The North Carolina biotechnology industry is growing and profitable, but research and development remains flat, putting the Tar Heel state in line with nationwide R&D trends, according to findings from Ernst & Young’s annual "Beyond Borders" biotech industry report.
North Carolina’s 12 public biotech companies generated $2.2 billion in 2010 revenue, up 12 percent from 2009. North Carolina public biotechs had 2010 net profits of $82 million, up 237 percent. Meanwhile, R&D investments were $335 million, up just 1 percent over 2009.
The R&D picture was not much different in the other major biotechnology hubs around the country. Except for New Jersey, which had the biggest increase in R&D spending – $1.4 billion in investments representing a 20 percent year-over-year increase – most regions saw only modest increases. New England’s 2010 R&D investment was $4.2 billion, up 4 percent. While the San Francisco Bay Area saw R&D spending rise 6 percent to $3.5 billion, R&D spending in California’s other biotech hub, San Diego, declined 1 percent to $1.5 billion. As a whole, the U.S. biotech industry’s 2010 R&D spending was $17.5 billion, up just 3 percent from 2009.
U.S. biotech firms that are publicly traded saw 2010 revenue grow to $61 billion, a 10 percent year-over-year increase. Their net income grew 32 percent to $4.9 billion. But the E&Y report notes that most of the companies in the biotechnology sector are years away from a commercialized product and for them, R&D funding has grown scarce. The amount of 2010 venture capital raised in the United States biotech sector totaled $4.4 billion, which was slightly down from the $4.6 billion raised in 2009.
While the biotech industry’s aggregate performance improved in 2010 the gap is widening between large, established companies and earlier stage companies that continue to encounter difficulties accessing capital, the E&Y reports says. Early stage biotechs clearly feel the financial pinch. Many of them are turning to partnerships with larger, established drug companies as a way to finance R&D of their drug candidates. But E&Y reports that while the total potential value of strategic alliances remained strong, up-front payments from partners to biotech companies dropped 37 percent last year to $3.1 billion. And there were fewer deals. The report says that mergers and acquisitions involving European or U.S. biotech firms dropped from 58 deals in 2009 to 45 deals in 2010. Excluding Roche’s $46.8 billion acquisition of Genentech, the aggregate value of the transactions was relatively flat.
E&Y does point to some strategies for biotechs to manage the industry changes. Companies will need to prove how their products are differentiated. Operationally, they must become more efficient. They also need to build new competencies to adjust to the changing biotech business model while also preparing to collaborate more with other industry stakeholders.
"Biotech firms will need to adapt creatively to this environment by doing more with the funding that is available and by working from the earliest stages of development to demonstrate the potential value of their products to investors, payers and regulators," Ernst & Young Global Biotechnology Leader Glen Giovannetti said in a statement.