The state's biotechs stumble

Revenue, investment and research declined in 2006

North Carolina, one of the hottest biotech spots in the U.S., wasn't so hot last year.

Nationwide, the industry hit record highs for venture capital, deal values and company revenues last year, according to Ernst & Young's annual global biotech report.

But in North Carolina, it was a different story. Revenues decreased. Venture capitalists put their money elsewhere. Corporate research and development investment dropped.

With more than 70 companies developing treatments for a wide range of diseases, North Carolina ranks among the top biotech hotbeds in the United States. But most of the companies are young, small and unprofitable and rely on venture capital or Wall Street debuts to advance their research.

The make-up of North Carolina's biotech industry, which is centered in the Triangle, was a disadvantage in last year's financial environment, which favored large drug makers, said Jim Bongiorno, audit partner for health sciences companies at Ernst & Young's Raleigh office. "The big are getting bigger, and North Carolina has few corporate headquarters to get bigger."

DEALS: Ernst & Young called 2006 the "Year of the Deal" as U.S. biotech companies spent a record $23 billion to buy competitors or their experimental drugs.

Many of the deals were made by large drug makers fretting about cheaper generics eating into sales as some of their best-sellers are losing patent protection.

But again, the relative youth and size of the state's biotech companies kept them from seeing those kinds of deals. Too few have drugs far enough along to be acquired, and the state doesn't have many large headquarters that would have benefitted from acquiring others.

The state stands to gain from a deal that Inspire Pharmaceuticals made in November, when the Durham drug development company agreed to pay as much as $89 million for the rights to an experimental allergy pill.

But the state lost a corporate headquarters in January, when a subsidiary of New York-based drug giant Pfizer bought Raleigh biotech Embrex for $155 million.

REVENUES: North Carolina's nine publicly traded biotech companies generated $326 million in revenue, an 11 percent decrease from 2005.

Nationwide, revenue of publicly traded biotechnology companies was $55.5 billion, an increase of 14.3 percent.

RESEARCH AND DEVELOPMENT: North Carolina biotech companies invested $191 million in adding products to the development pipeline and advancing them. That's a 2 percent decrease from 2005.

Nationwide, biotech companies revved up research and development investments by 30.2 percent, to $27.1 billion. Product pipelines reflect companies' potential to generate revenue and turn a profit.

VENTURE CAPITAL: Privately owned biotech companies in the state raised $102.4 million, the lowest in eight years, according to accounting firm PricewaterhouseCoopers.

Venture capital investments in the U.S. biotech industry rose about 16 percent to $4.5 billion last year. Venture capital comes from institutional investors, such as pension funds and foundations, and supports research and development of young, innovative and unprofitable companies.

INITIAL PUBLIC OFFERINGS: Four North Carolina companies have raised $226 million since 2000 by starting to sell stock to the public. That's about 2.3 percent of the total cash generated by biotech IPOs nationwide.

North Carolina's biotech industry relies heavily on Wall Street debuts, but investors' appetite for IPOs has been tepid. About a half-dozen North Carolina biotech companies are lining up in the wings, waiting for a climate change over the next 12 months, Bongiorno said.