Breaking the mould - the biotechnology industry in 2005

Revolutionary discovery, over-hyped promises and a boom and bust business model. The biotechnology industry has seen it all over its relatively short life span, but what state is it in as we approach the end of the year?

In the thirty years since Genentech, one of the first significant biotechnology companies, was founded, biotechnology has grown to become a multibillion dollar, global presence. By 2004 the industry was generating nearly $55 billion in revenues and employing 180,000 people in 4,400 companies. It also spent an impressive $20 billion on research and development in that year.

As the country that produced Genentech, the US continues to dominate the industry, accounting for nearly eighty per cent of all the revenues from biotech companies around the world. Its nearest rival is Europe with just 14 per cent of global revenues.

The biotech industry is effectively the engine room of pharmaceutical discovery and consequently has to attract a great deal of investment to fuel its output.
In a recent survey by the BIA, the UK’s industry body, 76 per cent of CEOs said raising money was their dominant concern.

In 2004 the global biotechnology sector raised its second largest amount ever, as reported at the annual London Genesis meeting in December 2004. This was $21 billion, of which the largest single contribution was $5 billion from venture capital. In the US alone, biotech now takes 20 per cent of all the venture capital invested in the country’s industries.

Thirty years on, the biotech industry is now achieving critical mass in products brought to the market.  From the early recombinant proteins which brought us human insulin and human growth hormone, a second wave of products has been based around monoclonal antibodies. Several  of these came on the market in 2004, including Genentech’s Avastin, ImClone’s Erbitux, and Abbott’s Humira – an antibody discovered at UK biotech firm, Cambridge Antibody Technology..

The much vaunted era of personalised medicine based on specific genotypes is starting to become a reality with the arrival of  Genentech’s Herceptin and Novartis’ Gleevec to treat cancers identified by specific gene markers.  The next medical breakthroughs attracting attention are therapeutics based on gene-blocking RNA interference or stem cells being used to generate new bone or organ tissue.

2003 saw a surge in new product approvals and 2004 has continued the trend with 36 products approved for launch in the US alone and nine in Europe. Importantly, between the two regions, there were also about 400 products in the final stages of clinical trials, Phase III. 

It is this line-up of new products and well advanced developments that the capital markets like to see and so in 2004 biotech shares outstripped their pharmaceutical counterparts and investors once again put money into initial public offerings.  About $2 billion was raised globally in these new flotations compared to $450 million the year before.  The Asia-Pacific region also attracted about $500 million for IPOs in Australia, Japan and India.

The changing biotech business model

The classic model for a biotechnology company is based on drug discovery. In this model the company would be unprofitable, burning cash from day one and having to get outside funders to provide it with working capital. The lead compound would usually be developed up to Phase II clinical trials, when it might attract development funds from a Big Pharma partner. The company would probably not break even until it either achieved a stock exchange flotation or launched a first product.

Variations on this biotech business model have sprung up over the years: to survive, companies have changed their platform technologies, in-licensed drugs to provide an earlier revenue stream, or merged to share risk or broaden product portfolios.

The Top Ten Biotechnology Companies
Amgen
Genentech
Serono
Biogen Idec
UCB-Celltech
Genzyme
Gilead
MedImmune
Chiron
Millennium
(Source: Research & Markets Ltd)

Renewed investor interest

Biotech’s history is a pattern of boom and bust with the sector in favour when some revolutionary discovery hits the headlines and out again when it doesn’t deliver on over-hyped promises.  When, for instance, the human genome project reached completion in 2000, mapping all the genes in one ‘hybrid’ human being, there was a surge of interest in the sector. When it then became evident that this was not the instant solution to finding cures for all our diseases, interest waned again. When this happens shares obviously suffer and there are fewer companies able to take their companies public to raise new funds and increase their visibility.

As the key funders of private biotechnology companies, the venture capitalists, also see their exits disappear and their returns become more protracted. Many are having to raise new funds more often and contemplate staying with their investments for as long as twelve years. 

“Even in today’s buoyant market, the focus for VCs in 2005 is on companies with mid to late stage products in development and that of course makes it harder than ever for the early stage companies to raise money,” says Jeremy Curnock Cook of Bioscience Managers. 
 

Partners in drug discovery

Alongside the growth of the biotech and drug discovery industries have grown the companies which have developed the enabling technologies to support drug discovery and development.  Since the genome mapping in 2000, the process is gene-focused and much more specific in its approach.  High throughput screening for instance has changed from tackling 100s of screens a day to 100s of thousands and this has been made possible through improved technology such as fluidics and fast fluorescence detectors.  But more to the point, the screening of compounds is now done against validated disease targets.

Sigma-Aldrich with its fifty years perspective of supplying the drug discovery industry has seen the industry’s outsourced needs change as the technology of discovery has been revolutionised by genomics and systems biology. While the genome has led to a more focused discovery process, the discovery of RNA interference has made a significant contribution to discovering and validating drug targets, as well as holding promise as a potential new entity for actual therapeutics.

From its St Louis-based state of the art production facility, Sigma-Aldrich supplies as many as 9,000 RNAi vector constructs and has recently added more scope to this, with its new licence from MIT to produce and distribute RNAi products from the Boston- based RNAi Consortium.

In Sigma’s own long history it has recognised that while the industry needs its traditional consumables, it also has more complex or bespoke requirements to support exploratory research or manufacturing scale-up for clinical trials.

Industry challenges

The regulatory environment in Europe is getting more demanding in areas such as clinical trial transparency, but easier with de-centralised competition law. And
while the tussle over export quotas continues, recent rulings recognise the special case of the pharma industry in its attempts to stem parallel imports,

But it is the drug development process itself that impinges more immediately on the biotech industry. The president of Novartis Institute for BioMedical Research, Mark Fishman, was quoted recently in BioCentury, the specialist biotech newsletter, saying that “the key to innovation is not inventions and new technologies, but novel ways of thinking about and organising the drug discovery process.”

Jonathon Knowles, president of research at Roche in the same article, makes the interesting point “that yield can be improved by bringing biology and physiology into play well upstream.”  Greater emphasis on medical outcomes suggest that drugs should be trialled with patients much earlier in clinical trials and at the other end of the process that drugs should be given provisional licences and be put to the test in a controlled framework in the patient populations of the wider market place.

Aside from managing the drug discovery process, the industry also has to look ahead at the pricing policies of healthcare purchasers.

Pricing policies on drugs varies from country to country.  The UK has introduced an extra level of scrutiny of drugs with Nice, the National Institute of Clinical Excellence, which decides which new drugs it will recommend to be added to the
national pharmacopoeia. Germany has a similar body. So even when a drug has fought its way through the war of attrition that is the drug approval process, it may still not be universally marketable.

Back to Novartis’ Mark Fishman, “In the long run, we will have to rewrite the whole grammar of drug discovery to incorporate all the knowledge about the genome. That will require novel ways of thinking around molecular pathways, not organs, which will completely change the early process of drug discovery.”

There is no doubt that all countries want the innovations that biotechnology promises and has already been delivering.  So changes are very likely to appear on the horizon if this valuable engine is to be kept running efficiently.

By Fiona Brown