dominant for early stage development because industry firms tend to be small, young and dependent on R&D and consistent investment capital.

Consolidation

As the industry matures, the "strength in numbers" philosophy of clustering will diminish in importance. Companies that benefited from major product discoveries early in the industry life cycle will acquire smaller firms with late stage development products in the pipeline, or will merge with global pharmaceutical manufacturers. The maturation process will see a rise in the number of globally dominant companies that leverage expertise not at the cluster level but at the international level. This may mean that early stage development, labor-intensive R&D functions will be exported to India, China and similar countries, and revenue earning positions (sales etc.) concentrated in product buying markets (at present the US, EU and Japan, but eventually China and India and South America).

The current state of the industry suggests that the US will continue to dominate the industry globally. Thanks to higher levels of public and private funding and first-to-market benefits, US companies have grown revenue and employment faster than have EU and Japanese companies. Moreover, US companies (on average) continue to invest a greater level of capital in R&D activities. According to Ernst & Young, in 2006 the US employed three times as many people as EU countries, spent three times more on R&D, and earned about five times as much in revenue. Moreover, European companies are younger - and in two-thirds of cases employ fewer than 20 staff - compared with one-third in the US. The slower transition to maturity of EU companies will inevitably secure the US' dominant industry position.

Emerging producers

China, South Korea and India are becoming important centers of biotechnology research - in 2005, those three countries accounted for about 3% of biotech-related patents issued by the US Patent and Trademark Office, compared with 1.5% in 2001. Based on data from the European Patent Office (EPO), China and India have been strong contributors to growth in biotech patent applications. China is active in genomics, gene therapy, and stem cell research, partly because the regulatory environment is less stringent than in other countries. Meanwhile, India recently strengthened intellectual property legislation as a means to encourage foreign investment and technology transfer. In the past five years, over 40% of Indian patents registered in the US were for biotech-related products and processes. The development of labor skills, intellectual property protection and consumer demand in these countries will see greater market share for emerging markets.

The risks of increased globalization have been highlighted by the recall of Heparin, one of Baxter's drugs, in January 2008. The company blamed tainted supply of raw materials from China for the increase in adverse reactions to the drug.

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Key Factors KEY SENSITIVITIES The key sensitivities affecting the performance of the Global Biotechnology industry include: Age Group (50+) The population of most developed countries is aging rapidly; greater life expectancy has increased the incidence of age-related illnesses and demand for medical treatments. As the resources available to the public sector fall (and the financial burden on the working population increases), the public sector will seek to reduce the cost of treatment by using more effective drugs (such as those genetically compatible with the user), and preventative treatments developed by the industry. Economic Indicators - Investor Confidence The industry is extremely reliant on sound investor confidence. Strong confidence in stock market returns and in the potential of biotechnology companies to bring products to market will increase the amount of speculative capital used to fund start ups and more established companies (that may be close to product commercialization). Investor confidence also ensures that capital remains with a company over the long term (as products can take a decade or two to come to market). Legislative Compliance Requirements - Biotechnology Industry The industry is heavily regulated, and some of its research areas (such as stem cell research) are the topic of ongoing political debate. Any change in the regulatory environment will create volatility in the industry, and affect the performance of companies. Per Capita Disposable Income As per capita disposable income increases people will be more likely to purchase the products developed by the industry as part of private (or semi-private) sector health and insurance programs. Moreover, higher levels of personal wealth will increase the possibility of people undertaking elective surgeries and also seeking treatments for non-chronic illnesses that have no public sector coverage.

KEY SUCCESS FACTORS The key success factors in the Global Biotechnology industry are:

• Ability to raise revenue from additional sources A company must diversify its sources of income to protect it from fickle investor sentiment.

• Having a high profile in the market A high profile will increase investor interest and confidence in a company and provide the entity with a brand name in the market. Sales of pharmaceutical and related products are driven by brand recognition.

• Ability to educate the wider community Many companies face strong moral (and scientific) opposition to their activities. Educating the public to the benefits of

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biotech 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 R&D activities as a means of reducing operating costs. As such, most industry operators are highly specialized.

• Ability to take advantage of government subsidies and other grants New companies, in particular, must exploit any public sector monies that increase financing.

• Must comply with government regulations The industry is highly regulated and the commercialization of a product occurs only after many years of compliance with required product standards.

• Ability to negotiate successfully with regulator The industry must be able to justify its activities to the public, the government and investors. Moreover, firms must also be able to adequately describe any development to the patent office.

• Access to highly skilled workforce The industry uses some of the most highly skilled staff in the workforce. Scientific developments tend to be original and innovative and require technical expertise and creative talent.

• Ability to quickly adopt new technology The speedy adoption of new technological equipment and scientific techniques is essential to competitive advantage. Companies in this industry spend significantly more on R&D then the national average.

• Development of new products This industry is at the top of the technology pyramid and feeds all other industries. The development of new products is essential to a company's existence.

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KEY COMPETITORS Global Biotechnology

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Key Competitors MAJOR PLAYERS Market Share

Major Player Market Share Range

Roche Holding AG 9.7% (2010)

Amgen Inc. 9.3% (2010)

Monsanto Company 7.4% (2010)

Syngenta AG 7.0% (2010)

Merck KGaA 4.7% (2010)

Other 61.9% (2010)

PLAYER PERFORMANCE Roche Holding AG Market Share: 9.7%

Swiss pharmaceuticals giant Roche became a major player in the Global Biotechnology industry through its acquisition of the remaining 40% of leading US biotech firm Genentech. Roche and Genentech had a decades-long history of joint ventures and partnership, with Roche already owning a 60% stake in Genentech. Genentech was absorbed into Roche's pharmaceuticals division, with integration of areas such as manufacturing and marketing, but continued independence of research and development. Roche's other division, diagnostics, also carries several biotech-based products, such as genome sequencing machines. The acquisition contributed to Roche's ongoing revenue growth in 2009.

A biotechnology company that discovers and develops biotherapeutics, Genentech was one of the world's most mature biotech companies, having successfully brought multiple products to commercialization and generating significant revenue. Eleven consecutive years of double-digit revenue growth were capped off in 2008. Strong growth in the company's biggest selling products, Avastin and Rituxan, drove growth over the preceding few years. In 2007, Avastin became the company's biggest selling drug, and the second drug (after Rituxan) to generate over $2 billion in annual sales. Some of the company's major products include Herceptin, Rituxan, Avastin and Tarceva.

Herceptin is a humanized antibody for the treatment of certain patients with metastatic breast cancer whose tumors over-express the human epidermal growth factor receptor type 2 (or HER2) protein. Herceptin is approved for use as a first-line therapy in combination with Taxol (paclitaxel), a product made by Bristol-Myers Squibb Company, and as a single agent in second- and third-line therapy in patients with metastatic breast cancer.

Rituxan is commercialized with Biogen Idec Inc. Rituxan is approved for the treatment of patients with relapsed or refractory, low-grade or follicular, CD20-positive, B-cell non-Hodgkin's lymphoma, a cancer of the immune system, including pretreatment, times 8 dosing and bulky disease.

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Avastin is a humanized antibody that binds to and inhibits vascular endothelial growth factor (or VEGF). It was approved by the US FDA in early 2004 for use in combination with intravenous 5-fluorouracil-based chemotherapy as a treatment for patients with first-line (or previously untreated) metastatic cancer of the colon or rectum.

Tarceva was co-developed with OSI Pharmaceuticals Inc. (or OSI) and Hoffmann-La Roche. Tarceva is a small molecule designed to block tumor cell growth by inhibiting the tyrosine kinase activity inside the cell, which is one of the factors critical to cell growth in non-small cell lung cancer (or NSCLC). In late 2004, the FDA approved Tarceva for the treatment of patients with locally advanced or metastatic NSCLC after failure of at least one prior chemotherapy regimen.

Roche - financial performance Year

Million Dollars Revenue

% change Growth

Million Dollars NPAT

% change Growth

2005 27073 N/C 5523 N/C 2006 34743 28.3 7324 32.6 2007 40357 16.2 9541 30.3 2008 44380 10.0 10046 5.3 2009 47244 6.5 7860 -21.8 Source: IBISWorld Genentech - financial performance Year

Million Dollars Revenue

% change Growth

Million Dollars NPAT

% change Growth

2004 4621 40.0 785 39.5 2005 6633 43.5 1279 62.9 2006 9284 40.0 2113 65.2 2007 11724 26.3 2769 31.0 2008 13418 14.4 3427 23.8 Source: SEC Filings Amgen Inc. Market Share: 9.3%

Amgen Inc., incorporated in 1980, is a global biotechnology company that discovers, develops, manufactures and markets human therapeutics based on advances in cellular and molecular biology. The company concentrates on operations in human therapeutics and markets human therapeutic products in the areas of nephrology, supportive cancer care and inflammatory disease. Research and development (R&D) efforts are focused on novel therapeutics delivered in the form of proteins, monoclonal antibodies and small molecules in the areas of oncology, inflammation, metabolic disorders, neuroscience and general medicine.

To enhance internal R&D efforts, Amgen acquired and licensed certain product and technology rights and established R&D collaborations. In August 2004, the company acquired Tularik for $1,500 million. Tularik specializes in drug discovery related to cell signaling and the control of gene expression. Meanwhile, in April 2006, Amgen completed the $2,200 million purchase of Abgenix Inc., which specializing in the discovery, development and manufacture of human therapeutic antibodies. The acquisition will help increase manufacturing output of the company's largest selling drugs. In 2007, Amgen acquired two other companies – Alantos for $300 million and Ilypsa for $400 million. Alantos specializes in diabetes treatments, and Ilypsa works in the area of renal disorders.

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Principal Amgen products include Epogen (Epoetin alfa), Aranesp (darbepoetin alfa), Neulasta (pegfilgrastim), Neupogen (filgrastim) and Enbrel (etanercept), which is marketed under a co-promotion agreement with Wyeth in the United States and Canada. Neupogen selectively stimulates the production of neutrophils, one type of white blood cell that helps the body fight infections. Enbrel inhibits tumor necrosis factor, a substance induced in response to inflammatory and immunological responses, such as rheumatoid arthritis and psoriasis. In October 2006, the company launched Vectibix, its first cancer drug. Patients with metastatic colorectal cancer whose disease has progressed after all standard chemotherapy regimens can use Vectibix.

Amgen has an established sales force and marketing operations in the United States, Europe, Canada and Australia. The company markets its principal products to healthcare providers including clinics, hospitals and pharmacies. In addition, it entered into licensing or co-promotion agreements to market certain products including Aranesp, Neulasta, Neupogen and Enbrel in certain geographic areas outside of the United States. In the United States, the company sells primarily to wholesale distributors. Outside the United States, products are principally sold to hospitals or wholesalers, depending on the distribution practice in each country.

Product sales growth was primarily driven by sales of Aranesp, Enbrel and Neulasta, which benefited from market share gains and market growth. Both government and private payer's healthcare programs cover most patients receiving Amgen's principal products for approved indications, excluding Enbrel. Therefore, product sales are (and will continue to be) affected by government and private-payer reimbursement policies. A reduction in reimbursement levels, along with competition from similar products, slowed revenue growth in 2007 and 2008. Aranesp sales were particularly affected, falling by double-digit rates in both 2007 and 2008. In 2007, Neulasta surpassed Aranesp as Amgen's highest-selling product. Over the past few years, sales outside the United States drove growth, in particular the Enbrel and Neulasta products. US sales fell from 82% of total product sales in 2005 to 78% in 2009. Amgen's 2009 performance was down on previous years, which the company attributed to a difficult external operating environment.

Amgen - financial performance Year

Million Dollars Revenue

% change Growth

Million Dollars NPAT

% change Growth

2005 12430 17.8 3674 55.5 2006 14268 14.8 2950 -19.7 2007 14771 3.5 3166 7.3 2008 15003 1.6 4196 32.5 2009 14642 -2.4 4605 9.7 Source: IBISWorld Database Monsanto Company Market Share: 7.4%

Monsanto is a leading player in the biotechnology sector with a strong focus on plant biotechnology, genomics and molecular breeding technology. Following a number of divestments, the Monsanto group is now devoted purely to agriculture. Its business model incorporates the provision of agricultural products and other solutions to customers based on herbicides, biotechnology traits and genomics. Monsanto has operations in over 50 countries, including manufacturing facilities in the United States (Georgia, Idaho, Iowa, Louisiana, North Carolina, Texas and Wyoming), Argentina, Belgium and Brazil. The company sells its products to a variety of consumers in the agricultural industry, including individual growers, seed companies, distributors, independent retailers and agricultural cooperatives, as well as to other major agricultural chemical producers. The company also provides Roundup lawn and garden products for the residential market.

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Its operations are contained within two business segments. The first – not strictly in this industry – is agricultural productivity, which encompasses the company's traditional glyphosate products (Roundup and other herbicide products) along with animal agriculture, lawn and garden herbicide products and environmental technologies. The second business segment – products from which are contained in this sector – is seeds and genomics, which comprises its global business of seeds and related biotechnology traits. In 2006, the company added to its seeds portfolio, spending $1.5 billion to buy Delta and Pine Land Company, the largest cottonseed breeder and producer in the United States. In order to receive approval for the merger, Monsanto sold some of its cottonseed brands in 2007.

Major products from this segment include Roundup Ready traits in soybeans, corn, canola and cotton - weed-control systems for crops tolerant of Roundup and other glyphosate-based herbicides; Bollgard and Bollgard II traits in cotton; and Yieldgard Corn Borer and Yieldgard Rootworm traits in corn - traits that enable crops to protect themselves from certain insects, reducing the need for applications of insecticides. Other major products include Agroceres, Asgrow, DEKALB, Stoneville, and Vistive branded seeds; Holden's Foundation Seeds; Monsoy foundation seed; American Seeds, Inc. branded seed - corn hybrids and foundation seed; soybean varieties and foundation seed; cotton varieties, hybrids and foundation seed; sunflower hybrids; sorghum grain and forage hybrids; oilseed rape and canola varieties; and wheat varieties and foundation seed; and Seminis, Royal Sluis, Asgrow and Petoseed branded seeds - vegetable and fruit seeds.

Monsanto holds numerous licenses in connection with its genomics program. For example, Monsanto holds a perpetual license to certain genomics technologies for use in the areas of plant agriculture and dairy cattle, and perpetual licenses to patents expiring from 2018 to 2023 for classes of proprietary genes for the development of commercial traits in crops. Monsanto also holds perpetual licenses to functional characterizations of the company's proprietary genes; and perpetual licenses to certain genomic sequences and certain genomics technologies. Monsanto also obtained perpetual licenses to chemicals used to make Harness herbicides and to manufacturing technology for Posilac bovine somatotropin. Monsanto has been involved in interference proceedings in the US Patent and Trademark Office to determine the first party to invent certain technologies related to synthetic Bt technology. A number of lawsuits have been brought by major industry rival Syngenta AG.

The 2009-10 fiscal period was disappointing in terms of revenue and earnings. The company underwent a restructuring program, partly because of weak market conditions. Reductions in Monsanto's workforce in various segments of the company were implemented. One of the key areas of the business to suffer during the year was the sale of herbicides, while the seeds and genomics segment of the company actually increased its sales by 4%.

In 2007 and 2008, Monsanto continued to experience extremely strong sales and profit growth. Seeds and genomics sales were up 25% and 28% in 2007 and 2008 respectively, with strong growth also recorded in the (non-biotech related) agricultural productivity division. Growth largely related to the substantial increase in demand for ethanol, which is manufactured from corn. In November 2007, Monsanto announced that it was expecting its gross profits to double by 2012, as demand for its seeds and traits was forecast to remain strong. According to the company, consistent growth was assured up until 2012, "irrespective of commodity price swings, fluctuations in planted acres or the popularity of ethanol."

Monsanto's profit jumped more than 170% in the 2006 financial year, to $689 million, while revenue increased 16.7% to $7,344 million. The improvement was mainly due to the seeds and genomics segment, where sales were up 24%. This was again the result of acquisitions, which boosted sales of corn, vegetable and fruit seeds, as well as higher prices. The agricultural productivity segment saw its sales rise 10%, due to supply chain improvements and the launch of new brands.

In the year ended August 2005, Monsanto generated sales of $6,294 million. Net sales increased 15.3%, in the 12-month comparison, with about 7% of that growth coming from acquisitions and 9% from organic growth in the company's core business. The net sales improvement by the seeds and genomics segment of 40% more than offset the decline in net

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sales of the agricultural productivity segment of 2%. In 2005, net sales for the seeds and genomics segment represented over half of total company sales for the first time. About 60% to 65% of sales in the seeds and genomics segment occur in the United States. As such, IBISWorld estimates that the company earns about $1,950 million in this industry, giving it market share of about 3% to 4% in 2005.

Monsanto - financial performance Year*

Million Dollars Revenue

% change Growth

Million Dollars NPAT

% change Growth

2004-05 6275 15.7 255 -4.5 2005-06 7294 16.2 689 170.2 2006-07 8563 17.4 993 44.1 2007-08 11365 32.7 2024 103.8 2008-09 11724 3.2 2109 4.2 2009-10 10500 -10.4 1109 -47.4 Source: IBISWorld Database Note: *Year end August Syngenta AG Market Share: 7.0%

Syngenta has operations across all major areas in crop protection and seeds. Its three businesses are crop protection (herbicides, insecticides, fungicides and professional products), seeds (field crops and flowers and vegetables) and plant science. Syngenta was created in November 2000 following the merger of the global agribusinesses of Novartis (Novartis Agribusiness) and AstraZeneca (Zeneca Agrochemicals). The sell off was a result of weak sales in the latter's agribusiness segment, which was largely attributed to the controversy regarding its genetically modified seeds business. Syngenta is listed on the Swiss and New York stock exchanges, having delisted from the Stockholm and London stock exchanges in 2003. Syngenta employs roughly 19,500 people in 90 countries and sells products in 120 countries.

In July 2004, Syngenta announced that it was to acquire 90% of Golden Harvest, a US corn and soya seed company, for $180 million. This follows on from its acquisition of Advanta BV, which was purchased (in conjunction with US private equity house Fox Paine) from AstraZeneca and Royal Cosun for €239 million. Under the terms of the deal, Syngenta acquired 90% of the North American business, which involved Advanta's maize and soya products sold under the Garst brand name. Fox Paine acquired the remaining 10% of the business within the United States (which involves its products for crops other than maize and soya), as well as Advanta's non-US business for €161 million. The two acquisitions, Advanta and Golden Harvest, lifted Syngenta's stake in the US corn seed market to 15% and to 13% in the soybean seeds market.

Syngenta recorded strong growth in all businesses in 2008 as the adoption of biotech crops continued to increase, particularly in emerging markets. Rising fossil fuel costs and environmental concerns also saw rapid growth in the use of biofuels, driving demand for greater crop yields to fulfill demand for both food and fuel, and in turn boosting the use of Syngenta's products. The strong performance of the past two years prompted the company to invest in a $600 million capacity expansion program that will roll out over three years.

Growth resumed in 2007, with net sales up 14.8%. Sales improved across the board, with the seeds segment reporting an improvement of 16%, while the crop protection segment grew by 14%. Currency movements, as well as substantial volume growth and efficiency savings affected profit.

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In 2006, sales stagnated at $8,046 million, but net income was up 1.9% to $634 million. Seed revenue decreased to $1,743 million during the year, mainly due to lower corn and soybean sales. Profit increased mainly due to cost savings.

Growth in 2005 was 11.5% (9% excluding exchange rate variations); revenue reached $8,104 million and net income was $622 million. Sales in the seeds segment increased in all geographic regions and the acquired Garst and Golden Harvest businesses in the United States buoyed corn and soybean sales. Sales of seeds were $1,797 million, up from $1,239 million in 2004. Excluding acquisitions (such as Garst and Golden Harvest), growth was still a healthy 20%. Seed sales in the NAFTA region were $903 million in 2005, more than double the $437 million in 2004.

Syngenta - financial performance Year

Million Dollars Revenue

% change Growth

Million Dollars NPAT

% change Growth

2005 8104 11.5 622 35.2 2006 8046 -0.7 634 1.9 2007 9240 14.8 1109 74.9 2008 11624 25.8 1385 24.9 2009 10992 -5.4 1371 -1.0 Source: IBISWorld Database Merck KGaA Market Share: 4.7%

Merck Serono (formerly Serono S.A) is a Switzerland-based biotech company and is the largest in Europe. German company Merck KGaA bought it out in January 2007 for €10 billion ($13 billion), which represented one of the largest pharma takeovers of biotech companies in history. Thereafter, the Serono S.A. merged with the former ethicals division of Merck to form the new Merck Serono division, which focuses on recombinant genetic engineering to develop drugs. Serono S.A. is best known globally for its work on its beta interferon drug (Rebif), which treats Multiple Sclerosis (MS). Focusing on niche markets such as this was the driving force behind the company's success and also boosting revenue and profit margins for the new Merck Serono in 2007.

In early 2002, Serono S.A. entered the US market through a deal with Pfizer, who were licensed to market the drug in the lucrative American market. This deal saw sales from Rebif more than double its market share in just two years and as a result, North American sales, a previously underexploited market for Merck Serono, surged by 232%. While Pfizer has exclusive marketing rights in the United States, Merck Serono is the sole marketer of Rebif in the rest of the world. Half of its total company income originated from European countries, accounting for sales of $3,322 million in total. Over 22% of this income originated from France, followed closely by Germany (21%).

As well as MS, the firm also focuses on neurological, dermatological, metabolic and growth disorders. It is also a leader in reproductive health, with the drug Gonal-F at the head of its infertility product line. The former ethicals division of Merck also made and sold drugs in the oncology, cardiovascular and metabolic fields. The biotech portion of the new Merck Serono unit remains with the independently operating Merck Serono S.A.

The company is also profiting from international regulatory approvals for Raptiva (sales doubling in 2006), which was developed by partners XOMA and Genentech. Merck Serono has the rights outside the United States and Japan to commercialize the drug, which treats chronic psoriasis.

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Merck Serono, like many major players in this industry, continues to form collaborations with other companies to profit from drug research. Currently through collaborations with such companies as Vernalis, formerly British Biotech and Zymogenetics, the firm is expanding its future offering of marketable products. In order to reduce its income dependence on Gonal-F and Rebif, new categories of exploration include further emphasis on cancer treatment, autoimmune disorders such as rheumatoid arthritis and systemic lupus.

Merck KGaA - financial performance Year

Million Dollars Revenue

% change Growth

Million Dollars NPAT

% change Growth

2005 7301.3 -13.0 837.8 -13.1 2006 7894.6 8.1 1257.6 50.1 2007 9675.1 22.6 4825.9 283.7 2008 11179.5 15.5 558.4 -88.4 2009 10799.3 -3.4 525.1 -6.0 Source: IBISWorld

OTHER PLAYERS

Genzyme Corporation

Estimated market share: 2%

Genzyme's products and services focus on rare genetic disorders, renal disease, orthopedics, organ transplant, and diagnostic and predictive testing. The company organizes into five financial reporting units. Three units primarily engaged in this industry include firstly, therapeutics, which develops, manufactures and distributes therapeutic products, with a focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases. Secondly is bio-surgery, which develops, manufactures and distributes biotherapeutics and biomaterial products, with an emphasis on products that meet medical needs in orthopedics and broader surgical areas. The unit derives its revenue primarily from sales of Synvisc and the Sepra line of products. Thirdly is diagnostics/genetics, which develops, manufactures and distributes in vitro diagnostic products, and provides testing services for the oncology, and prenatal and reproductive markets.

Biogen Idec Inc.

Estimated market share: 2%

The company focuses on developing treatments for cancer and autoimmune and inflammatory diseases. Its product roster includes best-selling Rituxan, a monoclonal antibody used to treat B-cell non-Hodgkin's lymphomas (NHL) developed with Genentech; Avonex, the most popular drug for the treatment of relapsing multiple sclerosis; psoriasis drug Amevive; and Zevalin, a radio immunotherapy treatment for relapsed or low-grade B-cell NHL. In 2007, Rituxan generated US net sales of $2,284.8 million, of which Biogen recorded $616.8 million as its share of co-promotion profit. Revenue related to Avonex and Rituxan represented over 78% of company revenue in 2007.

In late 2004, Biogen (in collaboration with Elan) won approval from the FDA to treat multiple sclerosis (MS) with Tysabri. Tysabri had been awarded fast-track FDA approval in May 2004 based on the results of clinical trials and meetings with FDA officials. However, Biogen Idec and Elan suspended marketing Tysabri in late February 2005 and told physicians to

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stop administering it until further notice after the companies were alerted to a possible side effect – progressive multifocal leukoencephalopathy or PML, a rare neurological condition that can lead to death. On 5 June 2006, Biogen Idec and Elan announced that the FDA approved a supplemental Biologics License Application (sBLA) for the reintroduction of Tysabri; moreover, in the same month, the company received approval for its use in the EU.

CSL

Estimated market share: 1.9%

CSL is Australia's largest public biotechnology company. It develops, markets and manufactures plasma products, pharmaceuticals and diagnostics and cell culture reagents for the pharmaceutical industry. The Australian Federal Government established the company in 1916 to produce vaccines, antitoxins and sera during the war. In 1994, the Government divested its holdings and floated CSL Ltd on the Australian Stock Exchange. CSL now operates on a global scale with 7,500 employees in 26 countries (21% of these employees were located in Australia and New Zealand).

The company's most prominent product is Gardasil, a vaccine to prevent cervical cancer. In June 2006, US Food & Drug Administration approved Gardasil for vaccination of women aged between the ages of nine and 26. In November 2006, the Australian Federal Government signed a $400-million deal with CSL, which ensures Gardasil will be freely available to school girls and women under 26. The Government began distributing the vaccine in 2007. CSL was also among the global leaders in developing a vaccine for swine flu.

Total revenue for the CSL group increased more than tenfold since 1996-97, rising from $300 million to $4.6 billion in 2008-09. Much of this growth attributes to a number of bio-plasma acquisitions, in line with its strategy of becoming a global plasma products business.

Baxter International Inc.

Estimated market share: 1.9%

Baxter operates as a global diversified medical products and services company. It has expertise in medical devices, pharmaceuticals and biotechnology that assist healthcare professionals and their patients with the treatment of medical conditions, including hemophilia, immune disorders, infectious diseases, cancer, kidney disease, trauma and other conditions. The company's products are used by hospitals, clinical and medical research laboratories, blood and plasma collection centers, kidney dialysis centers, rehabilitation centers, nursing homes, doctors' offices and by patients at home under physician supervision. Baxter manufactures products in 28 countries, sells them in over 100 countries and receives about 55% of its revenue from outside the United States.

Operations comprise three segments. Firstly, medication delivery segment (not in this industry) provides a range of intravenous solutions and specialty products that are used in combination for fluid replenishment, general anesthesia, nutrition therapy, pain management, antibiotic therapy and chemotherapy. Secondly, the bioscience segment develops biopharmaceuticals, bio-surgery products, vaccines and blood collection, processing and storage products and technologies for transfusion therapies. Thirdly, the renal segment develops products and provides services to treat end-stage kidney disease. Baxter is actively engaged in R&D programs to develop innovative products, systems and manufacturing methods. Principal areas of strategic focus for R&D include recombinant therapeutics, plasma-based therapeutics, vaccines, small molecule drugs, medication delivery systems, kidney dialysis, drug formulation technologies and sterilization technologies.

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In January 2008, the company issued an urgent voluntary recall for some doses of Heparin, a blood thinner. The move followed "an increase in the number of reports of adverse patient reactions that may be associated with the product." Annual sales of Heparin were an estimated $30 million.

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Industry Performance CURRENT PERFORMANCE

The Global Biotechnology industry continues to expand rapidly and the global recession will cause only a marginal and temporary slowdown in growth. The major markets for biotechnology products – human health and agriculture (i.e. food production) – tend to be relatively resistant to economic downturns due to the essential nature of most of their end products. Additionally, the industry receives public funding from governments and the level of funding is largely unaffected by economic conditions. Demand for products related to elective healthcare is suffering however. With fuel prices having fallen, the biofuels rush has eased. However, where the global economic downturn is having the most significant impact on the Global Biotechnology industry is in attracting private investment.

Private financing

Due to the substantial cost involved in developing a biotech product – estimated to be in excess of $1 billion on average – as well as long lead times from discovery to marketing and the high risk of failure, biotech companies depend on investors to provide capital for their ongoing financing. The global recession shattered investors' confidence, making the prospect of raising funds through IPOs, capital raisings and venture capital far more difficult. The withdrawal of financial resources undermined biotech firms' ability to fund product development and slowed the rate companies could enter the industry. In 2010, the number of firms in the industry is expected to grow by only 0.9%, as few firms are entering the industry. Meanwhile, some firms are failing and exiting the industry or merging to stay afloat. The difficulty in attracting private funds is a greater problem in developed economies such as the United States and Europe, where the industry is more mature and a larger proportion of financing comes from the private sector. In contrast, governments of developing economies, such as China and India, provided strong funding as those nations are in the early stages of establishing their Biotechnology industries.

Product commercialization, revenue and profit

One of the primary drivers of industry revenue growth over the past five years was the growing number of commercialized products. The time between discovery and commercialization is often about 10 to 15 years, so recent growth is largely the result of investment undertaken in the 1990s. Global Biotechnology industry revenue is expected to reach $180.8 billion in 2010, with growth averaging 9.6% per annum over the five years through 2010. In this time, revenue growth greatly exceeded growth in the number of firms, employees and wages. A greater amount of revenue per company and per employee reflects the maturation of the industry that occurred over time, with more companies reaching the product commercialization stage. A lower proportion of revenue dedicated to wages was a major driver in pushing the industry as a whole toward profitability. The profit did not spread across the whole industry however. Instead, the rising profitability largely reflects economies of scale generated by the larger players that established products in the market. The vast majority of biotech companies are still yet to turn a profit, instead operating on the promise of future rewards once pipeline products commercialize.

Growth in the industry was buoyed by: an increase in technological advances that facilitated new discoveries and stimulated greater demand from firms in the pharmaceuticals (healthcare) and agricultural sectors; and an increase in household disposable income (around the world) that allowed people to purchase human health-related products. Demand for medicines and medical equipment was boosted by more sophisticated products to cope with aging populations and greater demand for elective surgeries drugs for non-chronic illnesses; and robust public sector spending in most major markets on the delivery of healthcare. Because the public sector subsidizes healthcare, people are more willing to buy drugs and other biotech products. It is, however, important to note that regulators around the world are

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increasingly looking at cost-effectiveness before allowing new drugs into the market. This was already the case in the United Kingdom and this trend is expected to spread to other countries.

According to IMS Health, global pharmaceutical sales (which include biotech and non-biotech drugs) were expected to increase at an average rate of about 6% per annum over the five years through 2009, to reach $796 billion. Growth was strongest in Asia and Latin America. Although overall pharmaceutical sales growth was modest in more developed nations, biotech drug sales grew more rapidly, with the biotech segment accounting for a rising proportion of overall sales.

Another area that experienced rapid growth is agricultural products. According to the ISAAA (The International Service for the Acquisition of Agri-Biotech Applications), the global market value of biotechnology crops was expected to reach $8.3 billion in 2009, having averaged 12% growth per annum over the previous five years. This includes mainly genetically modified soybean, maize, cotton and canola. In 2007, maize overtook soybeans for the first time, driven by the increased demand for ethanol. Over 12 million farmers currently grow GM crops and over 90% of them are located in developing countries. However, the United States accounts for over half of the global area planted to GM crops. Farmers growing GM soybean and maize in the United States were rapidly expanding the areas planted in order to supply the emerging biofuel industry, which uses maize in the production of ethanol and soybeans for biodiesel.

The expiration of patents is giving rise to the creation of the biosimilar drug market. Biosimilars are follow-on versions of original biological medicines, which were independently developed after the patent protecting the original product expired. In the United States, the FDA approved the first biosimilar drug in 2006. Biosimilar products are also expected to have a substantial effect on the EU market from 2008.

Emerging markets

Sales of biotechnology products in emerging markets were growing at a faster rate than in the European markets as the standard of living and healthcare in developing countries rises. A number of developing nations, including China, India, Korea, Taiwan and Latin America, were investing strongly in establishing their own biotechnology industries. As such, the number of patents coming from developing countries increased by double digits over the past few years. With the increasing capabilities in developing nations, some major industry players outsourced aspects of their activities to these countries, particularly the more labor-intensive functions. Increasing globalization also created risks for the industry. In January 2008, Baxter issued an urgent voluntary recall for some doses of Heparin, a blood thinner. The move followed "an increase in the number of reports of adverse patient reactions that may be associated with the product", which were linked to raw materials sourced from China.

HISTORICAL PERFORMANCE

Biotechnology is a modern industry - development of a Biotechnology Industry was limited by lack of knowledge and lack of technology prior to the 1970s. Gaps in human knowledge began to be filled with the discovery of Deoxyribonucleic acid (DNA) in the mid 19th century. However, DNA was not truly understood until the 1950s when James Watson and Francis Crick described the structure of DNA as a nucleic acid that contains the genetic instructions specifying the biological development of all cellular forms of life (and most viruses). DNA is a long polymer of nucleotides and encodes the sequence of the amino acid residues in proteins using the genetic code, a triplet code of nucleotides. However, lack of technology and knowledge combined to stunt the development of an industry - as distinct from academic laboratories.

The next breakthrough was in the mid 1970s when a method for producing monoclonal antibodies was developed by Georges Kohler and Cesar Milstein. Monoclonal antibodies (mAb) are antibodies that are identical because they were produced by one type of immune cell, all clones of a single parent cell. Given (almost) any substance, it is possible to

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create monoclonal antibodies that specifically bind to that substance; they can then serve to detect or purify that substance. This has become an important tool in biochemistry, molecular biology and medicine and a number of oncology treatments (mentioned in this report) are monoclonal antibody products approved by the FDA - the first was Muronomab in 1986, although the major cancer drugs did not win approval until the late 1990s (such as Rituximab in 1997 and Trastuzumab in 1998).

In 1980 modern biotechnology was developed even further by recombinant DNA technology. Recombinant DNA is an artificial DNA sequence resulting from combining two other DNA sequences in a plasmid. Recombinant proteins are proteins that are produced by different genetically modified organisms following insertion of the relevant DNA into their genome. As this recombines the DNA of two different organisms, the word recombinant is used to refer to this process. Recombinant DNA is used for genetic transformation to produce genetically modified organisms. Some examples of recombinant DNA products are peptide hormone medications including insulin, growth hormone, and oxytocin. Vaccines can also be produced using recombinant processes. The organism most commonly used is Escherichia coli. In 1994 the FDA approved of the first GM food from Calgene: the 'Flavr Savr' tomato. A number of GM food stuffs, and, in turn, crop seeds have since been developed using biotechnology.

One of the major industry projects was the sequencing of the human genome. The Human Genome Project was launched in 1986 by Charles DeLisi, the then Director of the US Department of Energy's Health and Environmental Research Programs. The goals of the original HGP were not only to determine all 3 billion base pairs in the human genome with a minimal error rate, but also to identify all the genes in this vast amount of data. One goal of the HGP was to develop faster, more efficient methods for DNA sequencing and sequence analysis and the transfer of these technologies to industry - this aim was helped by the initiation of a private sector rival to the HGP in the form of Craig Venter's Celera Genomics. Celera used a newer, riskier technique for sequencing called 'whole genome shotgun sequencing', which had been used to sequence bacterial genomes. The method is widely used today to map animal and plant genomes - including the genome of rice (announced in 2004). The knowledge gained by the understanding of the genome will boost the fields of medicine and biotechnology, eventually leading to cures for cancer, Alzheimer's disease and other diseases.

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Revenue (constant prices) Revenue $ Million Growth % 1997 49,898.8 N/A 1998 54,778.2 9.8 1999 58,356.8 6.5 2000 62,915.8 7.8 2001 67,010.6 6.5 2002 73,134.4 9.1 2003 88,466.4 21.0 2004 104,474.3 18.1 2005 114,582.7 9.7 2006 121,209.3 5.8 2007 135,602.3 11.9 2008 148,631.8 9.6 2009 160,968.2 8.3 2010 180,767.5 12.3 2011 205,171.1 13.5 Revenue

Revenue Growth Rate

Gross Product (constant prices) Gross Product $ Million Growth % 1997 28,941.3 N/A 1998 31,826.1 10.0 1999 34,080.3 7.1 2000 38,630.3 13.4 2001 39,536.2 2.3

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2002 41,686.6 5.4 2003 50,956.6 22.2 2004 61,326.5 20.4 2005 70,239.2 14.5 2006 75,995.1 8.2 2007 85,019.3 11.9 2008 94,906.5 11.6 2009 103,448.1 9.0 2010 119,379.1 15.4 2011 140,270.5 17.5 Gross Product

Gross Product Growth Rate

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Outlook Revenue (constant prices) Revenue $ Million Growth % 2011 205,171.1 13.5 2012 233,895.0 14.0 2013 260,792.9 11.5 2014 287,393.8 10.2 2015 314,983.6 9.6 2016 340,182.3 8.0 Revenue

Revenue Growth Rate

Gross Product (constant prices) Gross Product $ Million Growth % 2011 140,270.5 17.5 2012 161,311.0 15.0 2013 180,668.4 12.0 2014 199,638.5 10.5 2015 219,402.8 9.9 2016 236,955.0 8.0

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Gross Product

Gross Product Growth Rate

During the five years through 2015, industry revenue is expected to rise to $315 billion. This represents an average increase of 11.7% per annum, significantly greater than IBISWorld's forecast for average annual GDP growth over the same period.

Changing revenue streams

As the industry approaches maturity, the share of revenue generated from product sales (as opposed to government funding) will continue to increase. The industry is also developing new revenue streams, including income from licensing technologies, outsourced research and the production of biosimilar drugs. First approved in 2006 in the United States, biosimilars are generic versions of biotech drugs after the patent protecting the original product has expired. The development of new and diversified revenue streams will insulate the industry from changes in investment markets and ensure its profitability for years to come.

Regional focus

Although most of this industry's activities take place in the United States, the last few years of the five-year period through 2010 saw a shift toward emerging regions. In recent years, major players reported stronger growth outside the United States than inside. This related to healthcare policy changes and the recession in the United States, as well rising incomes in emerging regions, allowing more consumers access to healthcare. Reflecting this, IMS Health forecast that over the next five years, growth in sales of pharmaceutical products in the United States, EU and Japan will be far outpaced by growth in emerging nations such as China, Brazil, Mexico, South Korea, India, Turkey and Russia. This shift will not confine to the human health market. Increasing acceptance of GM grains is expected to lead to growth in sales of agricultural biotechnology products outside the United States, in response to increasing demand for food and biofuels.

Rising corporate profitability

Investment is important in the pharmaceutical industry as first-to-market products have a significant sales advantage. The maturity of many pharmaceutical products (and the potential to produce cheap generic copies of them) means that

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biotechnology products will become an increasingly important part of a big pharma drug portfolio. Moreover, industries must continue to invest in the development of equipment and processes that negate the effects of the significantly lower wages paid to labor in developing and competing economies (such as India, China and South Korea among others).

An aging population

In the United States in 2000, 12.4% of the population was aged 65 years or over; by 2020, this proportion will increase to 16.3%, or an additional 19 million elderly people compared with 2000. Meanwhile, nearly 25% of people in the EU in 2030 will be above age 65 – up from about 17% in 2005. Governments will be forced to invest in programs to combat hospital shortages and pension system problems. Biotechnology products could be used to cure hereditary diseases by prescribing drugs complementary to a person's genetic make-up in order to reduce ongoing medical costs. Growth in human health markets is expected primarily in developing countries, where medical care is expected to improve and expand. In developed countries, the increasing pressure from governments to use generic products and control costs will lead to slower growth in expenditure.

Increasing interest in biofuels

Declining oil reserves, recent high international oil prices and political instability in the Middle East prompted an increased focus on energy independence – particularly in the United States. As such, many governments accelerated research on biofuels such as ethanol and biodiesel. The Biotechnology industry allowed farmers around the globe (and particularly in the United States) to greatly increase the supply of corn and soybeans – the main inputs into biofuels. This was achieved by developing genetically modified seeds that are resistant to pests and herbicides. By increasing farm productivity, the Biotechnology industry plays an important role in ensuring biofuel production targets are met. Further developments will make production processes cheaper and more efficient.

Improving intellectual property rights

Better-policed legislation in developing markets (such as Eastern Europe, Latin America and Asia) will increase the profitability of investment for US and EU firms selling in those markets. In recent years, major developing countries tightened laws in a bid to increase foreign investment and technology transfer. The primary example is India, which brought its legislation into line with WTO rules. This will positively affect the industry insofar as intellectual property is protected and companies can forge joint ventures with companies that have significantly reduced wage costs and fewer legislative barriers to research (such as in the area of stem cell research). Increased protection may lead to investment in offshore manufacturing plants.

Consumer acceptance of biotechnology products

As the products and ideas that underpin biotechnology are better understood – through monitoring and evaluation – community sentiment toward parts of the industry will improve. One primary beneficiary will be the agricultural and food segment, which suffered huge negative publicity, especially in the EU. To some extent, a softening of attitudes is already under way; in 2007, some 23 countries grew GM crops – up from 17 in 2004. Australia, one of the world's largest agricultural exporters, began small-scale plantings of GM canola in 2008.

Improving profitability

Profitability will continue to improve over the five years through 2015 as products reach the commercialization stage allowing companies to leverage economies of scale and reap the rewards of years of investment. So far, a significant number of companies have yet to record a profit as products are still in the development or trial phase; as the second and

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third generation of products come to market, companies and investors will reap significant rewards. This was already the case in Oceania, which reached profitability in 2005, while losses substantially dropped in North America and Europe. The industry will continue to invest heavily in technology to reduce labor inputs and meet evolving technical specifications and regulations.

The industry may face a shortage of highly skilled labor in the United States and EU as demand for skilled workers outstrips supply. This will lead to an increase in training costs needed to bring less-skilled workers up to the requisite level to operate increasingly complex technology; a rise in wages to reflect supply shortages; and companies looking for affiliate institutions and joint ventures abroad (e.g. in India and China). This process is already evident. In June 2007, Syngenta announced a five-year research collaboration with the Institute of Genetics and Developmental Biology in Beijing, China, to develop new agronomic traits.

Continuing consolidation

Growth by acquisition is also likely to continue as large firms – in this industry and others, such as big pharma companies – seek to purchase biotech firms with a full product pipeline (especially if products are in the late stage of development). Pharmaceutical companies tend to have in place the manufacturing facilities required to commercialize drugs. In many cases, the option of purchasing biotech firms will be more attractive than buying the rights to the drugs they develop. The majority of the world's largest pharmaceutical and biotech companies were involved in merger and acquisition activity during 2010, with further transactions anticipated in the years to come. The impetus to broaden product lines, offset revenue lost due to the expiry of patents, and the desire to attain scale in emerging regional markets partly drove this trend.