The financial turmoil of the past year has helped reshaped the industry, which continues to reinvent itself. As the new year begins, The Burrill Report’s publisher G. Steven Burrill offers his predictions for the year ahead:

Financial Environment: The worldwide financing environment in 2010 will be more robust than in 2009, but choppy and selective. This environment favors companies with products where risk is mitigated, rather than early-stage development companies. Capital markets around the world will continue to strengthen as investors regain confidence. Much of the global economic recovery has so far been driven by stimulus funding and, as a result, real economic growth will remain uncertain.

Biotech and the Capital Markets: Expect biotech's elite companies to perform well with their financial returns meeting analysts' expectations. Although the Burrill Biotech Select Index lagged the general markets in 2009, by the end of 2010 the index will have outperformed the Dow Jones industrial average and Nasdaq composite index.

Biotech IPOs: The biotech IPO window will continue to crack open. During the first half of 2010 there will be at least five companies that get complete their offerings. By year end, we predict that 15 biotech companies in the United State will have gone public, but supply will overwhelm demand, and the markets will be very selective.

Biotech consolidation to continue: The large universe of small public companies and private companies looking for financing will continue to face challenges as they try to find ways to stretch out their remaining funds. Expect further consolidation in 2010, but at a slower pace than in 2009.

Capital: More than $15 billion will be raised by U.S. biotechs. Partnering and M&A transactions will again trump financings and in total $35 billion will be raised. The industry's market cap will grow from its present level of $350 billion to $400 billion, despite significant consolidation and attrition as valuation is lost through M&As. There will be significant funding available for public companies through secondary financings, registered direct offerings, and PIPEs, especially after they report good news.

Partnering: To deal with their impending patent cliffs, Big Pharma will continue to keep a robust pace of partnering deals. Both Big Pharma and Big Biotech will compete for companies with advanced product pipelines, as well as important land grabs of technology. There will also be new players competing for technologies - such as major medical devices, instrumentation and healthcare IT companies, and even generics companies will be acquirers. The traditional sector lines of pharma, biotech, devices, diagnostics, healthcare IT, services, and generics/biosimilars will blur as technologies converge and companies seize on new market opportunities as the healthcare system shifts its focus from treating sickness to maintaining wellness.

Mergers & Acquisitions: Big Pharma consolidation will continue as these companies position themselves for the new market realities and competitive pressures from the generics world. Pharma will also start to adapt from a vertically integrated business model to one that reflects virtual integration. Companies will build dedicated business product units with their own management structures and decision making processes.

Healthcare reform: President Obama in his State of the Union address will report on a new healthcare reform legislation. The reform will stimulate ways to move the system from one based on cost to one based on value. Providers will look for ways to reduce costs by improving healthcare delivery and rewarding behaviors that promote healthier lifestyles. But most of the impact of this healthcare reform bill will be on reforming the insurance industry and who pays for a largely dysfunctional system. Healthcare reform II will begin immediately, trying to fix what remains a broken system.

Biosimilars: The growing use of biologics and their high price tag will put pressure on US legislators to establish a pathway to allow the FDA to approve biosimilars.

Regulatory environment: The regulatory world will become more complex as comparative effectiveness research enters the equation.

Increased government involvement: The federal government, through Medicare and Medicaid, will play a greater role in the delivery and reimbursement of healthcare. This trend will create an array of new regulatory and compensatory rules, issues, and challenges for healthcare providers.

Science and Technology: We will continue to see companies both large and small build their business models around the technologies that are driving personalized medicine. Targeted therapies will be developed that focus more on subpopulations rather than the traditional one-size fits all model. Expect to see Big Pharma operate more like innovative biotech companies. Stem cells will become increasingly important as tools for technology development, especially in the areas of cancer and regenerative medicine.

Clean tech will boom: The clean tech boom in non-food crops will continue in 2010 as major investments in solar power, wind power, and next generation biofuels gets attention. The market will not only embrace green, but technologies that improve energy efficiency and are environmental friendly. As a result clean technology companies will attract financing in record amounts.

Biofuels: Biomass must be sustainable, affordable, reliable, and available. Significant investments will be made in the development of cheap sugars to feed the advanced biofuels industry. The market for the byproducts of biofuel production will grow as companies leverage their technologies for more near-term opportunities in renewable chemicals and biopolymers, and a diverse use of their resources.

Ag/Animal Health: The ag/animal health sectors will also see an increase in interest and funding – driven by the world food crisis and companies looking to spin their units off as a source for funding.

Global markets: Global emerging markets, particularly in China, India, and Brazil, will grow faster than in the United States and Europe. Increasing affluence, a growing middle class, and government policies will make healthcare big business in these countries. The global nature of biotech will put pressure on the United States to maintain its dominance and we will see increasing evidence of other countries taking the lead in some technologies and business sectors.

Global arbitrage: Companies will increasingly look beyond their borders to maximize the value of their businesses and access sources of capital that may be unavailable at home.

Biotech clusters: Once defined geographically, these biotech clusters will be viewed as virtual – built around diseases, pathways, markets, and unique industry segments. As such, business models will continue to evolve more virtually.

The year ahead: Overall, 2010 will be a productive year for the industry as companies learn to adapt to their new environment. The past 12 months has exacted a significant toll on the biotech industry (through bankruptcies, downsizing, and cost-cutting) and we have a very different industry today than previously existed. The companies that have survived the difficult financial conditions will have to adapt to this new environment.