The U.S. biotechnology industry is verging on profitability and outperforming pharmaceutical companies in some areas but faces tough challenges, biotech industry experts said Monday.

The number of U.S. approvals of new drugs last year hit 18 for biotech companies, versus only 11 for traditional drug companies, consultants told about 800 attendees at the sixth annual joint conference of the New Jersey and Pennsylvania biotech trade groups.

Two of the top 10 medicine makers in the world by revenue now are biotech companies, Genentech and Amgen.

Revenues of U.S. biotech firms topped $50 billion last year, up almost 16 percent -- double the 8 percent growth rate of their big brother drug makers. And biotech firms are getting a bigger share of venture capital in the life sciences field: 17 percent last year, about four times the percentage in 1999.

U.S. biotech companies are still in the red, but their combined net loss dropped 40 percent to about $4 billion in 2005.

"The sector is closer to profitability than at any point in the past," said Keith Brownlie, a life science industry expert at consultant Ernst & Young.

He noted the biotech industry this year marked its 30th anniversary, with its birth considered to be the April 1976 founding of Genentech Inc. of South San Francisco.

In New Jersey, the 29 publicly traded biotech companies had a combined $1.45 billion in revenues last year, up 11 percent from 2004, and their market capitalization jumped 38 percent to nearly $17 billion. Their combined net loss was down 16 percent to $494 million.

In eastern Pennsylvania, 11 publicly traded companies saw their combined revenues climb 18 percent to $1.42 billion, and their market capitalization rose 11 percent to $6.9 billion. Their combined net loss was rose 20 percent to $488 million.

Most biotech companies in the neighboring states are privately owned, and figures on their performance were not available.

While venture capital has generally been difficult to raise as investors seek safe options, Brownlie said New Jersey and Pennsylvania biotechs pulled in $506 million last year, up from $161 million in 2004.

Despite that, about two-thirds of investment in U.S. biotech companies now comes from mergers and acquisitions.

"Companies are saying that M&A is their exit strategy," Brownlie said.

That's because if a company survives to get a drug on the market, the pressure to then turn a profit each quarter limits investment in developing another drug to an unworkable level, said C. Boyd Clarke, a general partner at Five Lakes Venture Partners and former chief executive of Neose Technologies of Horsham.

Unless you can afford to buy rights to a product in late-stage development from another company, Clarke said, "you're going to look for someone to buy you."

The experts said this is one reason the industry now has some Fortune 500 companies and many small startups, but fewer mid-size companies.

Other looming challenges for biotechs include increasing pressure from both government and managed care insurers to hold down prices of genetically engineered drugs, which are more expensive to make than chemically synthesized pills, normal ups and downs in business cycles and, in this region, creating a more entrepreneurial culture, a panel of experts said.

Brownlie said pending changes in U.S. patent law could hamstring small biotech firms.