Biotech Revenue Up, Drug Prices Make Investors Nervous

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By John T. Aquino

Nov. 4 — Biotech revenue and research and development expenditures grew in 2014, but concern about drug prices has made industry investors skittish, according to a briefing summary released Nov. 4.

The 2015 BDO Biotech briefing said that biotech companies' average research and development expenditures reached $55.6 million in 2014, up from $47.1 million in 2013 and $40.7 million in 2012.

Global revenue among all biotechs jumped 44 percent to $67.1 million in 2014, up from $46.6 million the year before, and novel new drug approvals hit an 18-year high with a total of 41 new molecular entities (NMEs) receiving Food and Drug Administration approval (9 LSLR 107, 1/23/15).

The briefing said that the high pace of drug approvals has continued this year, with 29 NMEs approved as of October.

Ryan Starkes, life sciences practice leader at the tax, financial advisory and consulting firm BDO USA LLP, said, “Optimism surrounding the opportunities for further drug development in light of a continued increase in the approval of new drugs by the FDA supports investment in R&D. However, political controversy and widespread criticism around rising drug prices has made investors skittish, and we have seen that recently reflected in valuations.”

Increase in Hiring, Cash Reserves

The BDO Biotech Briefing examined the most recent 10-K filings with the Securities and Exchange Commission of companies listed 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 companies included in the index.

The briefing found that large biotechs—from $50 million to $300 million in revenue—experienced the greatest increase in global revenue in 2014, growing average revenue by 52 percent to $129.3 million. Small biotechs reported a 7 percent increase in average revenue, up from a decrease of 21 percent in 2013.

Additional findings from the report include:

• Debt Financing Doubles. While the bulk of biotechs secured financing through the equity markets, those that sought debt financing raised much larger amounts. Seventy-one percent of biotechs secured equity financing, whereas only 34 percent of companies secured financing through the credit markets. Companies seeking debt financing raised an average of $128.6 million, nearly double the average size of 2013 financings, with large biotechs demonstrating an ability to secure more than twice the average amount of debt financing of smaller biotechs.

• Biotech Hiring Spree. Biotechs continued to demonstrate a high level of hiring activity, reporting an average of 216 employees overall in 2014, 20.7 percent higher than 2013 levels.

• More Cash Reserves, More Time to Invest. With a focus on growth and R&D-led innovation, biotech companies are growing their cash reserves, the briefing said. In 2014, biotechs reported an average of $180.3 million in liquid assets, up 43 percent from 2013 and almost 100 percent from 2012 levels.

• Shareholder Returns Boost IPO Valuations. In 2014, biotechs drew an average total shareholder return—which combines share price appreciation and dividends paid to show the total return to the shareholder expressed as an annualized percentage—of 113 percent, up from 97 percent the previous year. In addition, the average market cap of companies studied, as of the end of their most recent fiscal year, surpassed the billion-dollar mark, reaching $1.14 billion, compared to $881 million in 2013. Fueled by strong returns and investor appetite, biotech initial public offering (IPO) activity was strong in 2014 and the first part of 2015.


Excitement About Drug Development

The briefing also indicated that 2014 was a strong year for mergers and acquisitions, with the biopharma industry reaching a record $202 billion in them.

And 2015 has sustained this level, the briefing said, with nearly a fourth (23.6 percent) of companies on the Nasdaq Biotechnology Index engaging in M&A this year. According to Dealogic data, the first three quarters, through Sept. 4, brought 302 biopharma deals, totaling $235 billion.

The third quarter was a rough one for the biotech industry, BDO said. But Aftab Jamil, BDO partner and leader of the technology and life sciences practice, said, “Despite the current slump in biotech stock prices and IPOs, appetite for M&A remains strong, and we can expect deal activity to continue at a moderate pace. The electoral focus on health care reform and public frustration around rising drug prices will create some investor hesitation, but increased excitement about drug development presents an opportunity for future industry growth.”

To contact the reporter on this story: John T. Aquino in Washington at

To contact the editor responsible for this story: Lee Barnes at

A summary of the report is at

A BDO spokeswoman told Bloomberg BNA in a Nov. 4 e-mail that the full report is still in development and will be available at


Request Health Care on Bloomberg Law