April 3, 2014

Report: Spending cuts challenge biotech research, startups

An intense focus on reducing health-care spending could stymie life science research and development, according to a report released Thursday.

The Massachusetts Biotechnology Council (MassBio) found that a lack of funding could put groundbreaking research and startup companies in jeopardy over the next five years.

As the state that receives the second highest amount of National Institutes of Health (NIH) grants, the Bay State has been hit particularly hard by recent cuts in NIH funding, MassBio said. With the average age of a first research project grant recipient at 42, academic institutions are looking for alternative funding sources that will allow new postdoctoral scholars to generate data and publications.

The Affordable Care Act (ACA) is also expected to result in declining revenue for teaching hospitals, which will have to choose between investing in preserving existing patient care options, professional training or supporting research, MassBio said.

Plus, dramatic drug reimbursement cuts by the Centers for Medicare and Medicaid Services have made it even more challenging for companies or investors to eventually obtain a return on their investment.

Startup life science companies are increasingly seeing venture capital diverted from them and directed toward later-stage companies or other sectors, MassBio said. Nationally, venture funds raised to invest in life science firms has declined 50 percent over the past five years, according to Silicon Valley Bank.

Increased hurdles should lead to stronger companies eventually receiving the venture money, MassBio said, but possibly at the expense of not funding firms with intriguing but less well-packaged ideas. The report suggested expanding the funds available to early-stage companies through the Massachusetts Life Sciences Center.

One area for potential growth in the coming years is life science information technology, which has been catalyzed by electronic health record provisions in the ACA. The report cited companies such as Westborough-based eClinicalWorks as being integral in developing technology that can increase efficiency and mitigate risk in everything from basic research to patient care.

The industry does have its bright spots though, particularly in Massachusetts.

The NASDAQ Biotech Index was up 60 percent in 2013, with 37 life science companies nationwide conducting initial public offerings. Fourteen of those companies were based in the commonwealth, MassBio said, and combined to raise more than $1.3 billion.

"For life sciences companies today, Massachusetts is the place to be," the report said, "but the environment can change quickly."

(Image credit: freedigitalphotos.net)

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