Research and development (R&D) spending in the biotechnology industry grew 5% last year, bouncing back after 2010’s decline, says a new US survey.

On average, biotech companies spent $50 million on R&D in 2011, up from just over $47 million the year before, says the latest annual Biotech Briefing from accounting and consulting group BDO USA.

The survey, which examined the recent 10-K SEC (US Securities and Exchange Commission) filings of publicly-trade companies listed on the NASDAQ Biotechnology Index, found that the boost in R&D spending coincided with a 24% rise in average revenues for the industry; for companies included in the study, these jumped to $76 million last year from $62 million in 2010. Large biotechs – firms with annual revenues greater than $50 million - reported a 33% increase on the previous year, although smaller companies saw revenues decline by an average 12% to $20 million.

"With revenues growing, it is no surprise that biotech firms are again investing substantial dollars in R&D," commented Ryan Starkes, partner and leader of the life sciences practice at BDO.

"However, broader economic challenges persist. Smaller companies are struggling to generate returns on their past investments, and continue to target innovative medicines in hopes of greater revenues down the road," he added.

55% of smaller biotech firms increased their R&D spending last year, while two-thirds had trimmed it in 2010. 66% of large biotechs boosted their R&D spend last year and, overall, 60% of all firms in the sector increased these investments in 2011, the study finds.

Despite persistently high unemployment rates in the US, the biotech employee base grew 10% in 2011 - although, again, while larger firms' workforces grew 16%, those of smaller companies fell around 3%.

And although the firms included in the study are generally well-established public companies, innovative business models are being deployed to use scarce resources strategically, several data points suggest.

"Younger companies are relying more on specialised contractors and consultants and outsourcing partners to address specific needs, rather than hiring them on a full-time basis," said Aftab Jamil, partner and national director of BDO's technology and life sciences practice.

"The concept of virtual biotech companies is gaining momentum as well, particularly with start-ups in certain biotech clusters like Silicon Valley, so it is not entirely surprising to see declining figures at smaller firms. Many smaller companies are taking advantage of the availability of specialists to handle specific projects on a short-term basis," he noted.

While overall R&D spending rose last year, expenditure per employee fell 5%, to $233,000, for all companies surveyed. Larger firms’ spending per employee fell by an average 8%, indicative of companies' back-filing of sales, marketing and administrative positions that were hit hard over the part few years.

In sharp contrast, per-employee spending at smaller firms grew an average 4.5% - another indication of the growing popularity of the virtual biotech business model at emerging companies, says BDO.

Overall, 65% of revenues were spent on R&D in 2011, highlighting the critical nature of investments in innovation and the development of new drugs and technologies, it adds.

And just 24% of large biotechs raised equity financing in 2011, indicating a heavier reliance on cash generated from operations to fund R&D activities. Smaller firms continued to reply on capital markets to help fund their R&D efforts - 64% of them raising equity financing at an average level of $64 million, compared to $62 million in 2010. Among all firms, those in need of financing chose equity twice as often as debt, at 40% versus 19%, and they raised an average of $74 million in equity financing, up from $68 million in 2010.