US biotech companies reduce R&D spend, maintain cash reserves, BDO USA study finds

R&D expenditures in the US biotechnology industry have declined for the second straight year as companies narrow their focus to only the most promising products and initiatives. On average, biotech companies in the Nasdaq Biotechnology Index (NBI) spent $54 million on R&D in 2010, reflecting a 7% decline from 2009. This follows the 9% drop in spending seen in 2009 and is consistent with the global drug industry, which cut research spending for the first time ever in 2010, according to Thomson Reuters.

According to new report by business advisory firm BDO USA, while R&D efforts are a mission-critical activity for biotech firms, company performance is not always directly linked to the level of R&D efforts undertaken. For companies that decreased their R&D spend in 2010, the effect on performance (measured by total annual shareholder return) was polarized: 57% experienced a positive shareholder return of 71% on average; 43% saw a negative shareholder return of 34% on average. Return on R&D investment remains difficult to measure given the lack of a well defined industry matrix and the significant risk of new drugs and devices not securing FDA approval.