Biotech Sector Rebounds | June 20, 2011 Issue - Vol. 89 Issue 25 | Chemical & Engineering News
Volume 89 Issue 25 | p. 12 | News of The Week
Issue Date: June 20, 2011

Biotech Sector Rebounds

Pharmaceuticals: Recovery is occurring but growth is slow, dogged by a widening gap in access to capital
Department: Business
Keywords: biotechnology, funding, R&D
U.S. Biotech Funding
Growth in 2010 is due mostly to debt offerings.IPO = initial public offering of stock.SOURCE: Ernst & Young
U.S. Biotech Funding
Growth in 2010 is due mostly to debt offerings.IPO = initial public offering of stock.SOURCE: Ernst & Young

Major indicators point to a turnaround for the global biotechnology industry, according to the annual industry report from the consulting firm Ernst & Young. Total revenues for 622 public companies reached $84.6 billion last year, an 8% gain over 2009. Combined net income jumped 30% to hit an all-time record level of $4.7 billion.

Although 2010 was its second profitable year in a row, the industry hasn’t returned to prerecession rates of growth. And while the aggregate performance has improved, “there is now a widening gap between large, established companies and those at earlier stages for whom access to capital continues to be difficult,” says Glen Giovannetti, Ernst & Young’s global biotechnology leader.

In 2010, companies worldwide raised a total of $25 billion in funding, but the influx was skewed. In the U.S., large debt financings by mature, profitable companies grew by 150% and accounted for nearly half the 2010 total. Meanwhile, funding for emerging firms declined by 20%.

Most revenues also came from bigger companies that were equipped to weather the recession. Smaller firms contributed to overall better net income in 2010, but at the price of drastic cost-cutting moves, many of which were in R&D. Many small firms didn’t survive the recession. The number of public companies fell by 11% in 2009, then held steady in 2010.

For the vast majority of firms, funding for R&D has grown increasingly scarce, the report’s authors observe: “This has placed new pressure on the traditional biotech business model, and may reshape how companies pursue R&D in the future.” For the first time in the industry’s history, R&D spending fell in 2009, by 21%. A modest 2% increase brought spending up to $22.8 billion in 2010.

Ernst & Young analysts don’t foresee any major reversals of these trends in the near future. “As long as tight funding remains an inescapable part of the new normal for emerging companies, R&D spending will remain under pressure,” they conclude. “Numbers such as the ones we have seen in 2010—steady, solidly profitable, but slow-growing—may indeed be the shape of things to come over the next few years.”

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