Biotech industry showing resilience despite challenging conditions

Biotech industry showing resilience despite challenging conditions

World's established centers of biotech activity reach aggregate profitability for first time

New York, 28 April 2010 - The global biotechnology industry was able to weather the continued worldwide economic turmoil and deliver a strong financial performance in 2009, with the world's established biotech centers reaching profitability for the first time in history. However, the gap between the "haves" and "have nots" in the industry continued to widen in 2009, posing new challenges for emerging companies in accessing the capital needed for R&D. These and other findings were released today in Beyond borders: global biotechnology report 2010, Ernst & Young's 24th annual report on the biotech industry.

"Biotech companies have long confounded predictions on their ability to survive difficult economic conditions and 2009 was no different," said Glen Giovannetti, Ernst & Young's Global Biotechnology Leader. "Companies will continue to face a challenging funding environment for the foreseeable future. The firms best poised for success are those that can seize the opportunities latent in the near-universal need for increased efficiency - from capital efficiency to new approaches to R&D and creative models for funding and partnering."

Key financial results:

  • Companies in the industry's established biotech centers of the US, Europe, Canada and Australia had an aggregate net profit of US$3.7 billion in 2009, an improvement from the US$1.8 billion net loss in 2008 marking the first time ever that these markets have reached aggregate profitability. This improvement was driven by a dramatic increase in net profit in the US market due largely to the adoption of new cost-cutting and efficiency measures.
  • Revenues of listed biotech companies fell by 9% to US$79.1 billion in 2009 from US$86.8 billion the prior year. The bulk of this decline was due to the exclusion of Genentech in 2009 as a result of its acquisition by large pharmaceutical company Roche. If Genentech is excluded from both years, industry revenues would have grown by 8%.
  • Capital raised increased sharply in 2009. Companies in the US, Europe and Canada raised US$23.2 billion in 2009, a 42% increase compared to 2008. A significant portion of this capital was raised by a handful of established public companies in follow-on offerings, as access to capital for many companies remained scarce.
  • Strategic alliance activity remained robust - in line with the record-breaking totals seen in the last couple of years. On the M&A side, with the exception of the Genentech transaction mentioned above, there were only three acquisitions larger than $US1 billion, due in part to several mega-mergers in big pharma, the buy side of most biotech deals.

"The European biotech community showed great fortitude in meeting the challenges of the economic downturn, with only a small reduction in the number of public companies," said Jürg Zürcher, Ernst & Young's Biotechnology Leader for Europe, Middle East, India and Africa. "With R&D funding essentially flat in 2009, European biotechs and their counterparts globally need to balance the need for cost cutting with ensuring they do not impair their ability to be drivers of innovation in the future."

Adapting to the "new normal" 
Biotech companies are now operating in a new normal, where access to capital will remain difficult. With less available capital, venture capitalists are being more selective and reserving funds for existing portfolio investments. Some funding is being directed to finance R&D assets or projects, with potentially faster returns, instead of starting new companies. IPO investors are primarily seeking more mature, de-risked investments, and IPOs are pricing below companies' expectations. Other public funding is increasingly concentrated in a smaller number of companies. Big pharmaceutical companies still need to acquire promising products for their pipelines, but recent mega-mergers and efforts to exit therapeutic categories have reduced the number of potential buyers for any given biotech asset.

The biggest opportunities in this new normal will come from increasing efficiency: more efficient ways to fund innovation and achieve returns for investors, better outcomes for every dollar of health care spending, and more efficient R&D and operations at drug companies. The Beyond borders report identifies five guiding principles for biotech companies operating in the new normal:

  • Seizing funding opportunities. Companies need to broaden the search for capital to include nontraditional (and non-dilutive) sources of funding. Many will need to reset valuation expectations for today's markets and take funding when it is available.
  • Boosting capital efficiency. Companies will need to use scarce capital efficiently. This includes designing studies and trials to "fail faster," prioritize pipeline assets and work with third parties to unleash operational efficiencies.
  • Focusing on reimbursement. The end goal in product development is no longer marketing approval but payor acceptance. Companies need to invest early in pharmacoeconomic analysis to inform R&D decisions. 
  • Collaborating creatively. The report identifies several innovative partnering structures. Companies' use of creative partnering approaches could free them from turbulent public markets and give them much-needed resources.
  • Developing differentiating assets. There are fewer potential buyers and they are distracted and have fewer resources. To attract partners, biotech firms need to demonstrate what truly differentiates their products or platforms.

Key regional findings

United States

  • The US industry's net income skyrocketed from about US$400 million in 2008 to a record US$3.7 billion in 2009. The improvement in industry profitability was driven by revenue growth, cost cutting and a change in the accounting rules for acquisitions. The 2009 figures exclude the net income of Genentech, which was acquired by Roche.
  • Revenues of US public companies fell to US$56.6 billion in 2009, a 13% drop compared to 2008. When adjusting for the acquisition of Genentech, industry revenues would have instead increased by 9.5%, comparable to 2008 industry growth.
  • The value of merger and acquisition (M&A) transactions involving US-based biotech companies (excluding the Roche-Genentech transaction) decreased by half in 2009 to a total of US$14.1 billion. Only three transactions had a value in excess of US$1 billion.
  • Total US capital raised by the industry increased by 39% in 2009 to an aggregate of US$18.0 billion.
  • Venture capital raised in the US reached US$4.6 billion in 2009 - the second-highest total in history, behind only the record US$5.5 billion raised in 2007. 


  • Revenues of European public biotechs grew 8% to €11.9 billion, well below the 17% growth seen in 2008.
  • The combined net loss for biotechs in the region fell from €913 million in 2008 to only €288 million in 2009, driven by cost cutting, the elimination of unprofitable companies and strong net income growth at some large European biotechs.
  • The value of M&A activity in Europe declined from €3.1 billion in 2008 to €1.8 billion in 2009
  • Total funding for the European industry increased 48% in 2009, to €2.9 billion.
  • Venture capital raised in Europe totaled €800 million, a 21% decrease from the previous year, and the lowest level since 2003.


  • The Canadian biotechnology industry raised more than US$733 million in 2009, an increase of $US255 million.
  • Revenues of the Australian publicly traded biotech industry reached US$3.72 billion, a 7% increase from 2008 but significantly lower than the 26% growth rate achieved in 2008.

About Ernst & Young's Global Life Sciences Center 
Ernst & Young's Global Life Sciences Center brings together a worldwide team of professionals to help life sciences companies address their challenges at every stage of development. From the emerging biotech or medtech firm to the well-established, global pharmaceutical company, our industry teams bring deep experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify implications and develop points of view on relevant industry issues. Whether it's forming innovative alliances, improving operations, new regulations or exploring new markets, we can give you a clear perspective on how to drive value in an increasingly complex, competitive and risk-driven environment. It's how Ernst & Young makes a difference.