• November 13, 2018

Biotech Innovation Fueled by Patent Expirations and Consumer-Centric Transformation, BDO USA Analysis Finds - Odessa American: Business

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Biotech Innovation Fueled by Patent Expirations and Consumer-Centric Transformation, BDO USA Analysis Finds

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Posted: Tuesday, November 6, 2018 8:01 am

CHICAGO--(BUSINESS WIRE)--Nov 6, 2018--Inspired by more than 25 upcoming patent expirations, an FDA focused on encouraging competition and a charge to break down silos across counterparts in healthcare to drive improved outcomes and shared value, research and development (R&D) across the biotech industry is booming, according to BDO analysis.

The , which examines the most recent 10-K SEC filings of publicly traded companies on the  NASDAQ Biotechnology Index (NBI), reports that R&D increased alongside revenues for biotech companies listed on the NBI, but trends varied among small, mid-, and large companies who have unique challenges when it comes to their respective pipelines. Analysis underscored the importance of innovation, optimization and transformation across the biotech industry, concluding that, in order to survive and thrive in this new consumer-centric, value-driven market, biotech companies must innovate patient care, maximize profitability, and transform to compete, to find their place in the future healthcare ecosystem.

R&D increased alongside revenues across biotechs listed on the NBI, but trends varied among small, mid-size, and large companies who have unique challenges when it comes to their respective pipelines. Due in part to fluctuation in the small and mid-size categories*, small companies showed a decline in revenue, though R&D spending, as a percentage of revenue, continued to soar in 2017 (526 percent), compared to 2016 (321 percent).

Mid-sized companies posted a 14 percent increase in average R&D expense, while average R&D spending, as a percent of average revenue, was relatively steady at 48 percent, compared to 53 percent in 2016. Large companies reported similar trends in average revenue and average R&D expense, with a respective 6 percent and 9 percent increase.

“Every life sciences company has unique needs and opportunities based on where they are in their lifecycle,” said Eric Jia-Sobota, partner and national leader of the Life Sciences practice. “All companies, though, are battling the pressures of pricing, the threats of disruptors and the intensified consumer-driven demand to break down silos between their healthcare counterparts to drive more precise, improved outcomes. Investors and patients alike are ready for the fruits of unprecedented R&D efforts, but the path to sustainable growth is rocky, and the stakes have never been higher .”

Additional findings from the 2018 Biotech Briefing include:

R&D continued as a priority. Average R&D spending and revenues set the stage for a bustling biotech market with an increase of 12 percent and 7 percent, respectively, while average liquid investments increased 15 percent in 2017. Biotechs will likely continue to invest heavily in R&D, particularly in elder care. Companies will need to innovate as they work to address the needs of the growing elderly population and hone their competitive edge against new entrants to healthcare, like Amazon. While tax reform did not impact the R&D tax credit directly, it did change other provisions—particularly the limitation of net operation losses (NOLs) and elimination of the alternative minimum tax (AMT)—that gives the R&D tax credit newfound importance for reducing companies’ total tax liability.

Optimism and tax reform fuel M&A and IPO activity. A wave of patent expirations and federally-encouraged generic/biosimilar competition have motivated pharmaceutical companies to turn to acquisition for a competitive edge. So far, dealmaking in 2018 has outpaced 2017, in part driven by the reduced corporate tax rate and new incentives to repatriate cash reserves. In Q1 2018, $47 billion in deals were announced, compared to $40 billion in Q1 2017, according to Pharmaceutical Technology. Additionally, US biotech IPO deals in 2018 are already on track to outpace 2017’s total: with 32 IPOs raising $3.4 billion as of July 2018, compared to the 37 IPOs and $3.8 billion raised for all of 2017.

Transform to compete via debt and equity financing. Ample opportunity for research investment to meet growing patient needs led to increased investor appetite in 2017, with strong equity raises setting the stage for a booming equity market in 2018. In capital markets, debt financing generally declined in 2017. The decreasing rate of debt financing throughout the pharmaceutical sector will likely continue as U.S. interest rates continue to climb. Upcoming patent expirations, new drug approvals, increased competition and technology innovation will all serve as likely boons to investor interest in 2018 while the industry continues to grow. In late July, the NBI increased to reach its highest level since fall 2015 following positive earnings results from several industry leaders.

Considerations for value-based contracting. The trend towards a higher volume of value-based pharmaceutical contracts tracked in previous issues of the BDO Biotech Briefing has continued apace in 2017 and 2018, fostered by competitive pressure and changes in the regulatory arena. To successfully implement value-based reimbursement contracts, pharmaceutical companies must continue to invest in solutions that allow them to track drug efficacy throughout patients’ medical journeys and help align pricing with patient outcomes.

About the 2018 BDO Biotech Briefing

BDO’s 2018 Biotech Briefing examines the most recent 10-K SEC filings of companies listed on the NASDAQ Biotechnology Index (NBI), which includes companies classified according to the Industry Classification Benchmark (ICB) as Biotechnology or Pharmaceutical companies. The companies have been separated into four categories for analysis: “large” companies with revenue greater than $1 billion, “mid-sized” companies with revenue greater than $50 million (but less than $1 billion), “small” companies with revenue less than $50 million, and “developmental” pre-revenue companies.

In our debt and equity analysis, debt and equity raises have been adjusted to reflect the issuance of debt and equity for financing operations, asset purchase, or merger/acquisition activity. Equity raised does not include, for instance, issuances for common stock options exercised.

About  BDO USA

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 63 offices and more than 500 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 67,700 people working out of 1,400 offices across 158 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit:  www.bdo.com.

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.

© 2018 BDO USA, LLP. All rights reserved.

* The average revenue among smaller companies fluctuated materially over the period due to dynamic movement of companies between the small and mid-size categories in the study. In 2016, there were larger collaboration deals that drove up revenue and moved some companies into the next tier. Looking ahead, we expect deals will continue to impact revenue trends and the categorization of companies on the index.

View source version on businesswire.com:https://www.businesswire.com/news/home/20181106005157/en/

CONTACT: Bliss Integrated Communication

Nathan Molinari, 646-846-3210

nmolinari@blissintegrated.com

KEYWORD: UNITED STATES NORTH AMERICA ILLINOIS

INDUSTRY KEYWORD: HEALTH BIOTECHNOLOGY PHARMACEUTICAL PROFESSIONAL SERVICES FINANCE

SOURCE: BDO USA, LLP

Copyright Business Wire 2018.

PUB: 11/06/2018 09:00 AM/DISC: 11/06/2018 09:01 AM

http://www.businesswire.com/news/home/20181106005157/en

© 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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