BUSINESS

More Biotechnology Firms Making Money The scene: A recent presentation to the New York Society of Security Analysts by the officers of a medi­um-sized biotechnology company. The president of the company is winding down the question and an­swer period. President: Are there any other questions? Analyst: Uh, when are you going to report some earnings? President: (pause) No more ques­tions? (pause) Well, thank you for coming.

A number of security analysts are calling 1984 the "year of transition" for U.S. biotechnology companies. They mean, in broad terms, that a sizable number of those companies will begin commercializing prod­ucts this year. Specifically, they mean that many of them will begin reporting net income instead of net loss.

Analysts, whose laughter at what is now a stock biotechnology joke (see above) seems to be fading fast, would like that very much. They would like better guides than Ph.D.

head counts, for instance, by which to separate the sheep from the goats. So they are taking some comfort from the biotechnology income statements for the final business quarter of 1983. There are more com­panies with profits than before.

For a group of 14 selected com­panies—representing a cross section of the genetic engineering, mono­clonal antibodies, and biotechnolo­gy support (instrumentation and lab­oratory chemicals) segments—total revenues in the final quarter of cal­endar 1983 were some 70% higher than in the same period a year earlier. Even more significant, oper­ating revenues (from product sales and contract research and develop­ment work) accounted for about 75% of the revenue in the 1983 period (for the nine firms that provided a revenue breakout). This means that firms are getting by less on interest earned by cash raised from public offerings, private placement, and other sources of capital, and more on their actual business activity.

There were,some better reports

Biotechnology revenues were up in fourth-quarter 1983 FOURTH-QUARTER 1«β3

Amgen Applied Bioeystems Bfogen California Biotechnology Centocor

Cetus Collaborative Research Damon Biotech Genentech Genex

Operating Total revenue* revenu·

($ muttons)

$0.90 na

1.50 na na

8.05 0.86 0.42

na na

$ 1.95 4.27 3.55 1.82 2.39

10.63 1.41 1.09

13.46 4.70

Operating revenue as % of total

46% na 42 na na

76 61 39 90e

na

Earning·0

<$ militons)

$-0.97 0.74

-6.08 0.08

-0.12

0.29 -0.99 -0.44

0.23 -1.70

Change from 1982 Revenu· Earnings

596% 231

20 487 166

75 21 24 18

161

def 1380%

def nm def

nm def def

- 8 7 def

Molecular Genetics 1.63 1.94 84 -0.02 143 def Monoclonal Antibodies 0.30 0.44 68 -1.00 144 def Rlbl immunoChem 0.11 0.18 61 -0.04 64 def Vega Bkrtechnologles na 0.73 na -0.22 62 def

a Includes revenue from R&D contracts, product sales, and royalties, but excludes Interest Income, b Excludes ex­traordinary credits from federal Income tax reductions for loss carry-forwards, c Revenue breakout was not public aA press time, but company has estimated operating/total revenue ratio at 90%. def * deficit, na » not available. am m not meaningful.

on net income, as well. As a group, it is true, the companies still re­ported a large aggregate loss. But four of the firms had profits in the quarter, compared to just two the year before. That is a positive sign.

In the case of many of the firms with losing quarters, large revenue increases were overshadowed by in­creased commercialization costs: for product development, additions to marketing staffs and sales forces, construction of production facilities, and the like. Biogen's income, for instance, was cut sharply by the company's decision not to license completely its gamma interferon and interleukin-2, says chairman Walter Gilbert. This both eliminated license income and put the expense of clini­cal trials on Biogen.

"However, by reducing the in­volvement of licensees, we expect to generate higher revenues when these products reach the market," Gilbert explains.

The dilemma is one that most biotech firms have faced or will face eventually. Licensing provides ready cash, but it is not likely to generate sufficient income for long-term growth. Biotech chief executives know that marketing their own products is the way to better earn­ings. Genentech, for instance, hopes to have its first self-marketed prod­uct—human growth hormone—out this year.

"1984 is expected to be the final stage of our transition into a phar­maceutical company that not only develops and manufactures ethical drugs, but also markets products un­der its own label," comments Rob­ert A. Swanson, Genentech presi­dent. "Depending on the timing of our human growth hormone market­ing, this year may also see us begin to accelerate away from near-break­even toward significantly greater earnings. Of course, 1984 would see only the modest beginnings of that trend."

David Webber, New York

March 19, 1984 C&EN 11