Ellenbogen-Mark-1-200x300Authored by Mark Ellenbogen, Managing Assurance Partner at BDO USA, LLP.

As we enter 2015, biotech continues to be an industry to watch. According to Renaissance Capital, there have been more than 75 biotech IPOs in 2014, and the pipeline for new offerings is looking robust. R&D is also on the rise, as companies look to leverage cash reserves obtained from an increasing level of investments primarily obtained through equity raises.

The 2014 BDO Biotech Briefing found that average R&D expenditures at biotech companies (listed on the NASDAQ Biotechnology Index with revenues up to $300 million) increased 14 percent and reached $56.5 million in 2013, up from $49.5 million in 2012 and $44 million in 2011.

On average, increased R&D spend also coincided with an average revenue increase of 11 percent. Our findings revealed, however, that it is specifically large companies (firms generating over $50 million in revenue) that are fueling this growth. Among large biotechs, average revenue increased 28 percent to $137 million, while small biotechs experienced a decline in average revenue for the second year in a row.

Biotechs were also successful at equity financing. In 2013, 78 percent of biotechs secured financing, reflecting a slight increase from 2012. Among companies who raised capital, nearly all (95 percent) did so through the equity markets. Companies seeking equity financing raised $81 million on average, 28 percent more than the amount companies raised in 2012. Small biotechs were particularly successful, raising an average of $90 million, up from $68 million in 2012. Such successes highlight investor confidence in the long-term expectation of return on capital.

While headcount at biotechs across the U.S. dipped slightly in 2013, competition for top talent remains fierce. BDO’s second annual Life Sciences RiskFactor Report revealed that 94 percent of life sciences companies cite their ability to attract and retain talent as a critical risk to their business.

The Greater DC region, home to a rich concentration of life sciences companies, is one of the few areas in the U.S. that has succeeded in establishing a solid biotech base. Academic investment in the life sciences industry continues to boost industry growth in the region and helps to recruit and retain top talent as well. Ranked #6 out of the top ten U.S. cities for life sciences companies in 2013, Greater DC is poised to lead much innovation and growth in the biotech sector.