Biotech Analysis

Who is who in the changing biotech world? There was a time not long ago when the players in the life sciences game didn’t need uniforms. We all knew that big pharma wore the suits and went to work in giant towers of steel and glass, or mas-sive campuses with lawns manicured nicer than the elite golf courses to which they belonged.

And we instantly recognized the biotechnology bunch. They didn’t dress as well, and their offices were down a rung or two, maybe just down the street from a great little Thai restaurant, and not too far from one of those dry cleaner/Nails ‘R’ Us/Dollar Store shopping centers. Or maybe they worked in the far corner of a 1950s university lab with old dou-ble-hung windows and a creaky ceiling fan.

At least that was our romantic view of the biotech-nology industry. Despite the popular image of journalists as a hardened, cynical lot, we all have a romantic streak running through us.

So many in the bio business have hung onto the romantic notion that biotech, for the most part, is made up of the little guys with the Avis complex — they’re smaller, but they try harder. They’re the ones with the brains who take the gambles, splicing and dicing molecules and proteins on their way to discov-ering things that heal and save lives. Even their fail-ures can be applauded because they advance the overall cause, often leading to success down the road.

Biotechs Still ‘Our’ People

Here at , they were, and still are, “our” people. Not that we have anything against phar-maceutical companies. If you browse through our archives you’ll find thousands of articles where they’ve been mentioned, quoted, and even fea-tured. But to us, biotech is our first true love.

At our daily news meetings, as we peruse the lat-est developments in the life sciences field, from new financings to clinical results to regulatory developments, a common question our staff raises about these companies is, “Are they one of ours?”

Sometimes the debate centers around whether a company is a biotech or a specialty pharma or a tools company carving out a market niche and influencing the field. The verdict from our news crew usually leans toward inclusion, but perhaps not with the enthusiasm we might display for a true bio company that actually does the splicing and dicing. In honesty, we have the same discus-sions about tools companies. Are they biotech, pharma, or do they cross that divide?

Obviously, this is because we’ve carved out our own niche in the biotech space. But we’ve also grown up with the industry. As neared its 1990 launch date, Amgen Inc. had product rev-enues of $400 million — not an unimpressive accomplishment, even today. But for just the third quarter of 2008 it reported product sales of $3.78 billion.

As biotech has grown up quickly, and continues to grow, our internal discussion of what’s important to our readers gets more complicated. Dried up pipelines of pharmaceutical companies have natu-rally led them to the doorstep of biotech companies. Checkbook in hand, they’re paying tremen-dous prices for compounds that might deliver to them the next Lipitor. As the low-hanging fruit gets picked first, the interest spreads to less advanced products.

Gradually, some of our old bio favorites, both products and entire companies, are being swal-lowed by big pharma.

The pharmaceutical industry also is catching onto the fact that biologics don’t face the same gener-ics problems as the Lipitors of the world. The off-patent generics threat — which may cause Pfizer Inc. annualized losses of more than $19 billion by 2014 —apparently isn’t nearly as scary, even with a Democratic Congress nudging the FDA in the direction of bioequivalents.

Blurring Biotech and Pharma

Thus, the line between biotech and big pharma blurs. Aside from mergers and acquisitions, phar-maceutical companies are starting their own initia-tives. Pfizer pledged to spend $50 million for a San Diego incubator; Lilly spent $560 million to expand its biotech operation; and Roche in late 2007 announced it would plow $255 million into expanding its biotech research and development (noting proudly that already 45 percent of rev-enues of its pharma division come from bio drugs).

In the interest of advancing the cause of biotech-nology, that’s wonderful. The cash infusion is something the field obviously needs. But the prob-lem is, how does anyone with an interest in the biotech field keep track of what’s becoming an overwhelming array of development efforts? The Biotechnology Industry Organization counted more than 1,400 biotech companies as of 2005. Add in the pharmaceutical companies that are making moves in biotech and the total grows exponentially. “Our” companies are now becom-ing “their” companies.

Defining Who Is Who in Biotech

In a Perspectives column in early 2008, we asked the real experts — readers like you — how you would define biotech and if there is a difference between the biotech and big phar-ma sectors. You answered, and provided some great responses.

In a survey that accompanied the article, we queried you about how you define biotechnology today, and the differences between biotech and the pharmaceutical industry. Your input mostly fell into four areas that we’ll call “Science,” “Size Matters,” “Difference, What Difference?” and “Culture.”

Many of the “Science” answers were wonderful textbook material, seemingly from those well root-ed in science. They were clear, to the point, objec-tive, and unencumbered by emotion. I envision these as coming from the R&D crowd. Some examples from this group on how to define biotechnology today:

• “The discovery and application of innovations to problems involving biology.”

• “Engineering biologically active molecules that are not obtainable by standard organic chemistry (e.g., small chemical molecules).”

• “Work at the genomic level, i.e., DNA, protein.”

• “The use of the tools of molecular biology to develop a view of the molecular basis of disease as well as to create therapeutic or diagnostic products to aid in the diagnosis or amelioration of disease.”

• “The use of molecular techniques to under-stand biologic processes to discover and develop new pharmaceutical agents.”

Size Matters

So it’s pure science, a matter of small molecules vs. large molecules? It’s big vs. small alright, said the “Size Matters” group, but they’re talking about company size. Here are some of their thoughts:

• “I think it’s no longer a technology distinction. People seem to think of smaller, more entrepre-neurial companies as ‘biotech’ whether they’re actually biotech or pharma, and vice versa.”

• “Still a size difference. Will I ever consider Genentech or Amgen [as] a pharma? Probably not. But more because of their history than true differ-ences from pharma (which are getting smaller all the time as both sides move towards each other).”

• “The bulk of biotech [companies] are smaller and devote more effort to novel solutions — and they make less money.”

• “[The difference is] as much a function of a company’s size, management structure and how it is funded. ‘Biotechnology’ is often short-hand for either VC or small post-IPO loss, making R&D companies that have no revenues or rely on a big pharma partner to market their product(s).”

But there also was a substantial contingent who saw little if any difference between big pharma and biotech. Witness comments from the “Difference, What Difference?” group:

• “Excepting the fact that some biotech compa-nies are still looking for mergers and money, the differences disappear and it seems that only a few original biotech companies remain on the market. Many of them will just disappear without leaving a fingerprint and many others will be acquired by the big pharma players where biotech is ‘only’ a division.”

• “Biotechnology still to me means ‘biologically derived drugs’ rather than what it mainly encom-passes — start-up or ‘small’ pharma companies, using ‘biology’ to get small molecules or develop platform technologies, etc. I think the descriptor became blurred about 15 years ago, driven by fin-anciers. Many (most) companies bridge all areas; e.g., you can have a drug discovery company which uses RNA biological assays to discover small molecules! So at one end biotech is just biologicals (or applications of it), at the other biotech is just another word for small pharma.”

Nimble, Less Risk Averse

And finally come the “Culturalists,” those who despite the realities of modern business needs hold on to the idea that biotech is different, and insome important ways better. Their comments:

• “Even though both parties practice the other’s game (Pfizer funds Goodman’s biotech institute; Genentech or Amgen compete in the large phar-ma world), biotech connotes a nimble, data-driven and perhaps less risk averse organization than pharma — often because biotech is carrying less ‘fixed costs and baggage.’”

• “I think that too many people in pharma don’t understand the biological, physiological and med-ical implications of most disorders. Pharma is pop-ulated by medicinal chemists. They can beat a problem to death, but don’t know what the prob-lems are. Most management positions are medici-nal chemists.”

• “Pharma companies have too many manage-rial levels, no entrepreneur spirit and biotech companies are just the opposite: innovative and productive.”

• “Biotech companies take more calculated risks and develop more novel therapies or drug delivery systems than most pharmaceutical companies.”

• “Biotech companies retain a spirit which allows them to work on the more complex problems of molecular medicine.”

Emerging Markets for Biotech

Readers also provided insight into which countries and regions outside the U.S. will most affect the biotech industry in the next five years. India was the winner, followed closely by China. Other notables getting votes included Brazil, Singapore, South Korea and Japan. The reasons? Most readers said the booms would be due to the lower costs in those countries.

Trends Driving the Market

We also asked you to provide input on what trends will drive the biotech market through the next 10 years. The front-runner was, hands-down, person-alized medicine, including combination diagnostic-therapeutic products. The next biggest trend was expected to be consolidation, in particular, more mergers between biotechs and big pharma.

Affordable health care and making biopharmaceu-ticals competitive so that health insurance compa-nies can afford them also are on readers’ radars. Rounding up the most important issues were: pro-tein therapeutics, biosimilars, stem cells, aging, biofuels and bioplastics.