Beyond borders: unlocking value
The big picture
The performance of the biotechnology industry was strong in 2013, with revenues of publicly traded companies in the four established centers of the US, Europe, Canada and Australia increasing by a robust 10% relative to 2012. However, this performance varied significantly by geography and company size.
In particular, as discussed below, the strong product launches and financial results of a relatively small number of US-headquartered “commercial leaders” (a group we define to include companies with revenues in excess of US$500 million) drove the majority of the industry’s gains.
In an encouraging development, R&D spending rebounded forcefully to return to historic levels for the first time since the start of the global financial crisis. While growth in R&D spending in this research-driven industry has traditionally kept pace with top-line growth, this trend was reversed in the aftermath of the financial crisis.
In 2008, R&D spending declined for the first time in the industry’s history, as companies slashed spending in a severely resource-constrained environment. Over the next few years, even as R&D growth inched back into the black, it continued to trail growth in revenues. In 2013, that pattern was finally broken, as the industry grew R&D spending by a very healthy 14% — four percentage points higher than growth in the top line.
However, the story is not the same everywhere. While R&D spending was up 20% in the US, it actually dropped 4% in Europe, indicative of a much more constrained financing environment and an industry that experienced lower overall revenue growth.
The industry’s net income declined by US$0.8 billion, driven in part by the US$3.7 billion increase in R&D expenditures. As discussed in prior issues of Beyond borders, the industry had not been profitable in the aggregate before the global financial crisis, when profitability became a byproduct of across the board spending cuts.
The 2013 net income story also varied by geography — net income skyrocketed in Europe even as it declined in the US. To the extent that increasing R&D expenses eroded earnings growth at the commercial leaders, however, that only reinforces a point we make in this year’s “Point of view” article: biotech companies need, more than ever, to conduct R&D in the most capital-efficient manner possible.
The number of public companies increased by 2%, driven by the addition of 49 IPOs in the US and Europe, as well as the removal of a number of companies from the roster through acquisition, de-listing or other developments. The US total grew by 23, while Canada lost six, Australia two and Europe one.
Growth in established biotechnology centers, 2012–13 (US$b)
Source: EY and company financial statement data.
Numbers may appear inconsistent because of rounding.