Biotech firms hit as cash dries up and research shifts eastward – Business News, Business

The global biotechnology business model is ‘breaking down’ as investors tighten purse strings and the industry’s research base shifts to emerging economies, a report suggests.

Last year, biotech companies in Europe managed to raise just $1.1bn (£678m) in venture capital – the lowest haul since 2003. The auguries are also dim: 84 per cent of the participants at a recent biopharmaceutical conference in Monaco view funding as the industry’s prime challenge.

Historically, the biotech industry has relied on external investment to develop innovative ideas that have often sprung from the world of academia. Investors dug into their pockets in the hope of cashing in by floating biotech firms or selling new therapies to established players in the pharmaceuticals sector.

But the business model is risky and many investments end up in the red. A report by the accountant PricewaterhouseCoopers cites a recent study of 1,606 biotech investments realised between 1986 and 2008. Of these, 704 resulted in a full or partial loss and 16 managed only to cover their costs.

The gross rate of return on these investments stood at nearly 26 per cent, well above the pooled average return […]