Overview
The biotechnology segment of the healthcare industry is a large industry heavily focused on research and development, science, and technology. While the industry has been strong, most stock-based indices for biotechnology show stagnant results or slight declines over the last three months. However, most general market indices also show similar trends and correlate strongly during this recent timeframe. According to the Annual Statement Studies Financial Ratio Benchmarks produced by The Risk Management Association, companies that participated in pharmaceutical preparation manufacturing, gross profits averaged 46% for the 12-months ended March 31, 2007. This was an increase over the 44% and 43% averages in 2006 and 2005, respectively.
The five-year compound annual growth rate of the domestic biotechnology market was approximately 15% in 2006. While 2007 data has not been reported yet, research indicates continued growth going forward. An example of which is Freedonia's December 2007 Focus on Biotechnology: Pharmaceuticals, which indicated that demand for biotechnology based pharmaceuticals in the U.S. is forecast to reach $65 billion by 2011, reflecting a growth rate of almost 13% per year. Regardless of the exact statistic or metric used, most sources show the industry as being profitable with great growth opportunity.
Given the heavy focus on research and development (R&D), intellectual property is an important asset and is critical to most companies within this industry. Thus, in order for products to remain profitable, patent protection for extended periods of time is often critical. The high price of drugs in the U.S. is frequently criticized, but industry participants argue that the prices are essential in order to maintain profit margins which are the economic incentive for R&D.
Key industry participants include Genentech Inc, Gilead Sciences, Amgen, Celgene CP, Genzyme Corporation, and Johnson & Johnson. Start-up costs can be quite high in this industry, and research shows that venture capital funds many initial investments. The market has also recently demonstrated strong merger and acquisition activity as many of the large market participants have fairly easy access to capital.
Industry Condition – Good to Excellent
Mergers & Acquisitions
- Emergent BioSolutions acquired a group of anthrax monoclonal antibodies from Avanir Pharmaceuticals. (March 17, 2008)
- Avant Immunotherapeutics completed the merger of Callisto Merger Corp., which is its wholly-owned subsidiary, with Celldex Therapeutics. (March 17, 2008)
- Pfizer Inc. announced plans to buy Serenex Inc., a privately held biotechnology company. (March 4, 2008)
- Adams Respiratory Therapeutics was acquired by Reckitt Benckiser. (January 2008)
Key Industry Indicators
- NASDAQ Biotechnology Index
The stocks monitored in NASDAQ's Biotechnology Index continue to overall perform better than the S&P 500 and the NASDAQ Composite Index.
- NYSE Healthcare Index
The stocks monitored in this index have been steadily dropping in value through the first quarter of 2008 but rebounded slightly at the end of the first quarter.
- AMEX Biotechnology Index (BTK)
Stocks measured in this index peaked in October 2007 and have trended downward through the first quarter.
- National Health Expenditure Projections
Overall annual health care spending increases in the U.S. are expected to remain steady at 6.7% through 2017.
- Population Aging
The numbers of Americans age 65 and older is expected to increase by nearly 50 million over the next 40 years.
- U.S. Life Expectancy
Life expectancies are continuing to increase.
Overview
Leading firms in biotechnology must routinely invest in a wide variety of equipment and very expensive scientific instruments to facilitate R&D. The secondary market for these assets depends largely on the function of the equipment and its universality. Scientific instruments are most valuable when they are less than 5-years old, have universal application, OEM maintenance contracts have been followed and properly documented, and the instrument has not been moved.
Clean rooms, laboratories, laboratory furniture, special plumbing for gases and liquids, special air handling and exhaust systems, and other improvements supporting R&D are all installation intensive assets. To maximize value, these improvements are best sold with the real estate to another laboratory user. Alternatively, there is little secondary market for these assets.
Used Equipment Values – Average
- Supply of used equipment – Stable
- Demand for used equipment – Stable
Liquidation Monitor
- Recent bankruptcy filings
- Diomed Holdings, Inc. filed on March 14, 2008
- Leiner Health Products Inc. filed on March 10, 2008
- Cobalis Corporation filed on November 19, 2007
- Aphton Corporation filed on May 23, 2006
- SeraCare Life Sciences, Inc. filed on March 22, 2006
- GlycoGenesys, Inc. filed on February 2, 2006
- Large Scale Biology Corporation filed on January 9, 2006
Factors Influencing Value & Marketability
- Age, technology, universality
- Maintenance contract in place and repairs property documented
- Instruments remain under power and have not been moved
- Installation intensive nature of certain laboratory assets
Valuation Monitor
AccuVal routinely provides appraisal, consulting, and asset management services to the
Healthcare industry, including all segments of Biotechnology.
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Representative Clients Our Associates Have Served
Success Stories
Bayer Healthcare, LLC
Pfizer Inc.
Talecris Biotherapeutics