Certainly, the pain of shrinking revenues is clear for all to see. AstraZeneca plc, for example, recorded a 15 percent decline in third-quarter revenues, to $6.68 billion, as loss of exclusivity on four products – Seroquel IR, Atacand, Nexium and Merrem – played havoc with its bottom line. Revenues from schizophrenia drug Seroquel IR (quetiapine), alone, dropped by more than $850 million, or 82 percent, in the quarter.

Merck & Co. Inc. also lost market exclusivity for asthma drug Singulair (montelukast sodium) in the U.S., with global sales declining $734 million, or 55 percent, to $602 million in the third quarter of 2012. Approval of a generic version of the attention deficit hyperactivity drug Adderall XR (mixed amphetamine salts) late in the second quarter of 2012 saw sales of the product by Shire plc fall 32 percent, to $102 million, in the third quarter. U.S. sales of cholesterol drug Lipitor (atorvastatin) marketed by Pfizer Inc., plummeted from $2.7 billion in the first six months of 2011 to $679 million in the first six months of 2012.

However ugly these numbers appear, the predicted doom and gloom scenario for pharma companies is not panning out. Some of them are exhibiting all the qualities of a good mountaineer and are successfully rappelling down the cliff to flatter ground.

According to a 2012 Accenture biopharmaceutical industry study from 2013 onward, the negative effect from sales lost due to patent expiry will start to decrease and sales from their drug pipelines and current portfolios will steadily improve. One of the conclusions of the study is that there really is life beyond the patent cliff: Its negative impact, which just reached its peak last year, will be overcome with the ratio of new sales from product launches and current portfolios compared to sales lost due to patent expiry recovering by 2016.

UCB Inc.’s Executive VP and President of NewMedicines Ismail Kola, summed it up in a talk at the 2013 J.P. Morgan Healthcare Conference: “2012 was a crossover year. Our new meds grew or sold larger than our existing meds. We’re poised to deliver growth.”

This recovery, in no small measure, is due to pharmas moving away from their traditional “blockbusterology” business plans. By taking a leaf out of biotech’s playbook companies are adapting a more nimble and innovative research paradigm. By doing so they are becoming much more flexible and improving their research efficiencies.

Evidence for this comes from another recent study developed by the Analysis Group and supported by the Pharmaceutical Research and Manufacturers of America. Their report reveals that the product pipeline is full with more than 5,000 new medicines in the pipeline globally.

With many of these potential products in the late stages of clinical development the future for pharma companies is certainly looking brighter.

In those heady days of biotech, not that long ago, the rush was on to learn about the latest innovation from companies. Dollars were readily available for investment and biotech execs gave their presentations to a full room.

Bob Dylan’s The Times They are A Changin’ provided an apt interlude tune played before the start of one session. It was a refrain frequently expressed during the standing-room-only audiences for the BIF business roundtables devoted to investing.

We all feel it. Biotech investment meetings have a different buzz about them these days.

Since the emphasis of BIF is on early and established private companies as well as emerging public companies, the agenda had a heavy dose of business roundtables focused on early stage and creative financing and partnering strategies. This has been a tough arena to raise venture capital and will continue to be so for the foreseeable future.

“During the past five years we have seen people investing out of fear rather than with conviction,” noted Srini Akkaraju, managing director at New Leaf Venture Partners. “We are in a tough fundraising environment and it is only going to get worse,” he added.

Akkaraju was one of the participating panelists on “Forecasting 2013: Trick or Treat?” the closing plenary session at BIF. (See this Oct. 15, 2012, BioWorld Insight story: Has Biotech Reached Its Peak? Analysts Say Room for Growth.)

He was also critical of the fact that biotech investors need to be more creative with their investment time horizons since they are dealing with 15-year businesses and trying to fit them into a five-year box. Venture capitalists are heading for the exit door after five years, precisely at a time when companies are beginning to emerge with strong data. This is a good opportunity to continue investing and not exiting. These are certainly structural issues for the venture industry to solve.

On the capital markets front, biotech is on a roll. According to Evan McCulloch, portfolio manager at Franklin Templeton Investments, the biotech sector appears to be fairly valued at the present time, and there is certainly room for the sector’s value to increase. Panelist Bryan Roberts, partner at Venrock, agreed, particularly if companies continue to report strong data for their drug candidates.

The consensus was that it will be the large cap companies that will drive biotech’s collective performance with the smaller cap biotech companies still struggling to garner attention from investors.

We won’t have long to wait to see if these predictions hold true. Biotech investors will be flocking back to San Francisco in January for the always exciting JP Morgan Healthcare Conference.

BioWorld Insight will be there to take the industry’s temperature and report on what investors believe 2013 has in store. We’ll also be taking a deeper dive into the financial and business issues impacting on biotech companies in the run-up to the end of the year – make sure to stay tuned looks like it will be an eventful time for us all!

The average increase in the stock values of the 231 public biotech companies tracked by the BioWorld Stock Report is up 38 percent year-to-date. The third quarter was particularly hot for biotechs with their collective stock values soaring by an average of over 12 percent compared with a 4 percent increase in the Dow Jones Industrial Average and a 6 percent increase in the NASDAQ Composite index.

The welcoming capital markets allowed biotechs to take advantage of their increased stock values to conduct follow-on financing. In the third quarter more than $2.8 billion was raised through public offerings compared to only $507 million in the comparable period in 2011, according to data compiled from BioWorld Snapshots.

The same trend held true for private placements such as registered direct offerings, rights offerings and at-the-market deals with public biotechs raising $1.97 billion in the third quarter of 2012 from these financing vehicles well over double the $821 million raised during Q3 2011.

The increased public financing in the third quarter helped biotech companies collectively raise $5.91 billion, an amount that was 111 percent more than the $2.75 billion raised in the third quarter of 2011.

According to statistics compiled by BioWorld Insight, the biotech sector is making up for a very sluggish start to the year with a total of $13.8 billion raised in the first three quarters. This now compares more favorably to the $16.1 billion raised in the same period of 2011, which, by any standards, was considered a very hot year for biotech financing.

On the venture capital front our analysis confirms that deal making for private biotech companies still remains extremely challenging. At the three-quarter post of 2012 global private biotechs had raised $2.35 billion, 33 percent less than the $3.51 billion raised in the same period of 2011.

The public U.S. markets continue to offer an alternative for later-round companies looking for funding. Although the appetite for biotech IPOs cooled off in the third quarter with no deals taking place in August and September, eight companies have gone public year-to-date, comparable to the 9 deals we saw at this time last year. This amounts generated from the 2012 IPO transactions was $536 million compared to $503 raised in 2011.

Given the positive capital markets at the present time it is likely that we will see a flurry of companies, currently on the IPO runway, price their public offerings. According to BioWorld Snapshots there are nine biotech companies that are on the IPO runway.

For full analysis of the performance of the biotech sector in the third quarter read the Oct. 8, 2012 cover story in BioWorld Insight.

Well the industry followed the script to the letter. According to a BioWorld Insight analysis, the amount of capital generated by private and public biotech companies slowed dramatically in the first half of 2012, with $7.9 billion raised, down 40 percent from the same period in 2011. We found that it was a particularly tough second quarter with biotech companies collectively raising $2.76 billion, 46.4 percent less than the $5.15 billion raised in the first quarter this year and a whopping 62 percent down from the total raised in the second quarter of 2011.

While it would be easy to explain away the decline in capital raised to date as a function of the sector being flush with cash, I would argue that the sheer magnitude of the drop off of funding is some cause for concern and is pointing to tougher times ahead for biotech.

It is no secret that venture capital investments in biotech have been trending downwards. It is not deal flow per se that is the cause for concern, but the average amount raised per deal. For example the average amount raised per deal in 2012 was around $14 million, less than half the average amount raised per deal in the same period of 2011.

These data reflect the fact that the industry is beginning to see the effects of a consolidation in the venture capital industry. As the National Venture Capital Association has identified firms are exiting the life sciences space or curtailing their investments and being more conservative with the funds that they do invest. The year-to-date 2012 data is really the tip-of-the-iceberg. The global industry has been consistently raising about $4 billion annually, according to BioWorld Snapshots. Going forward expect this figure to fall 40 percent or 50 percent. Right now private biotechs are on pace to raise about $2.6 billion this year.

On the Capital Markets . . .

Volatility in the global markets has kept investors on the sidelines or focused purely on the larger cap biotechs. BioWorld Insight reports that the 35 biotechs in our BioWorld Stock Report with market caps higher than $1 billion performed well in the second quarter of 2012 with an average share value increase of almost 20 percent. For the six-month period the group recorded an average share price increase of 57 percent. This is one of the reasons why the sector has been so hot this year – a factor that has translated onto the BioWorld Stock Index, which is up over 25 percent since the beginning of the year. This compares to a 12.6 percent increase in the NASDAQ Composite index and a 5.4 percent increase in the Dow Jones Industrial Average for the same period.

On the other side of the coin while the capital market has been conducive for companies with market caps north of $500 million, the picture has not been as bright for small biotechs. The average stock price values for this group of companies, which have market caps of $100 million or less, dropped 24 percent in the second quarter. This performance impacted on all the public biotech companies in the BioWorld Stock Index with their collective total average stock price valuation decreasing 2 percent in the second quarter.

Going forward expect to see these trends for private and public biotech companies continue. Deals will get done and capital will be raised . . . unfortunately for many companies there just won’t be enough to go round.