Chicago, IL – September 19, 2012 – Research and development (R&D) expenditures in the biotechnology industry grew five percent in 2011, bouncing back after a decline the prior year. According to a new study from BDO USA, LLP, an accounting and consulting organization, on average, biotech companies spent $50 million on R&D in 2011, up from just over $47 million invested in 2010.

The 2012 BDO Biotech Briefing, which examined the most recent 10-K SEC filings of publicly traded companies listed on the NASDAQ Biotechnology Index, found that the boost in R&D spending coincided with a 24 percent rise in average revenues for the industry. Average revenues for those companies included in the BDO Study jumped to $76 million in 2011, up from $62 million a year earlier. Large biotech firms—those with revenues greater than $50 million—reported a 33 percent increase from the previous year. Smaller biotech companies, however, reported average revenues of $20 million, a 12 percent decline from 2010.

"With revenues growing, it is no surprise that biotech firms are again investing substantial dollars in research and development," said Ryan Starkes, partner and leader of the Life Sciences Practice at BDO. "However, broader economic challenges persist. Smaller companies are struggling to generate returns on their past investments, and continue to target innovative medicines in hopes of greater revenues down the road."

Indeed, 55 percent of smaller companies increased their R&D spending in 2011, whereas two-thirds had trimmed spending the previous year. Sixty-six percent of large firms boosted R&D spending last year. Six-in-ten (60 percent) of all companies in the study increased their investments in research and development in 2011.

Additional findings from the 2012 BDO Biotech Briefing include:

Employment Holds Strong at Large Firms

Despite persistently high unemployment rates in the United States, biotech companies showed a healthy increase in their employee base, which grew 10 percent in 2011. Again, though, gaps between large and small companies remain. Larger companies showed an employment increase of 16 percent, while smaller companies reduced their workforces by about 3 percent.

Virtual Biotech Business Model Gaining Momentum

Although the firms included in the study are generally well-established public companies, innovative business models are being deployed to use scarce resources strategically, several data points suggest.

"Younger companies are relying more on specialized contractors and consultants and outsourcing partners to address specific needs rather than hiring them on a full-time basis," said Aftab Jamil, partner and national director of the Technology and Life Sciences Practice at BDO. "The concept of virtual biotech companies is gaining momentum as well, particularly with start-ups in certain biotech clusters like Silicon Valley, so it is not entirely surprising to see declining figures at smaller firms. Many smaller companies are taking advantage of the availability of specialists to handle specific projects on a short-term basis.

Spending Per Capita Varies by Size

While overall R&D spending rose last year, expenditures per employee decreased by 5 percent, to $233,000, for all companies included in the BDO report. At larger biotech companies, there was an 8 percent decline in average R&D spending per employee, indicative of companies' back-filling of sales, marketing and administrative positions that were hit hard over the past few years. In sharp contrast, smaller companies saw a 4.5 percent increase in per-employee spending, another indication of the growing popularity of the virtual biotech business model at emerging companies.

Smaller companies spend significantly more on R&D per employee—$337,000 in 2011—compared to their larger counterparts, who spent $188,000 per employee last year. Overall, 65 percent of revenues were spent on R&D expenses in 2011, highlighting the critical nature of investments in innovation and the development of new drugs and technologies.

Relative to Revenue, Small Firms Splurge on R&D

Smaller companies' average R&D expenditure of $38 million in 2011 remained virtually flat, showing just a 1 percent increase over the prior year. However, average R&D spending, as a percentage of revenue, grew to 194 percent for smaller companies, compared to 168 percent a year earlier. As smaller companies reduced their headcounts, the increase in R&D spending is even more pronounced. Larger companies' expenditures, on the other hand, remained more consistent with 2010 levels, falling slightly to 45 percent from 55 percent the year before.

Larger Companies Rely on Cash, Small Firms Turn to Capital Markets

Just 24 percent of large companies raised equity financing in 2011, indicating a heavier reliance on cash generated from operations to fund R&D activities. Smaller companies continued to rely on capital markets to help fund their R&D efforts, with 64 percent of smaller biotech firms raising equity financing at an average level of $64 million, compared to $62 million the prior year. Among all firms, those in need of financing chose equity twice as often as debt, 40 percent compared to 19 percent, respectively. Companies raised an average of $74 million in equity financing, up significantly from the $68 million raised in 2010.

Smaller Firms Show Losses, but Liquidity Remains Steady

Across the board, biotech companies reported an average loss of $32 million for 2011, compared to $34 million in 2010. Virtually all smaller companies in the survey—90 percent—reported losses in 2011, in line with last year's results.

Concurrently, firms maintained financial liquidity at levels fairly consistent with those of previous years. On average, companies held 2.63 years' worth of R&D spending in liquid assets in 2011, up slightly from 2.56 years' worth in 2010 and 2.23 years' worth in 2009. In addition, firms continued to show signs of prudence in fiscal policy and cash management, holding $131 million in cash and short-term investments in 2011, 7 percent more than they did the previous year. That rate was consistent among both small and large companies. For biotech companies, the ability to fund research and development is a mission-critical activity which spans multiple years. Cash is a strategic asset and liquidity is extremely important to support product development efforts.

For many companies, cash generated through operations is supplemented through public and private equity and debt markets. Biotech companies continue to show their remarkable ability to attract such equity and debt investment.

About the 2012 BDO Biotech Briefing

The BDO Biotech Briefing examined the most recent 10-K SEC filings of companies listed on the NASDAQ Biotechnology Index. Companies reporting more than $300 million in revenue were excluded to ensure findings are representative of the vast majority of companies included in the NASDAQ Index. Remaining companies were divided into two groups—those with more than $50 million in revenue and those with less than $50 million in revenue—to identify trends and key metrics relevant to each group.

About the Technology & Life Sciences Practice at BDO USA, LLP

BDO has been a valued business advisor to technology and life sciences companies for over 100 years. The firm works with a wide variety of technology clients, ranging from multinational Fortune 500 corporations to more entrepreneurial businesses, on myriad accounting, tax and other financial issues.

About BDO

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 42 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,118 offices in 135 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit:

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