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Study: Biotech R&D rose in 2011

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The biotechnology industry boosted its research and development spending in 2011, reversing a 2010 decrease, according to a new report.

The study, by accounting and consulting firm BDO, found biotech companies spent an average of $50 million on R&D last year, up from $47 million the year before.

Ryan Starkes, partner and leader of BDO's life sciences practice, in Woodbridge, said the report is good news, though R&D spending is never a guarantee of success.

"It's a positive sign because I think it's showing that the investments that have been made in these companies are being put to use," he said.

Within the overall increase, 55 percent of small biotechs boosted their spending, as did 66 percent of large biotechs.

The report did, however, show some signs of the stressed economy, including a persistent gap between the large and small firms. While large firms grew their work forces by an average of 10 percentage points last year, smaller firms cut their staffs by 3 percentage points, part of a broader move toward leaner business models.

"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," Starkes said. "That's enabling the companies to leverage their experience on a more focused basis."

The report also showed larger companies are relying more on revenue generated from operations to fund their R&D, as opposed to equity financing. Only 24 percent of large companies raised equity financing last year.

Meanwhile, 64 percent of smaller biotechs raised equity financing in 2011. Overall, biotech companies chose equity financing twice as often as debt.

"Looking to raise through equity is always, I think, the companies' preference to do when they can," Starkes said. "And the size of transactions were slightly up, but still very healthy numbers."

Companies raised an average of $74 million in equity financing in 2011, up from $68 million the previous year.

Ninety percent of small biotechs lost money last year, though that's not uncommon in an industry where it can take several years and hundreds of millions of dollars to get a lead product to market. Biotech firms lost an average of $32 million last year, less than the $34 million reported in 2010.

Companies said they had 2.63 years' worth of R&D spending in liquid assets in 2011, up from 2.56 years' worth in 2010.

"Ultimately these companies are selling science, and it's unproven," Starkes said. "They're very focused on managing their cash flow, and they get their cash flow not from selling products necessarily, but from raising capital."

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