CHICAGO--(EON: Enhanced Online News)--Amid a robust period in the biotech industry, research and development (R&D) spending continues to rise. According to the third annual study from BDO USA, LLP, an accounting and consulting organization, average R&D expenditure among biotechs increased eight percent in 2012, compared to a four percent increase the previous year.
“We’ve seen a tremendous resurgence in biotech IPOs this year, which is good news for early investors, entrepreneurs and R&D pipelines”
The 2013 BDO Biotech Briefing, which examined the most recent 10-K SEC filings of publicly traded companies listed on the NASDAQ Biotechnology Index, found that companies spent on average $54 million on R&D in 2012, up from $50 million in 2011 and $48 million in 2010. Biotech companies also saw an average 13 percent revenue jump in 2012. However, larger biotechs are the primary contributors to the increase. Large companies, which for the study have revenues over $50 million, saw a 28 percent increase in revenue, while smaller biotechs reported a 27 percent decline in average revenue last year.
Biotechs remain committed to R&D efforts despite reporting bigger losses in 2012. On average, companies reported a $50 million loss, up from $36 million in 2011. Nearly all small companies (98 percent) posted losses compared to nearly three-fourths (72 percent) of large companies.
“Unlike big pharma companies, who are developing new products while maintaining a consistent level of R&D spending, biotechs continue to demonstrate a desire to increase their R&D investment,” said Ryan Starkes, partner and leader of the Life Sciences Practice at BDO. “The good news for the sector is that they are attracting significant capital and are clearly putting those dollars towards their intended use.”
Additional findings from the 2013 BDO Biotech Briefing include:
Small Biotechs Bet Big on R&D
Despite seeing a decline in revenue, small biotech companies are committed to their R&D efforts. While smaller companies saw a nine percent increase in average R&D spending overall, average R&D spending as a percentage of revenue increased to 215 percent in 2012 from 143 percent in 2011. Small companies also spent more on R&D per employee. In 2012, they spent $342,000 per employee, 42 percent more than the overall average in the study, and 90 percent more than larger companies spent per employee in 2012.
Employment Continues to Rise
Amid industry growth, the number of employees at biotechs increased 13 percent from 2011 to 2012. A recent report from analyst EP Vantage confirmed findings that biotechs are driving job growth in the life sciences industry, with some companies reporting staff increases of over 60 percent between 2007 and 2012. According to the study, average headcount moved from 198 to 223 as companies matched staffing needs to growth rates. However, despite the jump in R&D expenditures, the average number of employees dedicated to R&D remained flat at 92. While in-house R&D employment may be flat overall, biotechs are increasingly working with outside clinical research organization and other contractors that are not captured in payroll data. Nonetheless, large biotechs were big job creators in 2012, with overall headcount up a notable 23 percent, and R&D professionals up seven percent.
Biotechs Focused on Equity Markets
A vast majority of biotechs in the study (78 percent) raised capital in 2012, indicating that the industry continues to attract investment. Equity financing continues to be the most popular avenue, with 67 percent of biotechs looking to the equity markets. Companies raised an average of $56 million through equity financing, which was in line with the levels of the past two years. Biotechs seeking debt financing also found success, confirming the early signs of ease in the debt markets seen last year. The average amount raised leaped from $34 million in 2011 to $61 million in 2012 for companies in the study.
Liquidity Shows Prudent Cash Management
Biotechs continue to prioritize prudent cash management. Companies reported $134 million in liquid assets in 2012, up seven percent from 2011 and 17 percent from 2010. Biotechs held on average an equivalent of 2.49 years’ of R&D spending in 2012, which has remained consistent over the last three years despite the growth in overall R&D expenditure. Smaller biotechs were even more strategic in cash management, holding 2.63 year’s worth of R&D spending, compared to 2.33 years worth among large companies. As companies continue to focus and invest in product development, cash is critical to support their programs.
Biotechs Deliver Strong Returns, Help Spur IPO Boom
In 2012, biotech companies reported very strong total shareholder return (TSR). Average TSR for all companies in the study was 39 percent with smaller biotechs generating even larger increases with TSR of 47 percent in 2012. Positive returns have continued in 2013, contributing to significant interest among investors and a notable rise in initial public offerings. According to Renaissance Capital, 23 biotech IPOs have been completed so far in 2013, with an average return of 48 percent.
“We’ve seen a tremendous resurgence in biotech IPOs this year, which is good news for early investors, entrepreneurs and R&D pipelines,” said Aftab Jamil, partner and leader of the Technology & Life Sciences Practice at BDO. “Many small biotechs have taken advantage of the JOBS Act’s reduced reporting requirements and found success and capital in the public markets. While we expect to see more offerings this year, newly-listed public companies have a challenging road ahead as they work to navigate clinical trials, FDA approvals, and increased demand following healthcare reform – all under the watchful eye of investors.”
About the 2013 BDO Biotech Briefing
The BDO Biotech Briefing examined the most recent 10-K SEC filings of companies listed on the NASDAQ Biotechnology Index. Companies reporting more than $300 million in revenue were excluded to ensure findings are representative of the vast majority of companies included in the NASDAQ Index. Remaining companies were divided into two groups—those with more than $50 million in revenue and those with less than $50 million in revenue—to identify trends and key metrics relevant to each group. The average market cap of companies in the study as of the end of their most recent fiscal year is $653 million.
About the Technology & Life Sciences Practice at BDO USA, LLP
BDO has been a valued business advisor to technology and life sciences companies for over 100 years. The firm works with a wide variety of technology clients, ranging from multinational Fortune 500 corporations to more entrepreneurial businesses, on myriad accounting, tax and other financial issues.
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 42 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,118 offices in 135 countries.
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.