Amid a robust period in the biotech industry, R&D spending continues to rise. According to the third annual study from accounting and consulting firm BDO USA, average R&D expenditure among biotechs increased 8% in 2012, compared to a 4% increase in 2011.

The 2013 BDO Biotech Briefing, which examined the most recent 10-K SEC filings of publicly traded companies listed on the Nasdaq Biotechnology Index, found companies spent on average $54 million on R&D in 2012, up from $50 million in 2011 and $48 million in 2010. Biotech companies also saw an average 13% revenue jump in 2012. However, larger biotechs are the primary contributors to the increase. Large companies, which for the study have revenues over $50 million, saw a 28% increase in revenue, while smaller biotechs reported a 27% decline in average revenue last year.

Biotechs remain committed to R&D efforts despite reporting bigger losses in 2012. The average loss reported was $50 million, up from $36 million in 2011. Nearly all small companies (98%) posted losses compared to nearly three-fourths (72%) of large companies.

"Unlike big pharma companies, which are developing new products while maintaining a consistent level of R&D spending, biotechs continue to demonstrate a desire to increase their R&D investment," said Ryan Starkes, partner and leader of the Life Sciences Practice at BDO. "The good news for the sector is that they are attracting significant capital and are clearly putting those dollars toward their intended use."

Despite seeing a decline in revenue, small biotechs are committed to their R&D efforts. While smaller companies saw a 9% increase in average R&D spending overall, average R&D spending as a percentage of revenue increased to 215% in 2012 from 143% in 2011. Small companies also spent more on R&D per employee. In 2012, they spent $342,000 per employee, 42% more than the overall average in the study, and 90% more than larger companies spent per employee in 2012.

Amid industry growth, the number of employees at biotechs increased 13% from 2011 to 2012. A recent report from analyst EP Vantage confirmed findings that biotechs are driving job growth in the life sciences industry, with some companies reporting staff increases of over 60% between 2007 and 2012. According to the study, average headcount moved from 198 to 223 as companies matched staffing needs to growth rates. However, despite the jump in R&D expenditures, the average number of employees dedicated to R&D remained flat at 92. While in-house R&D employment may be flat overall, biotechs are increasingly working with outside CROs and other contractors that are not captured in payroll data. Nonetheless, large biotechs were big job creators in 2012, with overall headcount up a notable 23%, and R&D professionals up 7%.

The majority of biotechs in the study (78%) raised capital in 2012, indicating the industry continues to attract investment. Equity financing continues to be the most popular avenue, with 67% of biotechs looking to the equity markets. Companies raised an average of $56 million through equity financing, which was in line with the levels of the past two years. Biotechs seeking debt financing also found success, confirming the early signs of ease in the debt markets seen last year. The average amount companies in the study raised leaped from $34 million in 2011 to $61 million in 2012.

Biotechs continue to prioritize prudent cash management. Companies reported $134 million in liquid assets in 2012, up 7% from 2011 and 17% from 2010. Biotechs held on average an equivalent of 2.49 years of R&D spending in 2012, which has remained consistent over the last three years despite the growth in overall R&D expenditure. Smaller biotechs were even more strategic in cash management, holding 2.63 years worth of R&D spending, compared to 2.33 years worth among large companies. As companies continue to focus and invest in product development, cash is critical to support their programs.

In 2012, biotech companies reported very strong total shareholder return (TSR). Average TSR for all companies in the study was 39%, with smaller biotechs generating even larger increases with TSR of 47% in 2012. Positive returns have continued in 2013, contributing to significant interest among investors and a notable rise in initial public offerings. According to Renaissance Capital, 23 biotech IPOs have been completed so far in 2013, with an average return of 48%.

"We've seen a tremendous resurgence in biotech IPOs this year, which is good news for early investors, entrepreneurs and R&D pipelines," said Aftab Jamil, partner and leader of the Technology & Life Sciences Practice at BDO. "Many small biotechs have taken advantage of the JOBS Act's reduced reporting requirements and found success and capital in the public markets. While we expect to see more offerings this year, newly-listed public companies have a challenging road ahead as they work to navigate clinical trials, FDA approvals and increased demand following healthcare reform—all under the watchful eye of investors."