A Big Part of the Pharma Pipeline is Struggling: Biotech Startups
There is always considerable chatter about the health of the biotech industry and, despite individual tales and stock-picking speculation, the overall assumption continues to be that many companies are finding it difficult to raise money, generate revenue and simply keep the lights on. But what is the reality?
In some respects, the hard times continue, but the picture is a bit mixed, actually, depending upon company size and a few other variables.
A vibrant biotech industry -- one producing new and viable drugs -- is important to big pharma stocks. Pharma companies, via acquisition, are reliant on biotech startups as increasingly Big Pharma's own labs strike out in producing new drugs. So biotech startups succeeding is important to the likes of Eli Lilly (LLY), Bristol-Myers Squibb (BMY), AstraZeneca (AZN), GlaxoSmithkline (GSK), Merck (MRK), Novartis (NVS) and Pfizer (PFE), among others.
On average, biotech companies spent $50 million on R&D in 2011, up from just over $47 million invested in 2010, and 55 percent of smaller companies and 66 percent of large firms – those with revenues greater than $50 million – boosted their R&D spending last year. Overall, 65 percent of revenue was spent on R&D. This coincided with a 24 percent rise in average revenues for the industry, which increased to $76 million, up from $62 million during 2010.
However, there are caveats. Large biotech firms – described as those with revenues greater than $50 million – reported a 33 percent increase from the previous year. Smaller biotechs, however, reported average revenues of $20 million, a 12 percent decline from 2010, according to an analysis by the BDO consulting firm of US Securities and Exchange Commission filings of publicly traded companies listed on the NASDAQ Biotechnology Index.
Here are some other nuggets from BDO:
--Industrywide, biotechs reported an average loss of $32 million for 2011, compared to $34 million in 2010. Virtually all smaller companies in the survey – 90 percent – reported losses in 2011, which was in line with results from the previous year. And disparities exist in workforce sizes. Larger biotechs increased hiring by 10 percent, but workforces at smaller biotechs were reduced by about 3 percent.
--And while overall R&D spending rose last year, expenditures per employee fell by 5 percent, to $233,000 among all biotechs. At larger biotechs, there was an 8 percent decline in average R&D spending per employee to $188,000, which BDO attributes to “back filling” of sales, marketing and administrative positions that were eliminated in recent years. But per-employee spending rose 4.5 percent at smaller biotechs, or $337,000.
--The average R&D expenditure at smaller biotechs was $38 million last year, a 1 percent increase, although average R&D spending, as a percentage of revenue, grew to 194 percent, compared to 168 percent a year earlier. As smaller biotechs reduced workforces, BDO notes, increased R&D spending was more pronounced. Spending by larger biotechs fell to 45 percent from 55 percent in 2010.
To read the remainder of this article, go to Pharmalot.
Read more articles about: Company Analysis
- pharma stocks
- tech stocks
- stocks that look cheap
- stocks that look pricey
- money managers
- retail stocks
- value investing
- dividend growth
- stock buybacks
- growth stocks
- income investing
- energy stocks
- earnings season
- warren buffett
- bank stocks
- stock screener
- dividend yields
- short sellers
- dividend yield
- healthcare stocks
- entertainment stocks
- federal reserve
- interest rates
- executive compensation