Beyond Borders: Global biotechnology report 2010

explained by developments at a few
large companies. Even after controlling
for such impacts, the revenues of the
industry grew at a markedly slower pace in
2009 — reflecting, perhaps, a broader shift
in market conditions.
The cost-cutting and restructuring efforts of
biotech companies also had a visible impact
on the industry’s R&D spending and net
income. As many biotech companies took
extreme measures to reduce cash burn,
R&D expenditures were often a casualty.
After years of double-digit increases in R&D
spending — which often grew at a faster
clip than revenues — the industry’s R&D
expenditures declined by 21% in 2009.
Biotechnology is, of course, a researchdriven
industry, and this is a potentially
worrying development for the sector’s
continued growth. In seeking short-term
survival, some companies may be hurting
their long-term prospects.
Profitability, as many readers of Beyond
borders know, is a measure we have been
tracking and forecasting for some time. In
2005, we predicted that the US publicly
traded industry would reach aggregate
profitability by the end of the decade.
Even as the US industry inched ever closer
to that symbolic landmark with every
successive year, the superheated M&A
environment often took sizeable bites out
of the sector’s net income, when several
successful, profitable biotech firms were
acquired by big pharma buyers. For a
couple of years, the US industry hovered
around the breakeven point, narrowly
missing the profitability mark in 2007
After declining in 2008, smaller companies recovered in 2009
+40%
+20%
0%
-20%
-40%
-60%
2008 2009
-80% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Ernst & Young, finance.yahoo.com
“EY biotech industry” represents the aggregate market cap of all US public biotech companies as defined by Ernst & Young.
56 Beyond borders Global biotechnology report 2010
before barely squeaking through to the
black in 2008. But Genentech’s acquisition
made a more than US$3 billion dent in the
industry’s net income, and we felt fairly
certain that it would be many years before
profitability returned.
Well, what a difference a recession makes!
The US industry’s net income skyrocketed
from about US$400 million in 2008 to
an unprecedented US$3.7 billion in
2009 — more than compensating for the
loss of Genentech by a wide margin. In fact,
the US industry was so solidly profitable in
2009 that it helped move the aggregate
net income in established markets into
the black for the first time as well — from a
US$1.8 billion net loss in 2008 to a US$3.7
billion net profit in 2009. As discussed in
the United States section below, a number
Largest cos (market cap > US$10b) EY biotech industry Mid cap (US$2b–10b) Small cap (US$200m–2b) Micro cap (below US$200m)