E&Y: A resilient biotech industry registers its first profitable year

Ernst & Young has scanned the global biotech industry and found that established biotech hubs not only weathered 2009's scary economic downturn, they achieved a collective profitability for the very first time. But the big accounting firm wasn't ready to call for the champagne just yet.

The yawning gap between the industry's haves versus the have-nots is just as big as ever, small fish in the drug development pond face plenty of challenges obtaining operating cash and anyone trying to make it in biotech today will need to clear a very high bar.

"Biotech companies have long confounded predictions on their ability to survive difficult economic conditions and 2009 was no different," says 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."

In an interview this morning, Giovannetti told FierceBiotech that in the "New Normal" era, successful biotechs will learn how to distinguish themselves from the crowd. Mega-mergers have left fewer, and far more selective, buyers at the bargaining table. Venture capital groups have less cash on hand to invest. More of the VCs will use a project approach to development, selecting small teams to take a program to the point where they should either get wholly involved or just kill it. And developers will need to make a strong case early on that their therapeutic will be either significantly cheaper or much more effective than currently available meds.

The emphasis now, says Giovannetti, is on "how will this technology really differentiate itself in the marketplace?"

E&Y's report includes some key highlights, including:

  • Established biotech centers in the U.S., Canada, Europe and Australia achieved an aggregate net profit of $3.7 billion for last year. That's well up from the $1.8 billion loss recorded in 2008.

  • Public biotech companies, led by a handful of star players, raised 42 percent more cash last year, with follow-on offerings ginning a considerable amount of that.

  • Strategic alliances are being struck at a robust pace, but there were only a handful of significant mega-mergers to report, with pharma coming in to buy up some major developers.

"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."

- check out the press release for more