2012 Bdo Biotech Briefing


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The BDO Biotech Briefing examined the most recent 10-K SEC filings of companies listed
on the NASDAQ Biotechnology Index.

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2012 Bdo Biotech Briefing

  1. 1. Fall 2012 www.bdo.comThought Leadership from the BDO technology and life sciences industry practice For more information on BDO USA’s service offerings to this industry vertical, please contact one of the following regional service leaders: Contact: Todd Berry Boston 617- 239-4125 tberry@bdo.com Tim Clackett Los Angeles 310-557-8201 tclackett@bdo.comU.S. Biotechs Investing Hank Galligan Bostonin R&D 617-422-7521 hgalligan@bdo.com Paul Heiselmann Chicago 312-233-1876 The BDO Biotech Briefing examined the most recent 10-K SEC filings of companies listed pheiselmann@bdo.com on the NASDAQ Biotechnology Index. Companies reporting more than $300 million in revenue were excluded to ensure findings are representative of the vast majority of Aftab Jamil companies included in the NASDAQ Index. Remaining companies were divided into Silicon Valley two groups—those with more than $50 million in revenue and those with less than $50 408-352-1999 million in revenue—to identify trends and key metrics relevant to each group. ajamil@bdo.com The report has been cited in the following media outlets: Fierce Biotech, Mass High Tech, New Ryan Starkes Jersey Business Journal, Pharma Times, Pharmalot and The Pharma Letter. Woodbridge 732-734-1011 rstarkes@bdo.comA David Yasukochi s drug pipelines slow at the major Not surprisingly, R&D expenditures in the Orange County pharma companies, biotech biotechnology industry grew five percent in 714-913-2597 companies are increasingly becoming 2011, bouncing back after a decline the prior dyasukochi@bdo.commore relevant as acquisitions and research year. According to a new study from BDO, onpartnerships are driving innovation. average, biotech companies spent $50 millionSuccess for biotechs relies on research on R&D in 2011, up from just over $47 millionand development (R&D) and the ability to invested in 2010.cultivate and commercialize the next bigdiscovery. Read more
  2. 2. 2 2012 BDO Biotech Briefing Aftab Jamil, partner and national director for BDO, told Mass High Tech that there was a great deal of concern last year when the industry decreased R&D spending for the first time in many years. This year’s data is evidence that the 2010 data may have been just a one-time drop.The 2012 BDO Biotech Briefing, whichexamined the most recent 10-K SEC filings Biotech R&D Spend and Revenue Trendsof publicly traded companies listed on theNASDAQ Biotechnology Index, found that $160,000the boost in R&D spending coincided with 140,000a 24 percent rise in average revenues forthe industry. Average revenues for those 120,000companies included in the BDO analysis 100,000jumped to $76 million in 2011, up from$62 million the year earlier. Large biotech 80,000firms—those with revenues greater than $50 60,000million—reported a 33 percent increase fromthe previous year. Smaller biotech companies, 40,000however, reported average revenues of $20 20,000million, a 12 percent decline from 2010. 0Indeed, 55 percent of smaller companies 2009 2010 2011increased their R&D spending in 2011, Average Revenue (< $50M) Average R&D Spend (< $50M)whereas two-thirds had trimmed spending the Average Revenue (> $50M) Average R&D Spend (> $50M)previous year. Sixty-six percent of large firmsboosted R&D spending last year. Six-in-ten(60 percent) of all companies in the studyincreased their investments in research anddevelopment in 2011. In April 2012, the government enacted the Jumpstart Our Businessu elative to Revenue, R Startups (JOBS) Act to encourage funding for small businesses bySmall Firms Splurge on easing securities regulations.R&D The Act is particularly encouraging for emerging biotech companies who can accessSmaller companies’ average R&D expenditure capital markets with reduced regulatory requirements and can focus more theirof $38 million in 2011 remained virtually flat, resources on mission critical R&D efforts. In essence, the JOBS Act should create anshowing just a one percent increase over the easier “on-ramp” for biotech companies to generate funds to bring new drugs andprior year. However, average R&D spending, as other products to market faster.a percentage of revenue, grew to 194 percentfor smaller companies, compared to 168 The JOBS Act also allows for larger corporate fundraising efforts by increasing thepercent a year earlier. As smaller companies limit for securities offerings exempted under Regulation A from $5 million to $50reduced their headcounts, the increase in R&D million.spending was even more pronounced. Largercompanies’ expenditures, on the other hand,remained more consistent with 2010 levels,falling slightly to 45 percent from 55 percentthe year before. Read more
  3. 3. 2012 BDO Biotech Briefing 3 Employment Holdsu  Average Number of EmployeesStrong at Large FirmsDespite persistently high unemployment 400rates in the United States, biotech companies 350showed a healthy increase in their employeebase, which grew 10 percent in 2011. Again, 300though, gaps between large and small 250companies remained. Larger companiesshowed an employment increase of 16 200percent, while smaller companies reduced 150their workforces by about three percent. 100 50u pending Per Capita S 0Varies by Size 2009 2010 2011While overall R&D spending rose last year, Small biotechs (> $50M) Large biotechs (< $50M)expenditures per employee decreased byfive percent, to $233,000, for all companiesincluded in the BDO report. At larger biotechcompanies, there was an eight percent declinein average R&D spending per employee,indicative of companies’ back-filling of sales,marketing and administrative positions thatwere hit hard over the past few years. In sharp Average R&D Spend by Employeecontrast, smaller companies saw a 4.5 percentincrease in per-employee spending, another $400,000indication of the growing popularity of thevirtual biotech business model at emerging 300,000companies.Smaller companies spent significantly more 200,000on R&D per employee—$337,000 in 2011—compared to their larger counterparts, who 100,000spent $188,000 per employee last year.Overall, 65 percent of revenues were spent 0on R&D expenses in 2011, highlighting the 2009 2010 2011critical nature of investments for innovationand on the development of new drugs and Small biotechs (> $50 million) Large biotechs (< $50 million)technologies. “There are a lot of experienced people out in the marketplace still and they’re maybe choosing to not join on a full-time basis, but rather as a consultant,” Ryan Starkes partner and leader of BDO’s life sciences practice noted to NJBiz. “That’s enabling the companies to leverage their experience on a more focused basis.” Read more
  4. 4. 4 2012 BDO Biotech Briefing Larger Companies Relyu  u maller Firms Show Son Cash, Small Firms Losses, but LiquidityTurn to Capital Markets Remains SteadyJust 24 percent of large companies raised Losses declined slightly in 2011 for biotechequity financing in 2011, indicating a heavier companies. Across the board, biotechsreliance on cash generated from operations reported an average loss of $32 million forto fund R&D activities. Smaller companies 2011, compared to $34 million in 2010.continued to rely on capital markets to help Virtually all smaller companies in thefund their R&D efforts, with 64 percent of survey—90 percent—reported losses in 2011,smaller biotech firms raising equity financing in line with last year’s results.at an average level of $64 million, comparedto $62 million the prior year. Among all firms, Concurrently, firms maintained financialthose in need of financing chose equity twice liquidity at levels fairly consistent with thoseas often as debt, 40 percent compared to 19 of previous years. On average, companies heldpercent, respectively. Companies raised an 2.63 years’ worth of R&D spending in liquidaverage of $74 million in equity financing, up assets in 2011, up slightly from 2.56 years’significantly from the $68 million raised in worth in 2010 and 2.23 years’ worth in 2009.2010. Firms continued to show signs of prudence in fiscal policy and cash management, holding $131 million in cash and short-term Financing for Small Biotechs investments in 2011, seven percent more than they did the previous year. That rate was consistent among both small and large companies. For biotech companies, the ability to fund research and development is a mission-critical activity that spans multiple years. Cash is a strategic asset and liquidity 36% is extremely important to support product development efforts. 64% For many companies, cash generated through operations is supplemented through public and private equity and debt markets. Biotech companies continue to show their remarkable ability to attract such equity and debt investments. Equity Financing Debt Financing “Funding challenges within the industry force developers to be more creative in terms of trial design, selection of secondary endpoints, etc. The days of a shotgun approach to finding out where your drug is most effective are gone. To succeed, developers need to take more of a risk sharing approach with contract research organizations and other service providers.” Christopher Lowe, Chief Business and Chief Financial Officer at Anthera Pharmaceuticals, Inc.
  5. 5. 2012 BDO Biotech Briefing 5 “I think there will be a continued trend of acquisitions of R&D companies. In the economic downturn, companies tended to trim back their R&D staff and opt more towards ‘purchased R&D.’” Anthony L. Alfonso, Senior Managing Director, BDO Consultingu irtual Biotech V The concept of virtual biotech companies is gaining momentum as well, particularly withBusiness Model Gaining start-ups in certain biotech clusters. In theseMomentum biotech clusters, such as Silicon Valley, theAlthough the firms included in the study are advent of more and more virtual companiesgenerally well-established public companies, is leading to a greater percentage of moneyinnovative business models are being deployed spent on R&D, instead of on payroll, which isto use scarce resources strategically, several boosting the overall picture.data points suggest.Aftab Jamil, partner and national director ofthe Technology and Life Sciences Practiceat BDO, told FierceBiotech that youngercompanies are relying more on specializedcontractors and consultants, as well asoutsourcing partners, to address specific needsrather than hiring them on a full-time basis. Total Years’ Worth of R&D Spending in Liquid Assets 2011 2010 2009 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 Years
  6. 6. About the Technology & Life Sciences Practice at BDO USA, LLPBDO has been a valued business advisor to technology and life sciences companies for over100 years. The firm works with a wide variety of technology clients, ranging from multinationalFortune 500 corporations to more entrepreneurial businesses, on myriad accounting, tax andother financial issues.About BDO USABDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance,tax, financial advisory and consulting services to a wide range of publicly traded and privatelyheld companies. For more than 100 years, BDO has provided quality service through the activeinvolvement of experienced and committed professionals. The firm serves clients throughmore than 40 offices and more than 400 independent alliance firm locations nationwide. Asan independent Member Firm of BDO International Limited, BDO serves multinational clientsthrough a global network of 1,118 offices in 135 countries.  BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO InternationalLimited, a UK company limited by guarantee, and forms part of the international BDO networkof independent member firms. BDO is the brand name for the BDO network and for each of theBDO Member Firms. For more information, please visit: www.bdo.com. Material discussed is meant to provide general information and should not be acted on without professional advicetailored to your firm’s individual needs.To ensure compliance with Treasury Department regulations, we wish to inform you that any tax advice that maybe contained in this communication (including any attachments) is not intended or written to be used, and cannotbe used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or applicable state orlocal tax or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.© 2012 BDO USA, LLP. All rights reserved. www.bdo.com