Expecting the Unexpected

STACY LAWRENCE

In economically uncertain times, forecasts are crucial for the insight they offer into a murky future; at the same time, they are usually beheld with skepticism. In light of the value and limitations of such predictions, Acumen has collected a variety of forecasts for the life sciences industry for the coming year.

In 2003, the biotechnology sector, once again a precocious star among other, more mature, life sciences, saw a reversal of fortune; the Nasdaq Biotechnology Index climbed more than 40% through December 1. And the slow leak of venture capital ended, bottoming out in the second quarter. Investors continue to shy away from technology, so life sciences ventures have been claiming a growing slice of the VC pie.

Analysts are predicting that these trends will continue into 2004, as long as economic conditions continue to improve. Drug spending by Americans is expected to continue growing in the double digits, but at 12%, it will still lag behind the staggering increases of the late �90s, which peaked out at almost 20% in 1999.

Even so, pharmaceutical companies are expected to continue showing healthy profits, and analysts project a 15% net profit margin in 2004. Research-and-development spending among pharmaceutical firms, after remaining stagnant last year, is also expected to climb by 15% this year and next as companies cope with the ever-increasing cost of early-stage research and clinical trials while also trying to plump up their withering pipelines.

Early-stage companies are also expected to see a bit of a boom in the coming year. After falling last year by almost 8%, biopharmaceutical VC investment is anticipated to grow by 16% in 2004, bringing it to more than $3 billion, according to the economic research firm Economy.com. That�s still nowhere near the bubbly high of 2000, when $4.2 billion went to the sector; even with the projected steady annual increases, total investment in the sector is expected to hit just $3.8 billion by 2007.

Likewise, in 2004, medical devices and instruments are expected to see a surge of 21% in VC funding to $2.2 billion after trailing off by almost 5% last year. But Economy.com is much more bullish on the long-term investment potential for this sector as nanotechnology medical devices become mature enough to near market. The research firm is calling for medical device investment to more than double to $5.9 billion in 2007 alone.

As for expanding life sciences markets, drug-eluting stents, still somewhat novel, are expected to be one of the fastest-growing categories, with a 60% revenue increase in the coming year. Among biotechnology companies, according to market research firm Datamonitor, revenue for antibodies and vaccine products will each race ahead by 29% to $4.2 billion and $0.6 billion, respectively. The more established line of therapeutic proteins will grow at a more moderate but still heated rate of 17% to reach $13.8 billion.

Additional charts accompanying text include:

New Year's Executions

Metrics

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BioIndex: The best- and worst-preforming equities. Plus, investment banks rate life sciences companies.