Optimism Grows For Biotech | May 10, 2010 Issue - Vol. 88 Issue 19 | Chemical & Engineering News
Volume 88 Issue 19 | p. 11 | News of The Week
Issue Date: May 10, 2010

Optimism Grows For Biotech

BIO Conference: Economic environment for biotech improves, but challenges persist
Department: Business | Collection: Economy
Keywords: biotech, BIO, biosimilars, healthcare
BIO attendees in Chicago were optimistic this year.
Credit: Lisa Jarvis/C&EN
BIO attendees in Chicago were optimistic this year.
Credit: Lisa Jarvis/C&EN

Biotech executives who flocked to Chicago last week for the Biotechnology Industry Organization’s (BIO’s) annual convention came with a degree of optimism that the industry has turned a corner after a tough 2009.

At last year’s meeting, the industry found itself in a “perfect storm” of economic, political, and scientific challenge, BIO CEO James C. Greenwood told attendees. Companies were finding it difficult, if not impossible, to raise money, and managers were worried about the direction health care reform would take, particularly regarding the impact of legislation on generic biologics.

Today, the industry is “far more optimistic,” G. Steven Burrill, CEO of investment firm Burrill & Co., told a packed auditorium. Patented biotech drugs were given 12 years of marketing exclusivity in the health care bill, and biotech stocks have rebounded.

Money still isn’t flowing freely, but the capital markets have opened up. Ten initial public stock offerings have succeeded since last year’s BIO meeting, Burrill noted, and U.S. biotechs raised a record $48 billion from venture capital, public market, and partnering deals.

Adding to the positive news, a report from Ernst & Young says the biotech industry turned a profit for the first time ever in 2009.

But the good news comes with caveats. The record levels of funds that have been raised often came through deals with less than favorable terms for small firms. And although the industry turned a profit, it wasn’t because of more robust sales. Rather, biotech companies pared back R&D out of fear of not being able to raise more cash.

The Ernst & Young report found that two-thirds of U.S. biotechs and nearly as many European firms reduced spending on research. Deviating from previous trends, U.S. biotech revenues grew 10% last year, but overall R&D spending was down by 13%. “As long as we’ve been tracking the industry, the R&D growth rate has tracked revenue growth,” said Glen T. Giovannetti, Ernst & Young’s global biotechnology leader.

The question now is what impact trimmed R&D budgets will have on the new product pipeline in the coming years. “How much of this is cutting not just fat, but muscle?” Giovannetti asks.

At the earliest stages of research, cash from venture funds is still tight, forcing biotech companies to look to alternative sources of financing. The National Cancer Institute saw applications for its Small Business Innovation Research program, which provides entrepreneurs with early-stage funding, jump by roughly 80% between 2008 and 2009. And this year’s SBIR applications look nearly as robust.

“Companies who never would have looked at SBIR in the past because they would have raised money in the venture world are looking at us now,” said Michael Weingarten, director of the SBIR development center.

Indeed, the BIO meeting itself reflected the continued money worries: Attendance was up slightly from last year to roughly 15,000, but the conference has shrunk considerably from the crush of 22,000 attendees who came in 2007.

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