June 24, 2014 / 12:12 AM / 5 years ago

Biotech R&D spending outpaces revenue growth: report

(Reuters) - For the first time since the global financial crisis began in mid-2007, spending by biotechnology companies on research and development grew at a faster rate than revenue, according to consulting firm Ernst & Young.

Revenue at companies in the United States, Europe, Canada and Australia rose 10 percent last year from 2012, the report said. It noted that nearly all of that growth came from 17 U.S.-based companies with annual revenue of over $500 million.

The analysis, timed to coincide with the annual BIO International Convention in San Diego, found that 2013 spending on research and development of biotech drugs rebounded by 14 percent from 2012, mainly due to a 20 percent rise in U.S. spending.

That R&D uptick hurt net income, which dropped by $8 million to an industry-wide $791.8 billion year over year.

A soaring stock market - the Nasdaq Biotechnology Index rose 65 percent in 2013 - helped secure a sharp rise in funding for biotech companies in North America and Europe. E&Y reports that $31.6 billion was raised in 2013, compared with $28.7 billion in 2012. Fifty biotechs debuted on the public markets last year.

The total value of mergers and acquisitions involving U.S. or European biotechs reached $55.7 billion last year, more than double 2012’s total. But two of the biggest deals involved nontraditional buyers: laboratory equipment maker Thermo Fisher Scientific Inc’s (TMO.N) $13.6 billion acquisition of Life Technologies and privately-held Perrigo’s $8.6 billion buyout of Elan Pharmaceuticals.

To unlock additional value from their drug development pipelines, E&Y said biotech companies need a better return on R&D spending. The consultancy suggested more collaboration between companies, designing clinical trials to adapt to early findings and a greater focus on drugs that target specific biomarkers or genetic mutations.

Reporting By Deena Beasley

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