Wednesday, April 28, 2010

Summing Up the Biotech Way: Beyond Borders 2010

One scorecard from 2009 is in: Ernst & Young's annual report on the global biotech industry, Beyond Borders. This Summing Up –which this fanciful blogger envisions as an annual, exhaustive biotech version of Somerset Maughan's eclectic memoir—is published annually just as the industry gears up for BIO, as a mix of sweeping generalizations, trend-spotting, and interesting statistics on financing.

Much of the 2010 report isn't news, especially to followers of IN VIVO Blog—how hard is it to figure out, after all, that biotech is an industry of 'haves' and 'have-nots?' or that the venture investment model is under pressure, resulting in new financing and R&D models (asset-based financing, options-based deals, FIPNets), and pharma companies are divesting assets? More importantly though, the report contains interesting datapoints, piecing them together to obtain a coherent picture of the industry at a given point in time, and providing fodder for BIO networking.

So what are some chatable points? Biotechs took their lumps last year but, overall, they fared better than E&Y or others had predicted. They've been aggressive about paring costs, cutting back on R&D, staff, and shelving non-core assets. They've been creative about finding new ways to finance operations as they slog through the long R&D tunnel. The number of public companies fell by only 11% in 2009 to 662 from 700 a year earlier, E&Y calculates--not healthy, surely, but far short of what E&Y last year predicted would be a 25% drop.

Industry global revenues fell by 9% from $86.8 billion to $79.1 billion in 2009, true, but that includes the impact of Roche's acquisition of Genentech. Without this acquisition, biotech revenues would have grown by 8% (An 8% rise is better than a 9% decline, but it still isn't up to growth rates of years past, EY points out). Tighter regulatory safety requirements have slowed new drug approvals, not only in the US but in Europe as well.

Other tidbits: Biotech companies raised $23.2 billion last year, up 42% from 2008, and while venture capital totals were flat globally, the US had its second-best venture funding year since 2000, while Europe had its worst. That said, about half of US venture capital raised went to only 45 companies, with Clovis Oncology the big winner. And companies with early-stage technology need more money than ever to carry their products through clinical development.

More to the point, industry R&D spending fell 21%, after years of double digit growth. It's hard to say if this is a self-correction or a true stab at improving R&D efficiency, but that drop helped biotechs in aggregate to post a net profit for the first time of $3.7 billion; in 2008, the industry lost $1.8 billion. Other reasons included a change in accounting rules, fewer public companies, since most of the acquired companies were losing money anyway, and other cost reductions. Asset sales, royalty and milestone payments also played a role, but even E&Y couldn't say by how much.

Another weight hanging over the biotech head: reimbursement: E&Y notes that companies, which traditionally viewed marketing approval as the finish line for deal-making, now must cross additional hurdles related to reimbursement. Nothing new for IV Blog followers here: Now, we've been tracking this still esoteric but increasingly talked about trend of setting special reimbursement milestones for deals and its counter argument: that traditional sales milestones cover reimbursement risk--an evolution we find fascinating.

The takeaway:

Life is getting tougher: Gaining an FDA approval alone is no longer an event worthy of popping the champagne, unless payers can be convinced of a product's value. This means, the earlier biotechs and big pharmas alike invest in pharmacoeconomic analysis, the better. As E&Y puts it – there needs to be a thought process of: "If you build it, will they pay?"

Easier said then done, in the eyes of some. E&Y however, notes the industry was built by entrepreneurs, who will find creative responses to pricing pressures. Just what will these look like? Even E&Y can't say right now.

image from flickr user nim used under a creative commons license

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