BDO conducted a new analysis of R&D spending in the biotech industry -- reported in Fierce Biotech and Pharmalot. The results (based on 10K filings of 86 public companies) showed that biotech R&D spending was down 7% in 2010. A drop in spending mirrored the 3% drop seen with 12 big pharma companies in 2010.
Overall, 70 percent of revenues were spent on R&D expenses in 2010, down from 84 percent in 2009 and 117 percent in 2008. Average R&D expense as a percentage of revenue was 108 percent for smaller companies (< $50 M), compared to 206 percent last year and 353 percent in 2008. For larger biotechs (>$50 M), the average R&D expense as a percentage of revenue was 54 percent; in 2009, this was 55 percent.
The biotech companies "are cutting programs," says Aftab Jamil, a partner and national director of the technology and life sciences practice at BDO, "focusing on what they believe are the best drug candidates with a higher level of probability for commercialization."
Meanwhile, 51 percent of smaller biotechs last year were able to raise an average of $64 million in equity financing, which BDO describes as “a promising rebound” to levels last seen before the recent economic crisis. In 2007, for instance, 61 percent of smaller biotechs raised financing and the average value was also $64 million.
The average biotech had $142 million in cash and short-term investments in 2010, a 3 percent decrease from 2009, although larger companies reported a 10 percent decline. Smaller biotechs reported a 6 percent increase, thanks to R&D cutbacks. Overall, BDO found cash reserves were equivalent to approximately 2.64 years of R&D spending in 2010, up a little from 2.54 years in 2009.
As a group the 86 public biotechs in BDO's basket spent only a fraction of the multibillion-dollar R&D budgets you'd find at a Big Pharma company. But Jamil notes that the companies that can fill a particular gap in any pharma company's pipeline are well positioned to profit from the partnering trend now in full swing. And that bodes well for the future of the business.
It looks like discipline is coming to the biotech world too. Companies are being forced to be more judicious with which programs they back -- particularly with regard to allocation of R&D expenses. If they can successfully develop their products, they should be able to profit with all the Big Pharma companies swarming to increase their pipelines through acquisition, licensing or partnering.
Posted by Bruce Lehr July 29th 2011.