BDO: Biotechs continue to rein in R&D costs, focus on top prospects

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It's not just a few Big Pharma companies which are reining in R&D costs. Combing through the 10-Ks of 90 public biotech companies, the numbers crunchers at BDO found that the group cut back their collective research spending last year, continuing an economizing trend that will likely continue through this year. The order of the day in biotech is thrift and focus as developers remain careful to keep plenty of money in the bank, hunt up fresh collaboration cash and concentrate their resources on top drug programs.

Those public biotechs each spent an average of $54 million on R&D in 2010, a 7% drop from 2009, which followed a 9% slide from 2008, according to BDO. And while costs are being managed with strict discipline, the average revenue for the 90 biotechs rose 11%, with small biotechs--under $50 million--reporting a healthy 42% leap as new partnerships with Big Pharma helped gin fresh income.

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."

To make sure that they don't get caught in a cash crunch, the biotechs are keeping two-and-a-half years worth of operating capital in the bank. That is likely to remain constant in 2011, says the analyst, and may even go up a bit. And half of the 51 small companies in the mix raised an average of $64 million in equity, which Jamil found encouraging.

"I saw that as a very encouraging sign," says Jamil. "Looking at the market one would have thought biotechs--which are often smaller, loss making companies--would have a harder time generating funds. But they continue to be very resilient and successful in approaching investors."

BDO also noted that smaller biotechs "ultimately develop more products, leading to higher R&D spending on a per employee basis. Overall, 70% of revenues were spent on R&D expenses in 2010, down from 2009 (84%) and 2008 (117%). Average R&D expense as a percentage of revenue was 108% for smaller companies, compared to 206% in 2009 and 353% in 2008. This is a stark difference from larger companies whose average R&D expense as a percentage of revenue was 54% and more consistent with 2009 levels (55%)."

As a group the 90 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.

- here's the release from BDO

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As Ph3 failures spike Big Pharma hits the brakes on R&D spending
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