Beyond Borders: Global biotechnology report 2010

Financial performance
A transformational year
It is fair to say that 2009 has been a
year like few others. Around the world,
companies, households and governments
struggled as they were buffeted by the
deepest recession in more than seven
decades. The biotechnology industry was
not immune to these developments, and the
economic crisis had a palpable impact on
the sector’s financial performance.
For both the global economy and the
global biotech industry, the impact was
not uniform. Indeed, the emerging biotech
sectors in China and India — two countries
that continued to grow even as most
economies slipped into recession — were not
negatively impacted by the downturn.
This article, and the rest of this section
of Beyond borders, focuses on the
performance of the biotech industry in
the world’s established biotech centers:
the US, Europe, Canada and Australia.
The industry’s performance in emerging
markets, including China and India, is
discussed in the Country profiles section.
(Since biotech sectors are still emerging
in these markets, our discussion of them
differs from the one here in relying on both
qualitative and quantitative indicators.)
Across the four major biotech centers,
the business environment became
considerably more challenging in 2009.
While the industry raised healthy amounts
of capital in aggregate, the stark reality
that many biotech companies face in the
“new normal” is that funding is harder to
come by. Venture capitalists have become
more discriminating, and the IPO markets
have largely been closed to new companies
seeking to raise funds from public investors.
(For more on the financing picture, see the
Financing article, “A higher bar.”)
While all companies need capital, there
are few businesses that have biotech’s
combination of huge capital needs and
long paths to commercial sustainability.
Many biotech companies have therefore
had to take strong measures to survive.
To raise funds and reduce cash burn, large
numbers of firms have restructured their
businesses, laid off workers, sold noncore
assets and shelved R&D projects.
In many cases, this has also included
Growth in established biotechnology centers, 2008–09 (US$b)
Public company data
Source: Ernst & Young
2009 financials largely represent data from 1 January 2009 through 31 December 2009.
2008 financials largely represent data from 1 January 2008 through 31 December 2008.
Numbers may appear inconsistent because of rounding.
2009 2008 % change
Revenues 79.1 86.8 -9%
R&D expense 22.6 28.7 -21%
Net income (loss) 3.7 (1.8) -314%
Number of employees 176,210 186,820 -6%
Number of companies
Public companies 622 700 -11%
54 Beyond borders Global biotechnology report 2010
increased reliance on conducting R&D
or manufacturing activities in lower-cost
locations. While the potential cost savings
from such measures can be attractive,
companies consider a variety of strategic
factors when making location decisions. The
tax implications of cross-border operations,
for instance, are discussed in A closer look
on the following page.
If the biotech industry is unique in its
capital needs, it is also unique in its ability
to survive capital droughts. Biotech
companies — and the serial entrepreneurs
frequently at their helm — have survived
several funding famines by responding
creatively to shifting market conditions.
Given the depth and systemic reach of
this recession, however, many observers
expected a sharp drop in the number of
companies. So far, those fears have largely
not been borne out. While we expect
continued attrition and the lack of a robust
IPO market to further trim the ranks of
biotech companies in the year ahead,
the reduction in the number of public
companies in 2009 was not as significant
as anticipated. There were 622 public
biotech companies in the established
biotech centers as of December 2009,
compared to 700 a year earlier — an 11%
decline, well short of the 25%–33% decrease
that many analysts were expecting.
The global recession did, however, have a
more immediate impact on the financial
results of public biotech companies. Across
the four established biotech centers,
the numbers (and the story behind the
numbers) were remarkably consistent. The
first of these impacts was on the top line
of the income statement. The industry’s
revenues fell by 9%, from US$86.8 billion in
2008 to US$79.1 billion in 2009. However,