The BioRegion: The Catalan life sciences and healthcare sector. Status and analysis

Introduction

On a global scale, the 2013-2015 period was extremely positive for the life sciences sector, particularly for biotechnology companies. The turnover of these companies in the four main markets—United States, Europe, Australia and Canada— totaled $123.096 billions in 2014, up 24% from 2013, which in turn was 10% higher than the previous year.1 This spectacular growth is mainly due to the results obtained by Gilead Sciences. With the launch of its new hepatitis-C drug, this company doubled its turnover ($10.8 billions to $24.5 billions),2 clearly demonstrating the extreme importance of innovation in this sector.

The financial indicators are even more spectacular: the capital raised by biotechnology companies that went public in 2014 —94 in total: 58 in the US, 32 in Europe, three in Canada and one in Australia— totaled $6.8 billions, 93% more than the funds raised on the stock market in 2013, and the highest since 2000. Over the first six months of 2015, 50 biopharmaceutical companies went public, raising more than $5 billion dollars, however the market stagnated in the second half of the year.3 Venture capital investment in biotechnology grew 28% in 2014, to a total of $7.6 billions. The funds raised through capital increases launched by publicly traded companies also showed notable growth, up to 49%, and the number mergers and acquisitions (M&A) was also up, with 68 operations valued at over $49 billions in 2014 –up 46% from 2013.4

The intense M&A activity, which in 2014 was at its highest in the past 10 years, is driven by pharmaceutical companies looking to accelerate innovation in their pipelines by acquiring biotechnology firms. In any case, despite the market pressures –particularly due to healthcare budget cuts in both Europe and the US, and growing competition from generics— the global turnover of the pharmaceutical industry –which was more than one trillion dollars in 2015— is expected to hit $1.4 trillions by 2020, with annual growth rates between 4% and 7%.5 According to analysts, this growth will be fuelled in particular by greater consumption in emerging markets—China, Brazil, Russia and India— and by innovative drugs, specifically those to treat cancer and rare diseases, in developed markets.

In 2014, turnover in biotechnology companies in the United States, Europe, Australia and Canada was 24% higher than the previous year

As the 2013 Biocat Report highlighted, human health isn’t the only field where biotechnology can be applied. It is also having a growing impact on areas like animal health, agrifood, cosmetics, environmental conservation and energy production. However its potential to provide innovative solutions to treat diseases that currently have no cure —Alzheimer, cancer, multiple sclerosis, and thousands of minority genetic diseases— has make biotechnology the keystone of innovation in the pharmaceutical industry, which is the sector with the most investment in R&D in Europe and the United States, even ahead of the ICT sector.

According to the EFPIA (European Federation of Pharmaceutical Industries and Associations), the pharmaceutical industry invested €30.4 billions in R&D in 2013 in Europe. In the same report, the Federation shows that pharmaceutical and biotechnology companies invest up to 14.4% of their sales turnover in R&D, compared to software and IT services, another high-investment sector, which only invests 10.4%.6 Additionally, PhRMA (Pharmaceutical Research and Manufacturers of America) states that its members’ R&D investment in 2013 totaled $51.6 billions, which is 17.9% of their sales.7

In 2014, the pharmaceutical industry’s commitment to biotechnological innovation yielded a record-breaking number of new drugs approved by the FDA (Food and Drug Administration). This US agency approved, for the first time in 10 years, all of the applications submitted: 41 new products, which is also the highest since 2005.8 Of particular weight among these new drugs are those known as orphan drugs, to treat rare diseases (17 out of the 41, or 41%). This trend can also be seen in the European market, where in 2014 the European Medicines Agency (EMA) recommended approval of 82 new medications for humans, 17 of which were orphan drugs. The growing number of approvals is a consolidated trend in Europe: in 2013, the EMA recommended approval of 81 medications (38 of which were new compounds) compared to 57 in 2012 (with 35 new active ingredients), confirming the sustained growth over the past five years.9

Apart from biotechnology and pharmaceutical firms, medical technology companies are at the heart of the life sciences sector. Global figures for the medtech market, however, aren’t as exceptional. Although turnover continues to grow —up 2% in 2014 to $341.8 billions10— it is doing so very slowly, outpaced by the growing number of companies (up 9%) and R&D investment, up 6% to $14.3 billions. For some analysts, this increase in medtech research efforts isn’t so much a clear commitment to innovation as a response to the growing pressure this industry faces to prove the unique selling point of its products and devices, which in many cases requires clinical trials and testing.

Whatever the case, large medical technology companies in Europe and North America have found firm support in financial markets, which allowed them to maintain venture capital levels above $4.7 billions in 2014 and 2015 and post the highest results in the past seven years for new IPOs, with valuations totaling $2.3 billions (July 2014 – June 2015).11 Nevertheless, the number of operations and investors for early-stage projects is decreasing, while pressure is mounting to find disruptive innovations that can be proven and, thus, overcome the budget restrictions of healthcare systems.

In the academic and research arenas, the weight of the life sciences –and its economic impact in particular— is also growing, with knowledge transfer beginning to yield results in some areas that until recently were only associated with engineering and ICT. In this regard, the analysis published recently in Nature Biotechnology is particularly revealing, stating that of the $861 millions obtained through licensing agreements by the top 11 universities in the United States in 2014, $734 millions —85%— was from licenses in the life sciences. Specifically, these universities began marketing 1,072 biosciences licenses out of a total of 1,510 and the life sciences generated 136 spin-offs of a total of 217. Noteworthy data from this analysis includes the fact that both the number of licenses and the companies created was 40% higher than in 2013.12

Overview of 2013-2015 in the BioRegion

In the BioRegion, the two years since the 2013 Biocat Report was published was a time of highs and lows. Although far from the investment numbers in more developed markets, we did see extraordinary growth in the funds attracted by Catalan companies in the sector, especially biotechnology firms (graph 17), which was more than €54 millions in 2015, nearly double the already significant levels seen in 2013.

Also on the positive side is the resilience shown by Catalan life sciences companies, which are far from the high mortality rates innovative companies are suffering in Spain as a whole, especially since the beginning of the crisis. These companies are not only withstanding the situation but are also showing a tendency to grow, although SMEs still account for 88% of the sector.

Over the past two years, some of the most important business operations have taken place since the life sciences sector in Catalonia began to take shape between 2000 and 2005.

In April 2014, biotechnology firm Oryzon Genomics closed an agreement with Swiss pharmaceutical company Roche to develop their experimental drug ORY-1001 to treat acute myeloid leukemia. The operation, valued at a total of $500 millions, is the most important to date by any Spanish biotech company, and a transcendental leap forward in Oryzon’s development.

In June 2014, Catalan biopharmaceutical company Reig Jofre closed a merger deal with Valencia-based Natraceutical, making it the fifth pharmaceutical company to be traded on the Spanish Continuous Market. Furthermore, in July 2014, pharmaceutical company Almirall reached an agreement with British company AstraZeneca to transfer its respiratory business line, valued at €1.56 billions.

In 2015, we saw another significant licensing deal: biotechnology firm Palobiofarma —which continues to do most of its activity in Catalonia despite having moved its headquarters to Navarra in 2013— licensed the rights to a lung cancer drug to Novartis for €13 millions.

Over the past two years, some of the most important business operations have taken place since the life sciences sector in Catalonia began to take shape between 2000 and 2005

The effervescence of the business sector, however, is in sharp contrast to the recession in terms of R&D investment, both public and private. The most recent data available on R&D expenditure in Catalonia, for 2014, shows a drop of nearly 11% from 2009, which was a turning point after a decade of steady growth. As seen in graph 1, the communities that spend the most on R&D in both absolute numbers (Madrid, Catalonia and Andalusia) and in relative terms (Basque Country and Navarra) have rallied somewhat over this period. However, in 2014 every Spanish community saw a decrease of between 7% and 32% from R&D levels in 2009 (except for the Basque Country and Murcia, where spending only dropped 3%).

Graphic 1

R+D internal expenditure (2009-2014)

(in million Euros)

Source: INE

In Catalonia, R&D expenditure fell most sharply in companies from 2009 to 2014, down 13%, while higher-education spending was down 11.5% and that of the public administration, down 3.7%. The final figure deserves special comment: except for the case of the Basque Country —which, although in the middle of the crisis, has increased government R&D spending by nearly 20%— the Government of Catalonia has made the clearest effort to maintain R&D expenditure. This reduction of less than 4% in Catalonia contrasts sharply with the 18% drop seen in Spain as a whole between 2009 and 2014, with the rest of the autonomous communities seeing investment down between 18% and 58%.

This relative stability in the Catalan government’s R&D budget and the high levels of excellence at Catalan research centers, which lead the nation in attracting competitive funds, has allowed our large research institutes to sustain the upward trend in personnel, projects and research results, despite the situation. However, notwithstanding the positive indicators, the size of Catalan research centers, which in the best of cases have yearly budgets of between €15 millions and €30 millions and 200-300 researchers on average, is still very small when compared to their international counterparts, and the lack of critical mass is a handicap in this highly competitive global setting. Therefore, one of most characteristic traits of the period studied in this report, as we will see further on, is the joining of efforts to propose mergers and strategic alignments of different research centers.

In Catalonia, R&D expenditure fell most sharply in companies from 2009 to 2014, down 13%, while higher-education spending was down 11.5% and that of the public administration, down 3.7%

Catalonia continues to be above the Spanish average in R&D spending as a percentage of the GDP, which was 1.47% in 2014 (graph 2), however this indicator has fallen continuously since 2009 —when R&D investment was 1.7% of the GDP— and, in any case, is far from the European target of 3%.

It is plausible to think that the positive results beginning to be seen in Catalan life sciences companies —many of which are spin-offs of universities and public centers— are due to the firm commitment to research in this country since 2000. It is essential to maintain public and private efforts to drive top-notch science and improve the transfer mechanisms that encourage innovation if we want the sector to continue to grow and have a positive impact on the social and economic development of Catalonia in coming years.

Graphic 2

Percentage of GDP invested in R+D (2014)

Source: INE

Map of the BioRegion of Catalonia

The map of the BioRegion of Catalonia underwent some significant changes in the 2013-2015 period. On one hand, there was a notable increase in the number of companies, for a total of 734, caused by the convergence of several factors that will be discussed in the next section.

On the other hand, the number of research centers working in the life sciences has dropped, as a result of the aforementioned merging, as has the number of technology centers, six of which have united to form a new organization called Eurecat.

The following sections provide an in-depth analysis of the stakeholders on this map of the life sciences in Catalonia.

Graphic 3

The BioRegion ecosystem

 

Source: Biocat Directory

734companies

89research organizations

1 Beyond Borders. Reaching new heights, Ernst & Young, 2015, p. 5.
2 “The top 15 pharma companies by 2014 revenue”, FiercePharma, 18 March 2015.
3“Will Wall Street Volatility Dampen The Sizzling Biotech IPO Market?”, www.forbes.com, 25 August 2015; “Biotech IPOs Grind to a Halt as Stock Rout Rattles Investors”, www.bloomberg.com, 8 October 2015.
4 Idem, Ernst & Young, 2015, p. 9.
5 Global Use of Medicines in 2020, IMS Institute for Healthcare Informatics, 2015.
6 European Federation of Pharmaceutical Industries and Associations (EFPIA), The Pharmaceutical Industry in Figures. Key Data 2015.
7 Pharmaceutical Research and Manufacturers of America (PhRMA), PhRMA Annual Membership Survey, Washington DC, 2015.
8 However 2013 was a step back, with only 27 new drugs approved from 36 applications submitted, far from the 39 approved in 2012.
9 EMA recommends 81 medicines for marketing authorisation in 2013 (20/01/2014) and Record number of medicines for rare diseases recommended for approval in 2014 (09/01/2015), News & Press releases, http://www.ema.europa.eu/ 
10 Pulse of the industry. Medical technology report 2015, Ernst & Young. This report is compiled with data from publicly traded companies in Europe and the United States, specifically 414 companies in 2014.
11 Idem, p. 33.
12 “Top US universities, institutes for life sciences in 2014”, Bioentrepreneur by Nature Biotechnology.