Despite renewed growth in 2010, the biotech sector still faces a ‘confluence of challenges’, according to Ernst & Young’s annual industry report published in June. There is less available capital and less R&D funding, while drug discovery and development is becoming increasingly lengthy, expensive and risky. This scarcity of R&D funding, in particular, may end up reshaping how biotech companies pursue R&D in the future.
There is ‘a sweeping movement’, says Glen Giovannetti, E&Y’s global biotechnology leader, away from producing new medicines to demonstrating how new products will improve health. Firms will need to work from the earliest stages of development to demonstrate potential product value.
However, taken together, companies in Australia, Canada, Europe and the US reported recordbreaking profitability in 2010 with net profits reaching $4.7bn, a 30% increase from 2009. In the US, net income of public biotechs increased from $1.2bn to $4.9bn in 2010. While in Europe, the combined net loss improved slightly, from €467m in 2009 to €459m in 2010.
Total US industry funding reached $20.7bn in 2010, up from $18bn the previous year. Of this, $4.4bn was venture capital, down slightly from $4.6bn. In Europe, total funding was practically unchanged from 2009 at €2.9bn. Venture capital accounted for €1bn of this, up from €790m.
The report, Beyond borders: global biotechnology report 2011, also points out that the gap between large, established players and small start-ups has widened. For example, 83% of total funds raised went to just 20% of US companies; the bottom 20% of companies raised only 0.4%.
While strategic alliances remained strong, upfront payments from partners dropped 37% to $3.1bn. Deal-making was slow, with 45 mergers and acquisitions involving European or US firms compared with 58 in 2009.
Overall, the report is quite positive, but it does have the underlying message that more money is going to fewer companies, and many companies are still struggling, says Tom Saylor, chair of EuropaBio’s SME Platform. He agrees with Giovannetti that, in future, companies will need to be more focused on outcomes and come up with more innovative commercial strategies.