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Biotech reinvented - where do you go from here?

Pharmaceuticals and Life Sciences Biotech reinvented Where do you go from here? Table of contents Table of contents How well has Biotech really done? A business model that's bust? Blurring boundaries Putting up a united front The size of the prize Making the sums add up Acknowledgements Biotech Reinvented Table of contents arena – and reinvent itself by adopting launched, and some of these therapies a more collaborative approach. In have proved very effective in treating The biotechnology industry (Biotech) is the following pages, we'll look at the complex conditions.4 Five of the 10 top- now about 30 years old – a long enough main trends dictating the need for selling medicines in 2009 originated in time in which to evaluate how it's done. a new way of conducting research Biotech's labs (see Table 1).
Unfortunately, despite some notable and development (R&D), and two The bad news is that Biotech hasn't successes, it hasn't completely fulfilled organisational concepts that would help made a significant difference to biopharmaceutical companies become Pharma's productivity, measured in far more efficient. We'll also touch on The business model on which Biotech terms of the number of new treatments the implications for other parts of the has historically relied is also breaking reaching the market. Between 1950 value chain.
down, as the research base moves east and 2008, the US Food and Drug and raising funds gets harder. And the Administration (FDA) approved 1,222 distinctions between Biotech and the How well has Biotech
therapies (1,103 small molecules and 119 pharmaceutical industry (Pharma) are large molecules). Given that it takes about disappearing, with the convergence really done?
10 years to develop a drug, the total of the two sectors. But Biotech can't number of approvals should have started turn to Pharma for guidance because If the birth of modern biotechnology rising in about 1990, if Biotech had Pharma's business model has other can be pinned down to any particular succeeded in improving Pharma's output. flaws – as we explained in "Pharma date, it's probably 1980, when the US But, as Figure 1 shows, the number
2020: Challenging business models", Supreme Court ruled in Diamond v. of approvals has remained broadly the White Paper we published in April Chakrabarty that a genetically modified 2009.1 So what should Biotech do? microorganism could be patented.2 The reason's simple: Biotech hasn't Amgen was formed the same year, and We believe it should capitalise on the reduced the inherent risk in drug Genentech (now part of Roche) was opportunities emerging in the healthcare discovery and development. Average four years old.3 Since then, Biotech development times for the kind of has profoundly changed the sort of molecules on which biotech firms What is Biotech?
research Pharma conducts and the sort generally focus – i.e., recombinant of products it makes (see sidebar, What proteins and monoclonal antibodies – are Biotech isn't a distinct sector so is Biotech?). But how well has Biotech slightly longer than they are for small much as it's a collection of disruptive molecules (97.7 months versus 90.3 technologies for discovering and developing new medicines, and The good news is that it's produced months). Average development costs diagnosing and treating patients some valuable new platform are much the same (US$1.24 billion more effectively. We're going to technologies and treatments. RNA versus US$1.32 billion). And the overall focus here on Biotech's business interference has, for example, provided success rate is still only 9.1%, compared model – more specifically, its impact a way of analysing gene activity to with 6.7% for a small molecule.6 In other on pharmaceutical productivity, and identify novel disease targets. More words, biotech companies don't develop its sustainability (or otherwise) in than 100 different recombinant new medicines much more quickly or the current economic and scientific protein-based drugs and at least 40 economically than pharma companies do.
‘companion' diagnostics have also been Table 1: The best sellers of 2009
Therapeutic Subcategory Worldwide Sales ($m) Anti-hyperlipidaemics Chiral chemistry Platelet aggregation inhibitors Small molecule chemistry Other bronchodilators Small molecule chemistry Other anti-rheumatics Recombinant product Angiotensin II antagonists Small molecule chemistry Other anti-rheumatics Monoclonal antibody Anti-neoplastic MAbs Monoclonal antibody Anti-neoplastic MAbs Monoclonal antibody Other anti-rheumatics Monoclonal antibody Small molecule chemistry Source: EvaluatePharma Figure 1: A flat performance
Impact of faster more productive biotech should have started Small molecules (NMEs) here. An increase in productivity has not Number of NMEs or NBEs 10 Source: Bernard Munos, "Lessons from 60 years of pharmaceutical innovation" Biotech Reinvented A business model that's
Figure 2: Biotech's business model
Venture Capital + Enterpreneurial Source Worse still, the business model on which Biotech has relied for the past 30 years is now breaking down. This model is based on external investment – typically, venture capital – in an innovative idea arising from an entrepreneurial source, often a group of academics (see Figure 2). It assumes
that investors can realise value through one of two routes: flotation on the public markets or, more frequently, a trade sale to an established pharma company. And it carries a very high risk of failure. In one recent study of 1,606 biotech investments that were realised between 1986 and 2008, 704 investments resulted in a full or partial loss, while 16 only covered their costs.7 The same study shows that the gross rate of return on these 1,606 biotech investments was 25.7%, compared with a pooled average return of 17% Figure 3: Big variations in cash multiples
on all venture capital invested over the same period. But costs and the ‘overhang' from unrealised investments reduced the net rate of return to about 15.7%, and there were huge variations in the cash multiples earned by the 886 investments that made a profit (see Figure 3).8 Ten-year returns have
also deteriorated dramatically since 2008. The average return on a 10-year investment ending in December 2008 was 35%, thanks to the lingering effects of the technology bubble. In March 2010, it had plummeted to -3.7%.9 So what distinguishes the successes from the failures? Our analysis of the companies behind some of the top- Source: Iain Cockburn & Josh Lerner, "The Cost of Capital for Early-Stage Biotechnology Ventures" (2009) selling biologics on the market shows Note: Figures include all exited biotech deals as of December 31, 2008 they have several common features. Figure 4: Asia's higher degrees of change
Most of them started up in the US in the late 1970s and 1980s, floated very early in their history and raised a substantial amount of funds in the process. They were all subsequently acquired by big pharma companies, and the products they make are now marketed by one or more such firms (see Table 2).
However, many of the external conditions that enabled these biotech companies to thrive are rapidly vanishing. The research base is shifting geographically, the emerging economies are competing more aggressively and financial investors are getting more Source: US National Science Foundation Note: Data are for 1999-2006 in the case of France and 1998-2005 in the case of India The research base is moving East, as
Asia's emerging economies invest more
in higher education and the ‘reverse
brain drain' picks up pace. Between
1998 and 2006, the number of students
graduating with doctorates in the
physical and biological sciences soared
43% in India and a staggering 222%
in China, far outstripping the rate of
increase in the West (see Figure 4).10
The ‘returnee' trend has been equally
Table 2: Winning ways
Originator Company Product Origins in Initial Public Well Roche/ Biogen Idec Sources: PricewaterhouseCoopers and EvaluatePharma Biotech Reinvented pronounced. In the past two decades Capital constraints venture capitalists – particularly about 100,000 highly skilled Indian and European venture capitalists – from Chinese expatriates have left the US for The recession has also made it much investing in the sector. In 2009, the their native countries. Another 100,000 more difficult for biotech companies amount of venture capital raised by are expected to follow them in the next in the developed economies to raise biotech companies based in Europe five years, as the opportunities at home capital. In 2008, Biotech raised just was just €800 million ($1.1 billion), less $16.3 billion in the US, Europe and than at any time since 2003.17 And Canada – 45% less than the previous money's likely to remain very tight, as Hotter competition year. The situation improved in 2009, most biotech executives recognise; but the total amount raised fell well 84% of the participants at a recent Some of the emerging countries are short of historical levels, and nearly half biopharmaceutical conference thought also actively building domestic biotech of it went to a handful of established funding was the industry's single industries. Singapore launched its public companies in follow-on offerings Biomedical Sciences Initiative in 2000 biggest challenge.18 (see Table 3).15
and has already created a powerful They've got good reason to worry. biopharmaceutical nexus. South Korea There are plenty of other signs of the According to one estimate, 207 of set up a similar scheme in the late toll the past two years have exacted. the 266 private and public European 1990s, and has earmarked $14.3 billion In 2009, for example, 10 biotech firms biotech companies with products or for its ‘BioVision 2016' programme.12 (including the highly regarded deCODE platform technologies in the clinic or China has invested $9.2 billion in genetics) filed for bankruptcy in the US, already on the market urgently need technological R&D, including biotech, while another nine firms closed up shop to raise funds – and they need a good in the last 18 months alone.13 And India without being officially bankrupt.16 And $4.8 billion between them.19 Given that is currently exploring plans to become though financing conditions have now the total amount of European venture one of the world's top five biosimilars started easing, most industry observers capital invested in the sector was just producers by 2020.14 believe the window for initial public €501 million ($666.6 million) in the first offerings won't open again anytime soon.
What's more, many of the companies half of 2010, it's very doubtful they'll all based in the emerging economies This has inevitably deterred many aren't just imitating the West; they're learning from its mistakes. They're dispensing with the costly infrastructure that burdens companies in developed Table 3: Fundraising below pre-recession norms
countries to create new business models that are leaner and more economical, as well as pioneering Initial Public Offerings innovative products and processes. Follow-on Offerings So the US is gradually losing its pre- eminence as a centre of biomedical research. It still leads the way and is likely to do so for at least another five years. But it's no longer the only gorilla Source: Ernst & Young, Beyond Borders: Global Biotechnology Report, 2010 Note: Numbers may appear inconsistent because of rounding Blurring boundaries
– up from a third in 2000-2002 – and following suit, while Novartis has moved the industry leaders have piled in even its research headquarters to Cambridge, However, yet another change is more heavily over the past year.23 In Massachusetts, and hired a Harvard taking place: the boundaries between November 2009, for example, Pfizer professor to run it.26 Biotech and Pharma are blurring. One licensed the rights to a new treatment So Biotech and Pharma are effectively sign of the change is the fact that for Gaucher disease, a condition fewer becoming one industry – the several large pharma companies have than 6,000 Americans suffer from.24 biopharmaceutical industry – although In February 2010, GlaxoSmithKline established corporate venture capital there's a limit to how far Pharma can go launched a standalone business unit for arms specifically to make strategic, down the Biotech route. First, biotech orphan drugs, and Pfizer did likewise a as opposed to financial, investments companies typically perform a few key few months later.25 in Biotech. Novartis has created an trials, rather than using the belt-and- option fund with the right to in-license Some of the oldest biotech companies braces strategy favoured by Pharma. innovative products or technologies are simultaneously repositioning This is partly because most of them from the companies it backs, for themselves as biopharmaceutical have fewer resources. It's also because example.21 Similarly, Merck Serono companies, and several pharma small companies are less likely than has set up a fund ‘to support scientific companies are restructuring their R&D large companies to ask for scientific excellence in [its] core fields of interest functions to emulate Biotech's more advice from the regulators and, even and provide start-up companies with entrepreneurial approach to discovering when they do ask, they're less likely to comply with the advice they get.27 the opportunity to interact' with it.22 new medicines. GlaxoSmithKline started this trend in 2000, when it divided But biotech companies pay a price for Many pharma companies are also thousands of its researchers into groups taking the fast route, with much higher focusing on developing biologics and of 400 or so and gave them their own failure rates in late-stage development specialist therapies for orphan diseases, budgets to manage. It subsequently (see Table 4).28
because they offer a faster and more created even smaller Discovery Second, therapies for very small patient focused route to market. In 2006-2008, Performance Units of 20 to 60 people, populations can't deliver the returns Big Pharma produced more than half each focusing on a different disease produced by mass-market medicines, the orphan drugs approved by the FDA or technology. AstraZeneca is now unless they're sold for very high prices. However, patients in many countries can't afford such prices and, even in Table 4: Biotech companies fall more often at the final post
more affluent markets, cash-strapped healthcare payers are pushing back. FDA Percentage of The European Union recently altered approvals FDA approvals failures Phase III failures its orphan drug law, for example, to let regulators reduce the 10-year period Biotech-pharma alliances of market exclusivity for orphan drugs, Acquisitions/licences by pharma where they think the profits from non-orphan indications are ‘unseemly'.29 In short, the external conditions that Source: Elizabeth A. Czerepak & Stefan Ryser, "Drug approvals and failures: implications for alliances" (2008) helped produce a drug-discovery Note: All products were approved for the first time by the FDA between January 2006 and December 2007 powerhouse like Genentech have all Biotech Reinvented but disappeared. Pharma can't copy because each has access to only one agencies, universities, academic Biotech's discovery and development part of the biochemical puzzle. This medical centres, research institutes and methodology too closely and, even not only slows down the discovery and patient groups. They aim to overcome if it could, Biotech hasn't brought a development process, it also increases common bottlenecks in early-stage golden era of productivity that would costs, as numerous organisations biomedical research by enabling the justify doing so. All biopharmaceutical replicate the same studies on the same participants to piece together the companies – whether they're targets. Conversely, collaboration scientific data on the pathophysiology biotechnological or pharmaceutical in accelerates and facilitates the process, of specific diseases and potential origin – will ultimately, therefore, have to and two new concepts – precompetitive targets sitting in their separate adopt a very different business model. discovery federations and competitive organisations (see Figure 5).
development consortia – lend A number of precompetitive discovery themselves to just such an approach.
federations have already been Putting up a united front
established. Most of these collaborations Precompetitive discovery have been set up fairly recently and So what might such a model look lie towards the philanthropic end of like? If it's to be successful, it's got the spectrum. They focus on areas to be more efficient – and one way of Precompetitive discovery federations of unmet need in the less developed becoming more efficient is to become are public-private partnerships in which world or diseases for which it's more collaborative. Sequestering biopharmaceutical companies swap particularly difficult to develop safe, intellectual property in different knowledge, data and resources with effective medicines. Alternatively, organisations impedes innovation, one another, as well as with government they aim to make a particular region Figure 5: Precompetitive discovery federations facilitate and accelerate innovation
Biopharmaceutical Alzheimer's disease Precompetitive Discovery Federations more competitive (see sidebar, they do will be performed virtually, Connecting the dots).
Connecting the dots
as the world becomes increasingly one such alliance has already proved interconnected. And each federation In early 2010, Eli Lilly, Merck and an outstanding success. This is the will be disbanded once it's solved the Pfizer formed the Asian Cancer Structural Genomics Consortium – problem it was set up to deal with, Research Group to promote research backed by GlaxoSmithKline, Merck and although the insights it generates on lung and gastric cancers, and other Novartis, among other organisations – will live on – just as filmmakers form forms of cancer commonly found in which published 450 protein structures syndicates to produce different films Asia. The three companies plan to within three years of starting work, and and the films they create outlast the create one of the ‘most extensive aims to publish another 660 structures syndicates themselves. pharmacogenomic cancer databases known to date' over the next two There are many advantages to this years. Meanwhile, the Coalition Translating such findings into useful approach. It would enable each Against Major Diseases is focusing new therapies is another matter – participant to save money by investing on the development of quantitative and it's much too early to assess the less than it would have to do to support disease progression models impact of precompetitive discovery its own internal research or exclusive for complex neurodegenerative federations in terms of reducing lead external research programme. It would diseases like Alzheimer's disease times and costs, or treating intractable also reduce unnecessary duplication, and Parkinson's disease. And the diseases. Nevertheless, the industry help all the participants make faster, Innovative Medicines Initiative (IMI) is clearly isn't averse to the idea of better progress by combining their orchestrating the European Union's collaborating, and we think that, by insights and permit them to take more efforts to address major obstacles 2020, all precompetitive research will be informed investment decisions. To put it in drug discovery by pooling the conducted in this way. another way, precompetitive discovery resources of biopharmaceutical Experts from numerous organisations federations could end the "current modus companies, research institutions and will assemble to solve a specific operandi in which commercially driven patient groups throughout Europe. It problem, regardless of whether they clinical trials fall like dominos in the clinic has a €1 billion grant from Brussels work in industry or academia, and – to the detriment of each company, to and is currently supporting 15 whether they live in the Americas, the detriment of the patients and with research alliances. Europe or Asia. Much of the work relatively little [shared] learning".32 Biotech Reinvented Table of contents Of course, determining the boundaries The potential cost savings might also Competitive development between precompetitive and prove incentive enough to stimulate competitive research is difficult – and a new attitude to intellectual property opinions will vary, depending on the management. Pharma companies The discovery process isn't the only interests of the respective parties. typically patent all the information they area of scientific R&D that would Nevertheless, it's possible to see how hold to block their rivals from working benefit from closer collaboration. some of the lines might get drawn. in the same area. But evidence from The development process could also Data preceding the point of filing for a other industries suggests that most be improved with the introduction of patent (e.g., data on genes, pathways patents remain uncommercialised; competitive development consortia and bioactivity) could provide various Siemens and Procter & Gamble recently (as we've called them) in which rival opportunities for precompetitive reported, for example, that they've only biopharmaceutical companies join collaboration, for example. And some used 10% of their patent portfolios.34 forces with each other, as well as with companies might well be prepared to go It would therefore be far more sensible contract research organisations and considerably further. GlaxoSmithKline is for all companies to segment their platform technology providers (see one such instance; it recently proposed information into three categories: Figure 6). At present, four or five firms
an industry-wide, open-access ‘patent information they can openly share; often focus on the same target at the pool' and offered to license all its information they can safely sell to a third same time, and each might develop patented knowledge for free, as long as party; and information they plan to use two or three compounds to hit that the knowledge is used solely to develop target. But if they pooled their portfolios, treatments for neglected diseases in the they could concentrate on the best 50 poorest countries.33 drug candidates, regardless of which Figure 6: Competitive development consortia minimise waste and enhance productivity
Contract Research & Platform Technology Providers Competitive Development Consortia company had invented them, thereby and securely – have been extensively New best friends
eliminating a great deal of waste.
documented. Making sense of disparate pieces of information and identifying AstraZeneca and Merck recently Big Pharma has traditionally shied away meaningful correlations between embarked on a landmark partnership from such arrangements, yet competing superficially unrelated phenomena is still to develop a combination therapy heavyweights in a number of other an incredibly labour-intensive task.
for cancer, with each contributing an industries have successfully come investigational compound to the mix. together to develop new products. However, solutions to all these problems Combination therapies for cancer General Motors, Daimler and BMW are slowly emerging. The Human are common, but they're usually collaborated to create the hybrid Proteome Organisation's Proteomics tested late in clinical development or petroleum-electric powertrain solution, Standards Initiative has already after registration. Or a new potential for example. And there's evidence released standards for representing and treatment is tested in combination that some large pharma companies exchanging proteomic data from mass with the standard therapy. However, may now be willing to take a more spectrometry, molecular interactions AstraZeneca's compound was still in open stance (see sidebar, New best
and protein separation techniques, Phase II, and Merck's compound had friends).36
for example, while the Clinical Data only been tested in 100 people when Interchange Standards Consortium the two companies decided to join Robust data aggregators (CDISC) is developing standards for exchanging clinical research data The success of precompetitive and metadata, and various other data They entered into a staged agreement, discovery federations and competitive standards are well underway.37 beginning with preclinical trials. When development consortia clearly hinges the results proved promising, they on the existence of data aggregators Similarly, use of semantic technologies decided to collaborate further and capable of collecting and synthesising for integrating and analysing data jointly devised a plan for testing the data from all the participants in a is growing. Johnson & Johnson is treatment in Phase I trials. Under the particular group. No such organisations conducting a pilot semantic project to terms of the deal, the two companies currently exist. Nor, indeed, do some capture metadata on biological data will share the decision rights and of the tools required to manage vast sources and make the information costs, and any intellectual property amounts of biological and chemical data.
easier to retrieve.38 Pfizer, Merck, that arises from the collaboration. The Novartis and Eli Lilly are also The challenges – including the sheer big question is how the regulators will experimenting with the semantic web.39 heterogeneity of the data, lack of respond if they're successful, since And technologies like cloud computing data standards, limitations of the nobody has ever co-registered two are evolving to create a secure, reliable available data-mining technologies and unregistered drugs before.
and flexible infrastructure for sharing immaturity of the IT platforms needed data and applications.
to let researchers share data easily Biotech Reinvented Meanwhile, several big technology ‘innovation culture' is equally important. industry researchers need discoveries providers have entered the In view of the investment levels and that have commercial potential. And computational bioinformatics space. risks associated with drug discovery it's all too easy for a biotech company IBM leads the way. It's currently and development, all the members of a with a single platform technology or engaged in about 20 projects, ranging precompetitive discovery federation or molecule to overvalue its intellectual from the development of sophisticated competitive development consortium property. It's only by understanding analytical tools to original research will need to be agile, willing to explore such differences in perspective and on ‘junk' genes and RNA interference new ideas and open to insights negotiating fairly that a precompetitive in eukaryotes and viruses.40 Oracle, produced outside their own walls. discovery federation or competitive Hewlett-Packard and Intel are also Senior management will also need development consortium can prosper.
actively focusing on bioinformatics. to encourage creative brainstorming, If the venture capital industry is to play networking, calculated risk-taking, Some formidable obstacles remain, a major part in the future of biotech, it experimentation and questioning of the but we believe these companies will have to be more pragmatic, too. The will eventually play a major role in most successful funds aim for returns of analysing genomic and clinical data two to four times the initial investment, to help individual consortia research A new spirit of realism which is the equivalent of a compound new medicines and the regulators annual growth rate of 7-15% over a That's not all. If this new business evaluate submissions more accurately. typical 10-year investment period. By model is to work, it will require greater Some of them may even assume way of comparison, the FTSE Small- realism on the part of everyone responsibility for developing disease Cap Index generated a total annual involved. Biotech executives and models and predicting the interaction of return of 1.1% between May 2000 and academics sometimes complain of Big different molecules with a given target. May 2010 – evidence of just how high Pharma's ‘arrogance', for example.43 We outlined how this might work in the bar has been set.44 But size isn't everything and the biggest "Pharma 2020: Virtual R&D", where we pharma companies can't expect to have discussed how the largest technology everything their own way. So they'll vendors could host ‘virtual patients' on The size of the prize
need to become more flexible. behalf of the industry as a whole.41 The research institutes and biotech So there are some considerable cultural, An innovation culture firms they join forces with will also need behavioural and practical hurdles, to have more realistic expectations. and some of them may be difficult to Reliable data aggregators aren't the Whereas academic researchers prize overcome. But we believe they're well only prerequisite for success; an scientific knowledge for its own sake, worth resolving, given the rewards collaboration can bring. It's no accident would cut R&D costs by about $160m, medical centres will be responsible for that IBM has doubled its software as well as accelerating market launch generating original ideas and providing revenues to more than $20 billion, since by nearly five months. In fact, a 5% disease biology and platform embracing open-source computing.45 improvement in phase transition rates technologies on a fee-for-service basis.
alone would trim about $111m from Precompetitive discovery federations The biggest companies will thus benefit and competitive development by getting access to more innovation, consortia could collectively enable However, the participants would profit cutting their costs and becoming more the biopharmaceutical industry to use individually, too. We envisage that the productive – improvements that will help precious resources more intelligently, largest biopharmaceutical companies them fend off criticism from healthcare make more astute investment decisions will be responsible for coordinating and payers and patients angered by the and develop better medicines more funding the federations and consortia in high prices of many new medicines. economically (see Figure 7). Even
which they participate. They'll also draw Meanwhile, the smaller ones will get incremental improvements could yield on their huge compound libraries to more stable, long-term financing, significant savings. We estimate that, develop new molecules and shepherd better opportunities for benchmarking given average development costs and them through the regulatory evaluation the value of their own contributions lead times, a 5% increase in success process to the marketplace. Meanwhile, and access to critical regulatory and rates for each phase transition and a smaller biopharmaceutical companies, marketing skills. 5% reduction in development times research institutes and academic Figure 7: Greater collaboration will help everyone
Competitive Development Consortium Discovery Federation • Systems biology • Molecule invention and protec- • Clinical testing in the most ap- • Disease analysis and modelling propriate environment • Much higher probability of suc- • Shorter development time due • Functional proteomics cess as a result of the work of to live licensing • Predictive screening • Lower cost as a result of higher probability of technical and commercial success Fewer, more certain Transparent testing Better cheaper treatments Biotech Reinvented Table of contents Chain links
The shift from product provider to Making the sums add up
outcomes manager has yet more We've focused on R&D so far, but consequences. Information will The English philosopher Thomas greater collaboration will be required become as important a part of the Hobbes famously described life in the in the rest of the value chain, too – sales proposition as the products 17th century as ‘nasty, brutish and and any company that masters the themselves, and much of the short'.48 Healthcare has come a long art of working closely with other R&D information that's generated will come way since then; life expectancy at birth organisations will have a head start from external sources. In effect, each is now at least 75 years in large swathes over its competitors because it will be biopharmaceutical company will need to of the world, compared with 35-40 able to apply the lessons it's learned create its own information supply chain years when Hobbes was writing his to the other parts of its business. Take and manage it as carefully as it does Leviathan.49 But greater longevity brings commercialisation. Most treatments manufacturing and distribution.
new challenges, and few people can perform much better in clinical trials The changes taking place in the afford to pay many thousands of dollars than they do in everyday life, and traditional supply chain have similar for the most advanced treatments. healthcare payers almost everywhere implications. Biologics are much more Hard-pressed governments with a are demanding more for their money. difficult to make and move around growing number of elderly citizens will The opportunities for generating value than small molecules because they're be equally unable to foot the bill. So, from standalone products are therefore more susceptible to impurities in the if we're to make the most of the years getting smaller. production process and more vulnerable we've gained, more effective, more economical medicines will be vital – That means biopharmaceutical to damage during shipping. And since and that entails collaboration between companies will have to switch from most such therapies can't be taken everyone concerned.
selling medicines to managing orally, new delivery devices – e.g., micro outcomes. They'll have to bundle needles, magnetically targeted carriers, different products together and nano-particles and polymer capsules – supplement their therapies with health are being developed. But these devices management services like compliance are also hard to manufacture.
monitoring, dietary guidance and fitness The industry will therefore have to regimes. However, most companies collaborate much more extensively, both won't be able to create packages of with contract manufacturers capable of branded medicines and generics for making biologics and complex devices, different conditions singlehandedly, and with specialist carriers capable of so they'll have to collaborate with transporting sensitive pharmaceutical rival manufacturers. And few, if any, freight in cold-chain conditions. If it's to companies will be able to deliver all capitalise on the increasing prosperity of the services patients need, so they'll the emerging markets, it will also have have to collaborate with numerous to build a much more geographically other organisations, including hospitals, dispersed supply chain – and it will only clinics, technology vendors and lifestyle be able to do this by joining forces with service providers.47 local manufacturers and service providers.
We would like to thank the many people at PricewaterhouseCoopers who helped us to develop this report. We would also like to express our appreciation to all those external experts who so generously donated their time and effort to the project including: Barrie Ward, Board member, Onyvax, Cancer Research Technology, Pharming Group N.V. Cheryl Bishop, Business Development Manager, Roche Pharmaceuticals Clive Birch, former PwC UK Life Sciences Leader Mr David Dally, CFO, Merlion Pharmaceuticals Pte Ltd.
Gordon Cameron, CFO, Quotient Biosciences Ms Nandita Chandavarkar, Director, Association for Biotechnology Led Enterprises Peter Keen, Non Executive Director, Ark Therapeutics Ray Spencer, Founder & CFO, Saturn BioSciences Ltd; Founder & Director, MGB Biopharma Ltd Rob Arnold, Chairman, Clasemont Limited (& former PwC Life Sciences Partner) Sam Smart, Independent Consultant Dr Vijay Chandru, President, Association for Biotechnology Led Enterprises.
The views expressed herein are personal and do not reflect the views of the organisations represented by the individuals concerned.
Biotech Reinvented Table of contents 1. PricewaterhouseCoopers, "Pharma 2020: Challenging business models" (April 2009).
2. Diamond, Commissioner of Patents and Trademarks v. Chakrabarty, United States Supreme Court, June 16, 1980 447 U.S. 303, 206 USPQ 193.
3. Amgen website, http://www.amgen.com/pdfs/Fact_Sheet_Amgen.pdf; and Genentech website, http://www.gene.com/gene/about/corporate/ 4. Medco, "2010 Drug Trend Report", p. 46; and Jeanene Swanson, "Companion Diagnostics Take Off," Genome Technology (October 2009), http:// 5. Bernard Munos, "Lessons from 60 years of pharmaceutical innovation", Nature Reviews Drug Discovery, Vol. 8 (2009): 959-968.
6. Joseph A. DiMasi, "Costs and Returns for New Drug Development", FTC Roundtable on the Pharmaceutical Industry (Washington DC, United States: October 20, 2006), http://www.ftc.gov/be/workshops/pharmaceutical/DiMasi.pdf; and Joseph A. DiMasi & Henry G. Grabowski, "The Cost of Biopharmaceutical R&D: Is Biotech Different?" Managerial and Decision Economics, Vol. 28 (2007): 469-479, http://www.manhattan-institute.
org/projectfda/wiley_interscience_cost_of_biopharm.pdf. All subsequent references are to US dollars.
7. Iain Cockburn & Josh Lerner, "The Cost of Capital for Early-Stage Biotechnology Ventures" (2009), http://nationalbbr.org/studiesandstats/nvca_ 9. National Venture Capital Association, "Venture Capital Industry Saw Short Term Performance Improvements at the End of 2009" (May 14, 2010), http://images.magnetmail.net/images/clients/NVCA/attach/Performancereleasefinalq42009.pdf; and "Venture Capital Returns Continued to Reflect Fragile Economic Conditions in the First Quarter of 2010" (July 28, 2010), http://www.marketwire.com/press-release/Venture-Capital-Returns-Continued-Reflect-Fragile-Economic-Conditions-First-Quarter-1296576.htm 10. US National Science Foundation, "Science and Engineering Indicators 2010", http://www.nsf.gov/statistics/seind10/appendix.htm 11. Sandip Roy, "Tracking a Reverse Brain Drain to India, China", New America Media (March 2, 2009), http://news.newamericamedia.org/news/ 12. PricewaterhouseCoopers & Association of Biotechnology Led Enterprises, "Leadership in Affordable Therapeutic Products: A Biopharma Strategy for India" (July 2010). Report prepared for the Department of Pharmaceuticals, Ministry of Chemicals & Fertilizers, Government of India.
13. Wang Guanqun "China to invest billions on key technology development, bio industry", Chinese Government Web Portal (May 13, 2009), http:// 14. PricewaterhouseCoopers & Association of Biotechnology Led Enterprises, op. cit.
15. Ernst & Young, "Beyond Borders: Global Biotechnology Report, 2010" (2010).
16. Brady Huggett, "Optimism in public biotech rises as credit crunch recedes", Nature Biotechnology, Vol. 28, No. 1 (January 2010): 5-6. 17. Ernst & Young, op. cit. We have converted euros into US dollars using the average interbank exchange rate for 2009. This was 1 EUR: 1.39463 18. "The Future of Biotech." Panel discussion at The Biopharmaceutical Conference in Europe, Monte Carlo, Monaco (June 16-18, 2010). 19. Walter Yang, "Europe's Iceberg 2010: Advancing but frugal", BioCentury, Vol. 18. No. 24 (May 30, 2010): A15-18.
20. Dow Jones VentureSource, "Q1 2010 European Venture Financing Report April 29, 2010." http://www.dowjones.com/pressroom/SMPRs/ PM/1Q10EuropeFinancing.html; and "Growth Returns to European Venture Investment After Record Low a Year Ago." July 28, 2010. http://www.
dowjones.com/pressroom/releases/2010/07282010-Q2EuropeVC-0050.asp. We have converted euros into US dollars using the average interbank exchange rate for the first half of 2010. This was 1 EUR: 1.33054 USD.
21. Roger Longman, "Novartis: Having & Eating Its Cake," The In Vivo Blog (August 3, 2007), http://invivoblog.blogspot.com/2007/08/novartis-having- 22. "Merck Serono sets up strategic venture capital fund to invest in biotech start-ups", The Medical News (March 23, 2009), http://www.news- 23. Walter Armstrong, "Pharma's Orphans", Pharmaceutical Executive (May 1, 2010), http://www.curefa.org/_pdf/ 24. Andrew Pollack, "Pfizer Deal Signals a Move Into Treating Rare Diseases", The New York Times (December 1, 2009), http://www.nytimes.
25. John Carroll, "Pfizer creates a new R&D unit for rare diseases", FierceBiotech (June 15, 2010), http://www.fiercebiotech.com/story/pfizer-creates- 26. Jeanne Whalen, "Glaxo Tries Biotech Model to Spur Drug Innovations", The Wall Street Journal (July 1, 2010) 27. Jan Regnstrom, Franz Koenig et al., "Factors associated with success of market authorisation applications for pharmaceutical drugs submitted to the European Medicines Agency," European Journal of Clinical Pharmacology (2010) 66:39–48.
28. Elizabeth A. Czerepak & Stefan Ryser, "Drug approvals and failures: implications for alliances", Nature Reviews Drug Discovery Vol. 7 (March 2008): 197-198.
29. Walter Armstrong, op. cit. 30. John Carroll, "Pharma giants join forces behind Asian cancer research group," FierceBiotech Research (February 23, 2010), http://www.
fiercebiotechresearch.com/story/pharma-giants-join-forces-behind-asian-cancer-research-group/2010-02-23; "Coalition Against Major Diseases," Critical Path Institute, http://www.c-path.org/CAMD.cfm; and Michel Goldman, "New Challenges for Drug Innovation: The European Perspective". Presentation at Forum CQDM, Montréal, Canada (June 8, 2010).
31. The Structural Genomics Consortium (April 2010), http://www.thesgc.org/about/SGC-overview.pdf 32. Aled M. Edwards, Chas Bountra et al., "Open access chemical and clinical probes to support drug discovery", Nature Chemical Biology Vol. 5 (2009): 436-440. 33. Michael R. Barnes, Lee Harland et al., "Lowering industry firewalls: pre-competitive informatics initiatives in drug discovery", Nature Reviews Drug Discovery, Vol. 8 (2009): 701-708.
34. Oliver Alexy, Paola Criscuolo et al., "Does IP strategy have to cripple open innovation?" MIT Sloane Management Review, Vol. 51 (2009): 73-77.
35. Salima Lin, Teri Melese et al., "Cultivating innovation beyond corporate walls". IBM Institute for Business Value (December 2008).
36. Pearl Huang, "Presentation at Extending the Spectrum of Precompetitive Collaboration in Oncology Research Workshop" (February 2010), http:// 37. Sandra Orchard & Henning Hermjakob, "The HUPO proteomics standards initiative—easing communication and minimizing data loss in a changing world," Briefings in Bioinformatics, Vol. 9, Issue 2 (2008): 166-173, http://bib.oxfordjournals.org/content/9/2/166.full; Clinical Data Interchange Standards Consortium, http://www.cdisc.org/mission-and-principles 38. Laurent Alquier, Tim Schultz & Susie Stephens, "Exploration of a Data Landscape using a Collaborative Linked Data Framework," Proceedings of the HCLS/WWW2010/Workshop (Raleigh, North Carolina, April 26, 2010), http://imageweb.zoo.ox.ac.uk/pub/2010/Proceedings/FWCS2010/07/Paper7.pdf 39. Vivien Marx, "Pharmas Nudge Semantic Web Technology Toward Practical Drug Discovery Applications," BioInform (March 6, 2009), http://www.
40. IBM Computational Biology Center, https://researcher.ibm.com/researcher/view_project.php?id=1080 41. PricewaterhouseCoopers, "Pharma 2020: Virtual R&D" (June 2008), pp. 4-5. 42. Jeffrey H. Dyer, Hal B. Gregersen et al., "The Innovator's DNA", Harvard Business Review, Vol. 87, No. 12 (December 2009): 61-67. 43. Heather Fraser & Stuart Henderson, "A marriage of minds: Making biopharmaceutical collaborations work." IBM Institute for Business Value (September 2007).
Biotech Reinvented 44. Details of the performance of the FTSE Small-Cap Index are available at http://www.ftse.com/Indices/UK_Indices/Downloads/FTSE_All-Share_ Index_Factsheet.pdf 45. Genevieve Khongwir, "Open Source a successful business model", ciol.com (September 10, 2008), http://www.ciol.com/Open-Source/Interviews/ 46. We have based these estimates on average development costs of $1.24 billion and average development times of 97.7 months, using the figures cited earlier in this paper.
47. For a comprehensive discussion of how we believe pharmaceutical commercialisation is likely to evolve over the next decade, please see "Pharma 2020: Marketing the future" (February 2009).
48. Thomas Hobbes, Leviathan (1651). 49. "Life expectancy at birth," The CIA World Factbook (2010); and Eileen M. Crimmins & Caleb E. Finch, "Infection, inflammation, height, and longevity", Proceedings of the National Academy of Sciences, Vol. 103, No. 2 (January 10, 2006): 498-503. Territory contacts Alina Lavrentieva [54] 11 4850 4705 [91] 22 6669 1305 [7] 495 967 6250 Thierry Vanwelkenhuyzen Denis von Hoesslin Rafael Rodríguez Alonso [55] 11 3674 1520 [46] 8 555 33 038 [81] 80 3158 5929 [420] 2 5115 2521 Torben TOJ Jensen [352] 0 494 848 2522 Jorge Luis Hernández Baptista [52] 55 5263 6106 Arwin van der Linden +90 212 326 64 100 [358] 3 3138 8016 Anne-Christine Marie Mariusz Ignatowicz [33] 1 56 57 13 42 Kate Moss[44] 20 7804 2268 [49] 69 9585 1333 [351] 213 599 159 [49] 89 5790 5102 Biotech Reinvented Table of contents For further information, please contact: Partner, Global Pharmaceutical and Life Sciences Partner, Pharmaceuticals and Life Sciences, Strategy [44] 20 7804 3744 [44] 20 7213 4875 Partner, European Pharmaceutical and Life Sciences Partner, Global Pharmaceutical and Life Sciences Advisory Advisory Services [44] 20 7213 1952 [44] 20 7804 3997 Michael SwanickPartner, Global Pharmaceutical and Life Sciences Tax Services Leader Director, Pharmaceutical and Life Sciences Advisory Services, India [email protected][91] 22 6669 1305 Beatrijs Van Liedekerke Director, Pharmaceutical and Life Sciences Partner, US Pharmaceutical and Life Sciences Advisory Advisory Services Director, Global Pharmaceutical and Life Sciences Partner, Healthcare Advisory Services, Middle East PricewaterhouseCoopers (United Arab Emirates) Marina Bello ValcarceGlobal Pharmaceutical and Life SciencesPricewaterhouseCoopers (UK)[email protected][44] 20 7212 8642 Table of contents PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for our clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
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