The latest report on the global biotechnology sector from Ernst & Young notes that the sector enjoyed "showed a second straight year of increasingly stable financial performance in 2011", but long-term sustainability is in the balance due to cash constraints and inefficient research models.
E&Y's Beyond borders: global biotechnology report 2012 notes that the established biotech markets (the USA, Europe, Canada and Australia) registered more than 10% revenue growth "for the first time since the start of the global financial crisis". However, it states that "the traditional funding-and-innovation model for pre-commercial biotech firms" is under "unprecedented strain" and the industry’s efforts to date to “do more with less” may fail to deliver significant productivity gains.
The analysis also points out that in 2011 "overall funding exploded" as biotechs raised a "staggering $33.40 billion…second only to 2000, when the genomics bubble was at its height". However, this increase was driven by a handful of commercial leaders with revenues in excess of $500 million that took advantage of low interest rates to raise large sums of debt.
Importantly, E&Y claims, capital raised by the rest of the industry remained largely unchanged from the previous four years at $16.8 billion. Thgey were only 16 initial public offerings which raised $857 million, compared to $1.30 billion in 2010.
Big pharma keeping out of M&A
Mergers and acquisitions involving European or US biotechs increased from 49 deals in 2010 to 57 last year, but big pharma was the buyer in only seven of these, "a potentially troubling trend given pharma’s critical role in supporting biotech innovation". E&Y estimates that the 'firepower' of the top 28 drug companies to support biotech innovation declined by 30% between 2006 and 2011, "a situation that is not expected to improve with more patent expiries and investor pressure ahead".
Spending on R&D rose 9%, compared with 2% in 2010 and a decline of 21% the year before. However, the report states that drug R&D "needs a new approach that is iterative, fast, adaptive, cost-efficient and open".
E&Y calls the new model a "holistic open learning network (HOLNet)", embracing diverse entities — drug firms, providers, patient groups, social media networks, data analytic firms and more. These networks could "pool vast amounts of data, share real-time insights from across the health care ecosystem, and adapt rapidly".
Commenting on the report, Ian Oliver, executive director of audit and advisory business services at E&Y, said that "more than ever, the industry needs to remove duplication, encourage pre-competitive collaboration, pool data and allow researchers to learn in real time". He went on to say that "to shift the R&D paradigm, companies will need to recognise that in some situations sharing information may create more value than protecting it".
Mr Oliver added that "disruptive reinvention is never easy, but given the significant financial pressures facing most biotechs and other key health care players — conditions have never been better for a HOLNet approach".