The 2012 BDO Biotech Briefing found that biotech companies increased R&D spending and revenues in 2011. Average R&D spending among companies rose 5% to $50 million, while average revenues jumped 24% to $76 million. Larger biotech firms with over $50 million in revenues saw a 33% rise in revenues and increased R&D spending more than smaller firms. Although employment grew 10% overall, it rose 16% at large firms while declining 3% at small firms. The briefing indicates biotech companies are relying more on virtual and outsourced business models to maximize resources for R&D.

1. Fall 2012
www.bdo.com
Thought Leadership from the BDO technology and life sciences industry practice
For more information on BDO USA’s
service offerings to this industry
vertical, please contact one of the
following regional service leaders:
Contact:
Todd Berry
Boston
617- 239-4125
tberry@bdo.com
Tim Clackett
Los Angeles
310-557-8201
tclackett@bdo.com
U.S. Biotechs Investing Hank Galligan
Boston
in R&D
617-422-7521
hgalligan@bdo.com
Paul Heiselmann
Chicago
312-233-1876
The BDO Biotech Briefing examined the most recent 10-K SEC filings of companies listed pheiselmann@bdo.com
on the NASDAQ Biotechnology Index. Companies reporting more than $300 million
in revenue were excluded to ensure findings are representative of the vast majority of Aftab Jamil
companies included in the NASDAQ Index. Remaining companies were divided into Silicon Valley
two groups—those with more than $50 million in revenue and those with less than $50 408-352-1999
million in revenue—to identify trends and key metrics relevant to each group. ajamil@bdo.com
The report has been cited in the following media outlets: Fierce Biotech, Mass High Tech, New Ryan Starkes
Jersey Business Journal, Pharma Times, Pharmalot and The Pharma Letter. Woodbridge
732-734-1011
rstarkes@bdo.com
A
David Yasukochi
s drug pipelines slow at the major Not surprisingly, R&D expenditures in the
Orange County
pharma companies, biotech biotechnology industry grew five percent in 714-913-2597
companies are increasingly becoming 2011, bouncing back after a decline the prior dyasukochi@bdo.com
more relevant as acquisitions and research year. According to a new study from BDO, on
partnerships are driving innovation. average, biotech companies spent $50 million
Success for biotechs relies on research on R&D in 2011, up from just over $47 million
and development (R&D) and the ability to invested in 2010.
cultivate and commercialize the next big
discovery.
Read more

2. 2 2012 BDO Biotech Briefing
Aftab Jamil, partner and national director for BDO, told Mass High Tech that there was a great deal of concern
last year when the industry decreased R&D spending for the first time in many years. This year’s data is evidence
that the 2010 data may have been just a one-time drop.
The 2012 BDO Biotech Briefing, which
examined the most recent 10-K SEC filings Biotech R&D Spend and Revenue Trends
of publicly traded companies listed on the
NASDAQ Biotechnology Index, found that $160,000
the boost in R&D spending coincided with
140,000
a 24 percent rise in average revenues for
the industry. Average revenues for those 120,000
companies included in the BDO analysis
100,000
jumped to $76 million in 2011, up from
$62 million the year earlier. Large biotech 80,000
firms—those with revenues greater than $50
60,000
million—reported a 33 percent increase from
the previous year. Smaller biotech companies, 40,000
however, reported average revenues of $20
20,000
million, a 12 percent decline from 2010.
0
Indeed, 55 percent of smaller companies 2009 2010 2011
increased their R&D spending in 2011,
Average Revenue (< $50M) Average R&D Spend (< $50M)
whereas two-thirds had trimmed spending the
Average Revenue (> $50M) Average R&D Spend (> $50M)
previous year. Sixty-six percent of large firms
boosted R&D spending last year. Six-in-ten
(60 percent) of all companies in the study
increased their investments in research and
development in 2011.
In April 2012, the government enacted the Jumpstart Our Business
u elative to Revenue,
R Startups (JOBS) Act to encourage funding for small businesses by
Small Firms Splurge on easing securities regulations.
R&D The Act is particularly encouraging for emerging biotech companies who can access
Smaller companies’ average R&D expenditure capital markets with reduced regulatory requirements and can focus more their
of $38 million in 2011 remained virtually flat, resources on mission critical R&D efforts. In essence, the JOBS Act should create an
showing just a one percent increase over the easier “on-ramp” for biotech companies to generate funds to bring new drugs and
prior year. However, average R&D spending, as other products to market faster.
a percentage of revenue, grew to 194 percent
for smaller companies, compared to 168 The JOBS Act also allows for larger corporate fundraising efforts by increasing the
percent a year earlier. As smaller companies limit for securities offerings exempted under Regulation A from $5 million to $50
reduced their headcounts, the increase in R&D
million.
spending was even more pronounced. Larger
companies’ expenditures, on the other hand,
remained more consistent with 2010 levels,
falling slightly to 45 percent from 55 percent
the year before.
Read more

3. 2012 BDO Biotech Briefing 3
Employment Holds
u Average Number of Employees
Strong at Large Firms
Despite persistently high unemployment 400
rates in the United States, biotech companies
350
showed a healthy increase in their employee
base, which grew 10 percent in 2011. Again, 300
though, gaps between large and small
250
companies remained. Larger companies
showed an employment increase of 16 200
percent, while smaller companies reduced
150
their workforces by about three percent.
100
50
u pending Per Capita
S 0
Varies by Size 2009 2010 2011
While overall R&D spending rose last year, Small biotechs (> $50M) Large biotechs (< $50M)
expenditures per employee decreased by
five percent, to $233,000, for all companies
included in the BDO report. At larger biotech
companies, there was an eight percent decline
in average R&D spending per employee,
indicative of companies’ back-filling of sales,
marketing and administrative positions that
were hit hard over the past few years. In sharp Average R&D Spend by Employee
contrast, smaller companies saw a 4.5 percent
increase in per-employee spending, another $400,000
indication of the growing popularity of the
virtual biotech business model at emerging
300,000
companies.
Smaller companies spent significantly more 200,000
on R&D per employee—$337,000 in 2011—
compared to their larger counterparts, who 100,000
spent $188,000 per employee last year.
Overall, 65 percent of revenues were spent 0
on R&D expenses in 2011, highlighting the 2009 2010 2011
critical nature of investments for innovation
and on the development of new drugs and Small biotechs (> $50 million) Large biotechs (< $50 million)
technologies.
“There are a lot of experienced people out in the marketplace still and they’re maybe choosing to not join on a
full-time basis, but rather as a consultant,” Ryan Starkes partner and leader of BDO’s life sciences practice
noted to NJBiz. “That’s enabling the companies to leverage their experience on a more focused basis.”
Read more

4. 4 2012 BDO Biotech Briefing
Larger Companies Rely
u u maller Firms Show
S
on Cash, Small Firms Losses, but Liquidity
Turn to Capital Markets Remains Steady
Just 24 percent of large companies raised Losses declined slightly in 2011 for biotech
equity financing in 2011, indicating a heavier companies. Across the board, biotechs
reliance on cash generated from operations reported an average loss of $32 million for
to fund R&D activities. Smaller companies 2011, compared to $34 million in 2010.
continued to rely on capital markets to help Virtually all smaller companies in the
fund their R&D efforts, with 64 percent of survey—90 percent—reported losses in 2011,
smaller biotech firms raising equity financing in line with last year’s results.
at an average level of $64 million, compared
to $62 million the prior year. Among all firms, Concurrently, firms maintained financial
those in need of financing chose equity twice liquidity at levels fairly consistent with those
as often as debt, 40 percent compared to 19 of previous years. On average, companies held
percent, respectively. Companies raised an 2.63 years’ worth of R&D spending in liquid
average of $74 million in equity financing, up assets in 2011, up slightly from 2.56 years’
significantly from the $68 million raised in worth in 2010 and 2.23 years’ worth in 2009.
2010.
Firms continued to show signs of prudence
in fiscal policy and cash management,
holding $131 million in cash and short-term
Financing for Small Biotechs investments in 2011, seven percent more
than they did the previous year. That rate
was consistent among both small and large
companies. For biotech companies, the
ability to fund research and development is a
mission-critical activity that spans multiple
years. Cash is a strategic asset and liquidity
36% is extremely important to support product
development efforts.
64%
For many companies, cash generated through
operations is supplemented through public
and private equity and debt markets. Biotech
companies continue to show their remarkable
ability to attract such equity and debt
investments.
Equity Financing
Debt Financing
“Funding challenges within the industry force developers to be more creative in terms of trial design, selection
of secondary endpoints, etc. The days of a shotgun approach to finding out where your drug is most effective
are gone. To succeed, developers need to take more of a risk sharing approach with contract research
organizations and other service providers.” Christopher Lowe, Chief Business and Chief Financial Officer at
Anthera Pharmaceuticals, Inc.

5. 2012 BDO Biotech Briefing 5
“I think there will be a continued trend of acquisitions of R&D companies. In the economic downturn,
companies tended to trim back their R&D staff and opt more towards ‘purchased R&D.’” Anthony L. Alfonso,
Senior Managing Director, BDO Consulting
u irtual Biotech
V The concept of virtual biotech companies is
gaining momentum as well, particularly with
Business Model Gaining start-ups in certain biotech clusters. In these
Momentum biotech clusters, such as Silicon Valley, the
Although the firms included in the study are advent of more and more virtual companies
generally well-established public companies, is leading to a greater percentage of money
innovative business models are being deployed spent on R&D, instead of on payroll, which is
to use scarce resources strategically, several boosting the overall picture.
data points suggest.
Aftab Jamil, partner and national director of
the Technology and Life Sciences Practice
at BDO, told FierceBiotech that younger
companies are relying more on specialized
contractors and consultants, as well as
outsourcing partners, to address specific needs
rather than hiring them on a full-time basis.
Total Years’ Worth of R&D Spending in Liquid Assets
2011
2010
2009
2 2.1 2.2 2.3 2.4 2.5 2.6 2.7
Years

6. About the Technology & Life Sciences Practice at BDO USA, LLP
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