Beyond Borders: Global biotechnology report 2010

Of course, this is not a novel development.
Biotech has long been an industry of haves
and have-nots, and many of the trends
we are seeing in the current market — a
challenging IPO environment, investors
looking for de-risked investments — have
been apparent well before the onset of the
financial crisis. While the distribution of
financing certainly became more unequal
in 2009, this in fact only continues a steady
skewing that has been under way for
several years.
Still standing: resilience by any
other name
In the 24 years that we have been
producing annual reports on the
biotechnology industry, we’ve seen some
recurring themes. Principal among these,
perhaps, is the industry’s remarkable
ability to endure through challenging times.
Indeed, the titles of many of our reports —
Endurance, Refocus, Resurgence, Resilience,
to name a few — testify to the creativity and
nimbleness that biotech companies have
shown in crises past.
Despite that storied track record, we
expected this downturn and recovery to be
different. Unlike previous funding droughts,
the current crisis has not been driven
by vacillating investor sentiment toward
biotech stocks, but rather by a fundamental
and systemic recalibration of credit and
capital markets. Anticipating a sustained
reduction in the availability of capital and
“Efficiency has become, in many ways,
the mantra of today’s economic times.
In an era of diminished means, the need
to do more with less ... is being felt by
consumers, corporations and countries.”
a relatively slow recovery, we expected a
sharp reduction in the number of firms
in 2009.
So far, that has largely not happened.
Call it what you will — resilience, flexibility,
durability — this industry has it in spades.
As of December 2008, an extremely
large share of public companies — 37% of
European companies, 44% of US entities
and an incredible 57% of Canadian
firms — had less than a year of cash on
hand. With investors being more selective,
we expected that many of these firms
would not survive the year as independent
going concerns. As it turns out, though,
most of those companies did survive, and
the number of public biotech companies
in established centers shrunk by only 11%,
much less than the 25%–33% reduction
many analysts and industry observers
were expecting.
What happened? To get a better sense of
the story, we went back and looked at the
cohort of US companies that had less than
a year of cash as of December 2008 to see
how they fared during the following year.
As one would expect, some of those firms
— 13% of the total, in fact — were no longer
around a year later, either because they
ceased operations or because they were
acquired. Another 57% of companies were
hanging on but still had less than a year
of cash on hand, and we certainly expect
to see continued attrition in this group in
2010 — a continuation of the Darwinian
process we described in last year’s report.
4 Beyond borders Global biotechnology report 2010
The remaining 30% of companies, however,
were able to move up the survival index, and
9% had even moved all the way to the top
cohort, with more than five years of cash
on hand.
Some companies were able to do this by
raising capital despite the challenging
environment. In fact, 21% of capital raised
by US public companies during 2009 went
to firms that had less than one year of cash
as of December 2008, while another 25%
went to firms that had 1–2 years of cash
on hand. Those are impressive totals, but
there was a haves-and-have-nots story
here, too. More than 40% of the money
raised in these two cohorts went to just four
companies, two of which — Human Genome
Sciences and Dendreon — were able to raise
exceptionally large sums on the back of
positive clinical trial news.
Clearly, a key driver of survival for many
companies was their ability to find ways
of operating more efficiently. This is not
entirely surprising, since efficiency has
become, in many ways, the mantra of today’s
economic times. In an era of diminished
means, the need to do more with less (i.e.,
boost efficiency or output per unit of input)
is being felt by consumers, corporations
and countries. The big legislative issues of
the day — from energy policy to health care
reform — are also fundamentally about the
search for more efficient solutions. (Media
coverage of US health care reform has often
focused on expanding access to insurance,
but the legislation is really about expanding
access while containing costs — and to
achieve those somewhat contradictory goals
will inevitably require increasingly efficient
ways of delivering health care.) And by the
same token, the constituents of the biotech
ecosystem are being challenged as never
before to find more efficient ways to deploy
scarce capital, defray the high costs of
R&D and share the risks and rewards of
drug development.