BIO 2010: Biotech enters 'new normal' phase

The worst of the global financial crisis has passed, but the biotech industry isn't returning to business as usual.

So say analysts from Ernst & Young, speaking at a panel session at BIO 2010 called "Biotech: The New Normal?"

Coming out of the global financial crisis, many analysts expected that capital would begin to return to normal pre-GFC levels. But it hasn't.

E&Y expect that capital will continue to be tight for the foreseeable future, so biotechs are going to have to get used to it and tighten their belts.

While E&Y found that the overall amount of capital has rebounded nicely since the trough of the GFC, the way financing is distributed has fundamentally changed.

The 20 per cent of companies that raised the largest amount of capital in the year have always sequestered the lion's share of funding - in 2005 they scored 68.7 per cent of the pie - but in 2009 the wake of the GFC, these larger and less risky firms are now raking in 78.5 per cent.

By contrast, the lowest 20 per cent of companies to receive funding only got 0.6 per cent in 2009, down from 1 per cent in 2005.

The upshot is that smaller and more risky biotechs are finding it harder to raise capital, and E&Y expect that to be the norm for some time.

The panel agreed with this sentiment - not really surprising, though, as they were selected by E&Y to participate.

Mark Pykett from Talaris Advisors suggested biotechs need to get to the 'go/no-go' stage more quickly; they need to determine proof of concept as early as possible so as not to waste money on fruitless studies of something that will never make it to market.

Werner Lanthaler of Germany's Evotec stressed that biotechs need to diversify their portfolio as much as possible so if one target fails, there are others to explore.

These findings are also covered in E&Y's latest report on the biotechnology sector, called "Beyond Borders."