Beyond Borders: Global biotechnology report 2010

for biotech’s sustainability — that the
business model the industry has long
thrived on would be starved of its key input
(funding) and companies’ efforts to cull
their pipelines would lower the model’s
key output (innovation). We wondered
whether recovery, when it came, might
bring not a return to normal, but rather the
emergence of a “new normal,” requiring
new models for sustainability. And we
described four paradigm-shifting trends
that could potentially create a path to more
sustainable business models in the future.
A year later, the dust has settled and the
outlines of a new normal are indeed starting
to emerge. In both the general economy
and the biotech industry, the worst is
clearly over, but things are not reverting to
business as usual. And in many ways, the
experience of the global biotech industry so
far has mirrored that of the global economy.
For one, while the downturn is commonly
referred to as the global financial crisis
or global recession, it has, in reality, had
divergent impacts on different parts of
the globe. While most industrialized nations
and many developing countries suffered
through recessions in 2009, some emerging
economies — most notably China and
India — continued to see unabated
economic growth.
While several economies have started
to emerge from recession in late 2009
and early 2010 (based on the official
yardstick of GDP growth) and global stock
markets are approaching pre-crisis levels,
unemployment has remained stubbornly
high, particularly in the US. The worst of the
credit crisis has successfully been abated,
but bank lending standards remain tight.
This, coupled with an uncertain market
environment, has lowered hiring at small
businesses — traditionally a key engine
of job creation. Amid talk of a prolonged
“jobless recovery,” most economists now
expect that high unemployment levels will
remain part of the new normal for some
time to come, with potential implications for
economic and social stability.
The situation for biotech is similarly
mixed. On the surface, it would appear
that the worst is indeed over. Aggregate
funding levels rebounded nicely in 2009
and strategic alliance activity remains
robust. Financial performance has
been fairly strong — particularly under
the circumstances — with remarkable
improvement on the bottom line as
companies have engaged in belt tightening.
The market cap of smaller companies,
which had taken a beating, has rebounded
impressively, making up much of the ground
that was ceded in late 2008 and early
2009. (For more on these trends, refer to
the Industry performance section.)
Haves and have-nots: the distribution of financing has become
increasingly skewed
Quintiles of companies based
on capital raised in 2009
2005
Share of US capital raised in:
2006 2007 2008 2009
Quintile 1 68.7% 74.1% 70.6% 74.1% 78.5%
Quintile 2 16.3% 13.4% 15.6% 14.2% 12.5%
Quintile 3 10.3% 7.4% 8.6% 7.5% 5.9%
Quintile 4 3.7% 4.0% 3.9% 3.3% 2.4%
Quintile 5 1.0% 1.1% 1.3% 0.9% 0.6%
Source: Ernst & Young
Haves and have-nots: more of the
same?
While the overall numbers mentioned
above — capital raised, alliance activity,
profitability — are heartening, they only tell
part of the story. Economic dislocations
produce winners and losers, and the real
impact is found not in aggregates and
averages but in measures of variance
and standard deviation. While aggregate
financing levels have held up well, the
availability of capital is challenging for
many companies.
Indeed, our analysis shows that the
distribution of funding has become more
skewed during the last year. In the US,
for instance, the top 20% of fund-raising
companies garnered 74.1% of capital raised
in 2008. In 2009, the proportion raised
by the same quintile of companies had
increased, to 78.5%. Conversely, the 20% of
companies that raised the least funding got
only 0.9% of capital in 2008 and saw their
share shrink even further to a paltry 0.6%
in 2009.
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