BY Richard Summerfield
The global biotech industry has seen continued investment in new treatments despite experiencing a number of strong headwinds, such as a pull back from capital markets in the US and the EU, lower valuations and increased pressure from payers, according to the 31st annual EY report 'Beyond Borders: Staying the Course'.
The report notes that revenue for US and Europe-based biotech companies reached $139.4bn in 2016, an increase of just 7 percent on 2015. Furthermore, net income dropped 52 percent year-over-year to 7.9bn and financing dropped 27 percent to $51.1bn in 2016 – the first decline in four years.
Regardless of these struggles, early biotech financing has remained promising, investment in seed and series A biotech venture rounds totalled $3.6bn in 2016, a record 36 percent of the $10bn of venture capital raised. This figure is higher than the previous 15-year average of $1.3bn. In 2016, IPOs in the biotech space endured a difficult period, however.
Dealmaking remained active in 2016, with acquirers taking advantage of reduced biotech valuations. Mega deals also played a key role: five biopharma mega deals accounted for three-quarters of all M&A value in the industry in 2016. As a result average M&A value for deals with announced terms was more than $1bn for only the third time in the past decade. Overall, 2016 deal activity was down 12 percent year-on-year to 79 deals, however, M&A volume remained above the past decade’s average of 65.
Research and development (R&D) spending reached a record high of $45.7bn, up 12 percent on 2015. Pamela Spence, EY global life sciences leader, said "The biotech industry's financial commitment to R&D, while impressive, needs to be coupled with efficiency improvements to achieve better returns and ultimately to drive greater affordability of its products. With pricing pressures expected to escalate, firms will need to incorporate new digital and artificial intelligence technologies into their traditional drug target selection and overall R&D processes to achieve those returns or risk being outdone by firms that do. Furthermore, the payer-driven slowdown in revenue growth industry-wide provides further evidence of the need for companies to accelerate their shift in business models to fee-for-value from fee-for-service. Fundamental to the success of this transformation will be to form data-focused partnerships with the digital technology companies increasingly entering the health care space."
According to EY, the US is the “biggest source of innovation” in the R&D field, though China and the UK are also making impressive strides.