Biotech R&D is on a roll. For the third year in a row, the life sciences group at BDO has tracked a spike in R&D spending at a wide swath of public biotechs in the U.S. For drug developers with $50 million to $300 million in revenue, research budgets swelled 28%--to an average of $137 million--last year.
The jump comes at a time investors remain eager buyers of many biotech stocks, pumping billions of dollars into small upstarts as well as the larger and more mature biotechs. Equity financing was the way to go in 2013, with biotechs gaining an average of $81 million--another 28% spike--when they turned to the market. But even a small number relying on debt financing did well last year, raising an average of $85 million.
In order to get a clear look at a representative group of middle-market biotechs, BDO excluded the really big players with revenue over $300 million from their index.
This is a market, though, that favors the strong and disadvantages the weak. The smaller--under $50 million companies in the bunch--posted a slight decline in research spending last year, says BDO. Looked at as a whole, the average R&D budget hit $56.5 million in 2013, up from $49.5 million in 2012 and $44 million in 2011.
|BDO's Ryan Starkes|
"What was good to see was the consistency; the continued growth in the industry and the investment in the science," says BDO life sciences group leader Ryan Starkes. The key to this trend, he says, is "the overall ability for companies to access the capital markets, to get that investment."
Just how essential that is was underscored by another key figure in their report. The average loss in this group hit $65 million last year, up from $38 million in 2011. And close to 9 out of 10 of these companies reported some kind of loss. Without the investment into research and the promise of a payoff down the road with a new drug approval or a company buyout, there wouldn't be any money to invest in R&D.
These numbers represent a sharp turnaround from the capital-restricted days of 2008-2010. Of course, the 85% average shareholder return that investors gleaned in 2013 hasn't hurt the sentiment about investing more in biotech. So when does this upward cycle end?
"I'm not sure when you would necessarily see a stop," adds Starkes. "As for a slowdown in dollars and growth, we'll have to see how it plays out." But with new approvals shooting up this year, the near term continues to look good.
- here's the release