Biotech R&D spending roars ahead as Big Pharma grimly holds the line

Anyone who has any doubts about how an influx of cash drives a higher volume of R&D work in biotech should check out BDO's new annual report slicing and dicing the numbers at public biotechs in the U.S.

For years now Big Pharma's primary goal on the R&D budget has been to hold the line--and sometimes to slash it. But while pharma has been carefully counting its billions, biotechs are throwing fresh millions at drug research.

Biotechs spent an average of $54 million on R&D in 2012, up significantly from the $50 million the firm counted in 2011 and the $48 million recorded in 2010. Overall, the jump came along with growth in revenue, though BDO says that big biotech companies accounted for most of that.

Importantly, small biotechs neck-deep in red ink are just as likely to up the ante on R&D as the big ones. Smaller companies increased research spending by 9% last year. Average spending rose to 215% of revenue, compared to 143% in 2011, and the average R&D spend per staffer hit $342,000.

Given the boom in biotech IPOs this year--which has delivered well over $2 billion spread out over 30 biotechs--along with a solid start to venture financing for the private side of the industry, we're likely to continue to see this trend extend through the rest of 2013. While Big Pharma frets about generic competition, buybacks and dividends, biotech has been definitely picking up the slack in terms of new product development and hiring. And that has helped feed the growth of CROs while pumping a significant amount of cash into a variety of research fields.

Pharma clearly contributes the lion's share of R&D cash in the industry, but it's the biotechs that are roaring. An extra few billion dollars may not look like much when a single company like Novartis ($NVO) commits $9 billion to research, but it helps account for a completely different attitude about development efforts in a high-risk field like drug development.

"Unlike big pharma companies, who are developing new products while maintaining a consistent level of R&D spending, biotechs continue to demonstrate a desire to increase their R&D investment," said Ryan Starkes, partner and leader of the life sciences group at BDO. "The good news for the sector is that they are attracting significant capital and are clearly putting those dollars towards their intended use."

- here's the press release

Special Report: Which Big Biotechs are hitting the gas pedal on R&D spending?