Despite renewed growth in 2010, Biotech industry faces R&D challenges, Says EY

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Mumbai, 30 August 2011: The Indian biotech industry continues to progress on the global front. The industry crossed the US$4-billion mark in 2010-11, growing 21% over revenues of approximately US$3 billion a year ago, according to ‘Beyond Borders: global biotechnology report 2011, EY’s 25th annual report on the biotech industry. Vaccines, diagnostics and devices and personalized medicine we be the key innovative growth areas for the Indian biotech sector.

The global biotechnology industry delivered solid-top and bottom –line growth in 2010, with the industry achieving aggregate profitability for the second year in a row.

Yet, funding for research and development has grown increasingly scarce for the vast majority of firms in the sector globally, however the Indian biotechnology sector is one of the fastest growing knowledge-based sectors with numerous comparative advantages in terms of R&D facilities, cost effectiveness and budding capability, the biotechnology industry in India has the potential to emerge significantly.

“while the biotech industry’s aggregate performance improved in 2010, there is now a widening gap between large, established companies and those at earlier stage for whom access to capital continues to be difficult”, said Ajit Mahadevan, Partner – Life Sciences Practice, EY. “Biotech firms will need to adapt creatively to this environment by doing more with the fundin g that is available and by working from the earliest stages of development to demonstrate the potential value of their products to investors, prayers and regulators”.

Enhanced performance following recovery from the economic downturn, gave rise to a new ray of hope for the global biotechnology industry. In addition, with companies in Canada, Europe and the US collectively raising US$25 billion in 2010 – tantamount to the average for the four years preceding the global financial crisis – reflects an increase in funding levels.

Yet, the industry remains seemingly skewed, as mature and profitable companies gathered the maximum share – 82.6%of funding went to just 20% of US companies, up from 78.5% in 2009 as compared to the smaller companies. Further, the industry witnessed a 20% decline in “innovative capital”, defined as total funding minus large debt financing.

The biotechnology industry has witnessed tremendous dynamism and remarkable changes and is delivering new levels of health, prosperity and sustainability – across the world. Significant numbers of companies have bucked the trends and made the journey to sustainability.

Sustaining Innovation
The Beyond borders report notes a confluence of challenges that will make it difficult for the industry to sustain its historical level of innovation. In addition to less available “innovative capital”, biotech companies face increased competition from other sectors for a smaller pool of venture capital. Even with less capital available, companies are being asked to do more, as the process of discovering and developing drugs has become increasingly lengthy, expensive and risky.

Perspectives on financing
The Indian biotech industry is largely dependent on government funding, with only a handful of venture capital funds focusing on this industry and an almost negligible angel investment flowing in. GoI has introduced several funding schemes to support industry growth in bid to improve innovation in biotech R&D. the Department of Biotechnology (DBT) launched the Small Business Innovative Research Initiative (SBIRI) in 2005 and Biotech Industry partnership Program (BIPP) in 2008 to provide funding for early-stage investment and business support to biotech and medical device start ups in the country. In addition, a number of philanthropic institutions such as Bill & Mellinda Gates Foundations and Wellcome trust have provided funds for research innovation and early-stage development.

India: exploring new opportunities
The Biosimilar sector will continue to draw attention, leveraging India’s strengths in small-molecule generics. With over 40 deals completed in 2010, strategic alliances continue to gain momentum in India. With low-cost manufacturing capabilities and strengths in small-molecule generics, Indian companies are well positioned to benefit from the estimated 48 biologics – with sales of US$73 billion – that are slated to go off patent in the next decade. The year’s noteworthy deals included Ranbaxy Laboratories’ acquisitions of Biovel Lifesciences, Biocon’s commercialization agreement with Pfizer (the company also announced plans to establish R&D centers in Malaysia) and Cipla’s acquisition of a large stake in MabPharma and BioMab.
However, for new drug development, the biotech industry will require an increase in financial assistance from Govt., Venture capitalist and MNCs. They will also have to build drug discovery capability in order to attract the required funding. This will call on the entire ecosystem (academia, industry and government) to work more closely together.

Key results highlighted in the report include:

  • Record-breaking profitability: Companies in the industry’s established biotech centers of Australia, Canada, Europe and the US had a record-breaking aggregate net profit of US$4.7 billion, a 30% increase from the previous year.
  • Aggregate funding rebounds: Companies in Canada, Europe and the US raised US$25 billion in 2010 – equaling the average for the four years before the global financial crisis
  • Funding for innovation declines: in the US, large debt financings by mature, profitable companies grew by 150% over 2009. Conversly, there was a 20% decline in the amount of ‘innovation capital’ for the sector, defined as total funding minus large debt financings
  • More skewed funding: 82.6% of funding went to just 20% of US companies, up from 78.5% in 2009. The bottom 20% of companies raised 0.4% of funds, down from 0.6% in 2009.
  • Alliances remain strong, but not up-fronts: the total potential value of strategic alliances remained strong, totaling more than US$40 billion. However, up-front payments from partners to biotech companies dropped 37 percent to US$3.1 billion.
  • Deal making slows: merger and acquisitions (M&As) involving European or US biotech firms dropped sharply from 58 deals in 2009 to 45 deals in 2010, while the aggregate value of these transactions remained relatively flat (after normalizing the 2009 numbers to exclude the mega-acquisitions of Genetech).

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