E&Y: 2009 forever changed the biopharma industry

CHICAGO - The sting of the 2008/2009 economic crisis is starting to fade. But last year's crisis was so different, so widespread and so global that it has forever changed the way biotech and pharmaceutical companies look at drug development, bringing about a "new normal" for the industry.

That's according to Ernst & Young, which yesterday put out its annual look at the drug development industry. Last year wasn't all bad news for the industry. Biotech demonstrated unprecedented industry profitablilty, sustained strength in deals and had rebounded well from the crisis. Companies also demonstrated surprising resiliency in 2009, 14 percent of biotech companies closed their doors, which is a substantial number but still far less than the 25 percent to 33 percent that was expected.

Still, the economic crisis threw into sharp relief areas in which biopharma companies need to reassess their approach. The overall theme is that drug developers need to learn to do more with less. For biotechs that means exploring new, virtual models that are less capital-intensive and allow developers to make the most of the money they raise. Companies must get creative with fundraising by perusing "deep pocket" partnerships, strategic outsourcing and risk sharing. If they're willing to explore non-traditional forms of capital, a greater number of funding opportunities will be available at a time when venture capitalists are cautiously guarding their dollars and the public markets don't love biotechs.

It also means failing fast. Rather than pouring money into Phase II or III trials, it's becoming increasingly important for developers big and small to identify which drugs are likely to fail long before they suck up the money and resources required by a late-stage trial. Pharma, meanwhile, has focused on cutting duplicate R&D efforts as well as trimming their pipelines of less-promising drugs. And all drug companies must keep their eyes on the government, which is also facing a "new normal." With healthcare reform is now a reality, drugmakers will be facing comparative effectiveness and outcome-based pricing as lawmakers seek to expand healthcare access while cutting costs.

"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," Glen Giovannetti, Ernst & Young's Global Biotechnology leader, said in a release.

- get more details in the E&Y release