I went to Ernst & Young‘s Toronto presentation of this year’s Beyond Borders global biotech report (pdf) this morning. The report is a retrospective of 2009, so many of the data points and trends reflect things you’ve seen already; but as always, I’d encourage you to read the whole thing for good synthesis and commentary.
E&Y’s headline was: 2009 showed strong overall sector performance including global profitability, which was largely buoyed by U.S. profits (good) and by a global reduction in R&D spending (bad).
The Canadian data generally reflected global trends:
- Canadian biotech revenues were up 9% over last year; but
- R&D spending in Canada was down 44%; and
- The number of Canadian public companies was down from 72 to 60
The principal challenges identified in the report are:
- a higher bar for seeking capital; and
- big cuts in R&D (21% global decrease)
E&Y describes the new normal as “seeking efficiency,” which is they say is leading to new models:
- Investors are embracing virtual R&D, failing fast, strategic outsourcing and risk sharing, and (to some extent) open innovation.
- Pharma wants optionality, out-licensing, commercial milestones, and (ditto) open innovation.
- Governments and payors are pushing comparative effectiveness, outcomes-based pricing models (where pharma reimburses payors for cost of treating non-responding patients), and formularies; all with the goal of trying to provide increased access with reduced budgets.
- Biotech companies are turning to creative fundraising (e.g., foundations), “deep pockets” partnerships (e.g., Roche-Genentech pre-acquisition) and strategic outsourcing.
Global deal data was decent: $800m IPOs, $6.6b follow-ons (second-highest of the decade), $5.8b venture, $10b “other” (PIPEs, etc), but the distribution shows a big split between haves and have-nots. There was a sustained high level of licensing deals in the U.S., but a small blip downward for pharma-biotech M&A (likely temporary).
The Canadian financing data was worse: absent Biovail’s debt deal, 2009 would have been among the worst of the decade. VC financing was the worst of the decade at only $21million. The one bright spot was that there were six Canadian licensing agreements each over $100m value.
One interesting dataset followed companies reporting less than one year of cash. This has been a staple of BIOTECanada’s data, and E&Y’s global data reflected the Canadian trends:
- The steady state (normal) level of companies with less than 1 year of cash is about 25-30%, but 2008 saw a big jump – to over 40% in E&Y’s data (vs up to 70% in BIOTECanada’s 2009 survey).
- The expectation was to see a lot of culling and consolidation after this jump, and consensus was a 25-33% reduction, but only an 11% reduction was observed (globally and in Canada) and remaining companies regained cash.
- Of the 44% at the end of 2008 that had less than 1 year of cash, 57% of those still had less than 1 year of cash in 2009, 13% had disappeared, and the remainder had achieved over 1 year of cash, including 9% that managed to get more than 5 years of cash.
Overall, the industry showed significant resilience and continues to demonstrate creative approaches to cash efficient operation, which it will continue to need as the dearth of new VC funds raised means an even wider “valley of death.”