Beyond borders: biotechnology industry report 2013

Financial performance

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Public companies in the four established biotech centers (US, Europe, Canada and Australia) achieved revenues of US$89.8 billion in 2012, an 8% increase from 2011.

Meanwhile, R&D cutbacks combined with solid revenue growth resulted in record high net income of US$5.2 billion, a US$1.4 billion increase from the previous year.

Growth in established biotechnology centers, 2011-12 (US$b)

  2012 2011 % change
Public company data
Revenues 89.8 83.1 8%
R&D expense 25.3 24.0 5%
Net income 5.2 3.8 37%
Market capitalization 477.3 376.2 27%
Number of employees 165,190 161,560 2%
Number of companies
Public companies 598 610 -2%

Source: EY and company financial statement data.
Numbers may appear inconsistent because of rounding.

But once again, the really interesting story is in the numbers behind the numbers. In the US, for instance, revenue growth slowed because some companies that had grown very rapidly in 2011 saw product sales stall as new competitors entered the fray with attractive propositions such as simpler treatment regimens and lower price points.

At some level, there is nothing new in this. Biopharmaceutical companies have always faced competition from the offerings of rival firms. But in today’s market, where payers and providers are much more sensitive to how much new products cost and to what degree they improve the standard of care, the level of scrutiny has grown sharply.

Even after products have been launched, companies will need to monitor the payer/provider environment and gather data to defend the value propositions of their products. In today’s health care system, the measures that matter are therefore not just R&D spending but the increasingly critical data and metrics that demonstrate value to payers.

The good news is that biotech continues to replenish itself even in these challenging times. In 2012, a handful of up-and-coming firms in the US and Europe grew their product revenues to enter the ranks of commercial leaders.

The number of FDA approvals increased to levels not seen since the Clinton Administration. To sustain their success, however, the firms introducing these new products will need to stay focused on collecting the right kinds of evidence about the value of their offerings.

United States

US biotechnology at a glance, 2011-12 (US$b)

  2012 2011 % change
Public company data
Revenues 63.7 58.8 8%
R&D expense 19.3 18 7%
Net income 4.5 3.3 34%
Market capitalization 360.3 278.1 30%
Number of employees 100,100 98,570 2%
Financings
Capital raised by public companies 18.4 24.6 -25%
Number of IPOs 11 10 10%
Capital raised by private companies 4.1 4.2 -2%
Number of companies
Public companies 316 315 0%
Private companies 1,859 1,953 -5%
Public and private companies 2,175 2,268 -4%

Source: EY and company financial statement data.
Numbers may appear inconsistent because of rounding.

Revenues of US publicly traded biotech companies grew by 8% in 2012, down from the 12% growth seen in 2011 and the 10% increase in 2009 and 2008 (on a megadeals-adjusted basis). To a great extent, the drop in revenue growth appears to be indicative of an increasingly competitive marketplace and greater scrutiny from payers and providers.

The US biotech sector’s R&D expenditures increased by 7% — slightly below the year’s top-line growth and the 2011 R&D growth rate (9%). However, the experience of US commercial leaders was quite different from that of the rest of the industry, and R&D remains under pressure at many small and medium-sized biotech firms.

In 2011, a third of US biotech companies had reduced R&D spending. In 2012, that number climbed to 41%.

Europe

European biotechnology at a glance, 2011–12 (US$m)

  2012 2011 % change
Public company data
Revenues 20,385 18,951 8%
R&D expense 4,902 4,940 -1%
Net income (loss) 236 -19 -1324%
Market capitalization 79,829 71,497 12%
Number of employees 51,740 47,700 8%
Financings
Capital raised by public companies 2,882 1,530 88%
Number of IPOs 3 8 -63%
Capital raised by private companies 1,243 1,332 -7%
Number of companies
Public companies 165 169 -2%
Private companies 1,799 1,847 -3%
Public and private companies 1,964 2,016 -3%

Source: EY and company financial statement data.
Numbers may appear inconsistent because of rounding.

The revenues of European publicly traded biotech companies grew by 8% in 2012 — identical to the growth rate of US companies, but slightly below the European industry’s performance in 2011, when the sector’s top line had increased by 10%.

However, R&D spending failed to keep pace with the top line. R&D expenditures decreased by 1% — an indication that many European firms are still in cost-cutting mode almost five years after the start of the global financial crisis. This is likely a reflection of European market realities — access to capital is considerably more challenging than in the US, and the picture is further complicated by economic challenges and the risk of sovereign debt crises in the Eurozone.

To view our complete findings on this topic, download the full report.