Despite Challenges, Biotech Staying Positive, Says Ernst & Young

Ernst & Young has released its annual report on the state of the biotech industry, Beyond Borders: Global Biotechnology Report 2010, and according to the report, things generally are looking good for the industry.

Having weathered the economic turmoil of 2008, “the industry as a whole showed quite a bit of resilience,” said Glen Giovannetti, Ernst & Young’s global biotechnology leader. The report noted that companies at biotechnology centers in the US, Europe, Canada, and Australia posted net profits of $3.7 million, and for the first time, these markets have reached profitability.

“Because of how acute the crisis seemed to be, we thought up to a third of companies might not be around,” Giovannetti said. “Globally, there are fewer companies, but only about 11% of companies folded—far fewer than analysts had predicted.”

According to the Beyond Borders report, venture capital (VC) firms are having a very difficult time raising funds. Capital is at the lowest level in over a decade and the total pool of funding has shrunk. The lack of VC capital also means that the gap between large biotech companies and small ones has grown tremendously, and will continue to grow. This eventually will have an effect on innovator drugs. According to Giovannetti, “in 2009, R&D expense was cut significantly and 2/3 of public companies reduced their R&D expense.”

“The environment of scarcity of capital is causing companies and investors to seek efficiency,” said Giovannetti. He refers to this as the new normal. The Beyond Borders report identifies five guiding principles for companies operating in the new normal, which include seizing funding opportunities, boosting capital efficiency, focusing on reimbursement, collaborating creatively, and developing differentiating assets.