E&Y: Biotech business model crumbles as crisis hits

Ernst & Young has come out with its annual review of the biotech industry and it reads more like a progress report on a trip through the Valley of Death. The accounting firm concludes that the biotech business model is 'unsustainable' in a crisis like this.

E&Y firm has totaled the numbers for biotech companies and has reached harsh bottom line: An unprecedented number of biotech companies will go broke this year, forcing many to sell out and others to close their doors. In addition, developers in Europe and the U.S. raised $16 billion last year, a 46 percent plunge. 

Altogether 162 publicly traded biotech companies--a whopping 44 percent of the total--have less than a year's worth of operating capital in the bank at the end of last year. That's up from 25 percent a year earlier. And the cash crunch is coming at a time that traditional sources of investment funds are drying up fast.

"This time around we have a much deeper, more systemic financing crisis," Glen Giovannetti, global biotech leader at Ernst & Young, tells Reuters. "The recovery won't come fast enough for some companies." And the biotech expert says that even though a slate of big pharma companies are prowling the market for new acquisitions, weak developers with shaky programs are likely to find themselves out of the game.

The silver lining: Revenue at the public biotechs has jumped 12 percent and the industry's net loss was shaved 53 percent.

- read the report from Reuters
- here's the Xconomy story