Biotech had a 'colossal' year in 2014 for revenue and capital formation, says EY

Fig 1. EY’s estimate of capital accumulation by <$500-million/yr companies (yellow) and >$500-million/yr (black)

The curtain opened on the annual BIO meeting this week (Philadelphia, June 13-18) with the Beyond Borders report from EY's (formerly Ernst & Young) Global Life Sciences Center that couldn’t be more optimistic about the biotech sector’s current prospects. Based on an analysis of a grouping of biotech-based life sciences companies that EY has been tracking for years, the company found that a host of records were set in 2014:

• Net income jumps 231% in 2014 to historic high of US$14.9 billion
• R&D spending surged 20% as companies in the US and Europe invested in their pipelines
• Firms in the US and Europe raise a record US$54.3 billion in capital in 2014
• A record 94 new US and European companies go public in red hot IPO market.

And the pace continues into 2015, although with so many initial public offerings in 2014, there is some tailing off of new IPO activity.

EY makes a distinction between overall capital formation in biotech, and “innovation capital” accumulated by companies with annual revenue under $500 million. The thought is, says Glen Giovannetti, global life sciences leader, that these smaller companies represent more future-looking, higher-risk capital. But the picture is very much the same among them: a record high of $27.6 billion in venture-capital, IPO, debt and secondary offerings globally, and $21.1 billion in the US alone.

Fig. 2. US regions that attracted the most innovation capital among <$500-million/yr biotech companies

Such a boom, zooming past the records that stood since 2000, brings to mind the “bubble” that occurred back then, with valuations and capital crashing in the 2000-2002 period. But this time there are differences, says Giovannetti. “One factor is that the accelerated approval process for new drugs is in place at FDA, so that therapies under development have a more streamlined approach to the market,” he says. “Another is that the science seems to be stronger; the 2000 boom was propelled by the enthusiasm over the Human Genome Project; now, there are products delivering on the promise of genomics.”

There are “headwinds,” notes another EY analyst, Jeffrey Greene, transactions advisory service leader.. "As firms deal with pricing pressures and increased competition, including from biosimilars, they will need new sources of growth. Achieving such growth through deals and acquisitions will likely be more costly and challenging.”

The Beyond Borders 2015 report is available here.