Blessing Gold

1976 was a year crucial to innovation. It was the year that Apple was founded, based propulsion business growth driven. After only 30 years, the results have saturated our economy and culture, changing the way we live and production business giants like Microsoft, Intel, Amazon, Google and Bloomberg. Microsoft has raised only millionaires like rabbits.

That same year, Genentech became the pioneer of the biotechnology industry, and the company (now partly owned by Roche) is still around and a great success. However, in general, since even Genentech CEO Arthur Levinson said bluntly, biotechnology has been "one of the biggest money-losing industries in the history of mankind" (see sidebar, page 58). Money apart, biotechnology promise has not changed the landscape of health care the way Apple seeds have germinated. The cure for cancer, multiple sclerosis, Parkinson’s and are still around the corner.

What went wrong? Despite the stark difference in the two industries destination, followed essentially the same business model-an inspired innovator, is sometimes associated with an equally venturesome businessman, forms a company and attracts smart investors. We worked not only for Genentech, but for Amgen, Biogen IDEC, Celgene, Genzyme and Gilead Science… but they are exceptions. Companies of others, however, are either still struggling, have sold or extinguished. But the promise remains, and venture capital is still hunting for the pot of gold. If this confidence is justified depends, as so often, to whom you speak.

Since BIO is the industry’s trade association, its mission is to be optimistic. Alan Eisenberg, executive vice president for emerging companies and business development, told MM & M in an exclusive interview that the industry "has been extraordinarily successful in terms of dealing with medical needs, developing new therapies for patients who did not have hope soon. " Financially, "some companies have been very successful and others less so." He pointed out-and this was the topic of everyone we talked to that since "the industry basa mainly trying to commercialize new and innovative science, is a high risk business. "

A look at the data

For those hard numbers, we turned to Glen Giovannetti, biotechnology leader of Ernst & Young. The company is in its 22 th year of tracking the biotechnology market and present their annual reports snapshots of what is happening throughout the industry.

Quoting the latest report, covering the first half of 2007, Giovannetti said that reflects "a symbolic milestone" for the first time in the history of biotechnology, the industry is on track to achieve overall profitability for this fiscal year. In fact, according to Giovannetti, this milestone could have been achieved during 2006, excluding charges related to the numerous bids then ended, which depressed the bottom line.

The basis of this outlook is hopeful that revenues benefit the U.S. Listed biotech companies increased by 18% compared with the first half of 2006, a performance that exceeded the industry’s historic average rate of growth. It took a record of Amgen, Celgene, Genentech, Genzyme, Gilead Sciences and-what the report refers to as the industry’s unconditional. "This growth rate is even more impressive," the report adds, "because it includes the impact of the acquisition of MedImmune by AstraZeneca," one of dozens of such acquisitions of pharmaceutical companies over the years (Alza, Chiron, etc.), what keeps their statements of income outside the public domain. Meanwhile R & D expenses kept pace with revenue growth.

The growth in revenue is good, but the bottom line is what happens to profits. Giovannetti said: "If you are interested in the financial reports of all publicly traded companies, since we have been following the industry has never shown profitability, but last year we were right on the cusp of profitability. And this year ( ie 2007) until mid-year was clearly going to be profitable, and I have no reason to believe that the full year will not be profitable. "(The full year data for 2007 are due out this month. ) These figures are compounds, of course, and as he points out, profits are mainly from a handful of companies-the Amgens and Genentechs-while 80% and 90% of public enterprises are still in the phase I & D, "By definition, it means losing money."

The private sector

Financial reports of publicly traded companies are easy to trace, but when private companies lose money they do, well, private. Even Ernst & Young considers its financial data difficult to obtain in the right direction. "The way we measure how private companies are doing, at least on a broad level," says Giovannetti, "is how they are successful in attracting capital." Since they have little or no income from the sales front, capital infusions more partnerships with the pharmaceutical are what keep afloat. And from a venture capital point of view, 2007 was also a successful year, the second highest in the history of the industry according to BIO Eisenberg.

"There are record levels of capital flowing into biotechnology," Giovanettti agree, despite the difficulties in the stock market. However, it is difficult to generalize. "Dollars are not distributed evenly, so that companies have an interesting research platform that are attractive to investors, while others are in a part of its development cycle where they are not as attractive. There are so many different stories , But if you look at how much money is flowing to private companies as a substitute for its success, an image is quite healthy. "(This conversation took place before the merger Bear Stearns.)

Eisenberg, however, warns that a good number of companies that have fewer than three years’ funding, and if they need to raise money for this year, the financial situation could make it harder. Some observers spoke to us (who prefers to remain anonymous) went further, expressing concern that if the current credit crunch leads, if not exhaustion, at least to a decrease in the capital market, which could bankrupt the most vulnerable players.

Asked to comment on the appointment Levinson, Giovannetti said, "You have to be careful about what is being measured. In terms of true operating losses as shown on income statements, he is absolutely right. But if you look in creating value for investors, is a different story. "Their point is that hundreds of billions of dollars have been invested in start-ups, and although not many have become profitable, many other developed something worth enough to lead to purchases of shares in pharmaceutical companies-a good deal for investors. Therefore, some people have made money, but "everybody agrees that this is a high risk area, not for the faint of heart, business and do lose a lot of money before they return a dollar." Proceeds single companies are particularly vulnerable, especially now that increasingly risk-averse FDA seems to be giving a new product ever closer control applications.

Looking ahead, Giovannetti summed up: "Six months ago I had said that the near future for the industry overall picture was very positive." Now, due to the impact of problems in mortgage markets, "the capital market is tightening and might even wind up a bit. But we came out a couple of very good years that allows companies to buy their stocks cash. These cycles come and go. "One example cited by him, as well as other genomics is the bubble of 1999 and 2000, when the rain was quickly broke overcome. At the moment this appears to be printed is possible to tell if the current market bubble will be similarly benign.

Overseas trends, by the way, are similar. European companies have their best results in years in 2005, with revenue growth of 17% compared with a decrease of five percent a year earlier. Also in that year, for the first time in history, the Europeans raised more money through IPOs than their U.S. colleagues. Meanwhile, the Asia-Pacific region, Ernst & Young reports, "recorded a scorching 46% increase in revenue" in 2006. Australia scored only 60% of promoting biotechnology in revenue, helping to boost Australia’s biotechnology sector to profitability, either in Europe or ahead of ours.

Cíclica or endemic?

If, after 30 years, the biotechnology industry is only now on the cusp of becoming profitable, it may be, of course, which has basic systemic problems. That at least is the conclusion of Gary Pisano, a professor at Harvard Business School and author of Business Studies, widely regarded as the most definitive study of the industry. Published in 2006 (and confirmed in a personal interview that the essential facts have not changed), the book summarizes his 20 years of analyzing the industry’s technology strategy and innovation management. Having also served as an adviser to top executives of both pharmaceutical and biotechnology companies, Pisano asked himself: "Can science be a business?"

"Scientists and managers who knew and worked with… are among the smartest, most dedicated and most imaginative people who had ever known," reflects. Not only that, but "all I knew about business and industry performance suggests a very promising future for biotechnology, not only commercially but also for its ability to transform drug therapy," and conferences in the industry kept constantly hearing "sunny forecasts." So why, began to wonder, "was the great promise of biotechnology largely not going?" Conducting an analysis of productivity, which concluded that despite the basic premise of biotechnology was, in fact, no discernible difference in R & D productivity between biotech companies as a whole and that of traditional big pharmaceutical companies. So he looked for explanations.

He came to believe that the scientific and commercial promise of biotechnology has been hampered by the way the business is structured and works. Specifically:

* From the development and application of technology requires the integration, but the founder-driven biotech companies is characterized by specialization and fragmentation.
* "The uncertainty and novelty of science requires the rapid spread of" high fidelity "information", while each company jealously guards its trade secrets.
* The science requires long-term, cumulative learning. Biotechnology companies, however, are facing market pressure to optimize short-term results.

These built-in inconsistencies do not lend themselves to easy solutions, Pisano feels. "The imperfect and often messy context in which these companies operate is taken as a given," and, therefore, is not likely to change dramatically for the foreseeable future because "investors are fickle and sometimes irrational . Academic entrepreneurs remain motivated to start their own businesses, whether this strategy is rational or not. Venture capital companies still feel compelled to take companies public as soon as possible. "

From this perspective is not hopeful, Pisano concludes with a radical suggestion to abandon the current model and instead to develop biotechnology drugs would produce films. Studios, said, tend not to develop their own content. They get it from independent producers or scriptwriters. Therefore, we will think of scientists and outside the idea of people. Once proof of concept has been established, companies can acquire development rights. They call it "greenlighting" R & D. Lastly, established pharmaceutical companies, assuming the role of major studios, can take over, applying Phase III trials, securing regulatory approval, and implementation of its distribution and marketing. So everyone, including health care, will benefit.

Pisano admits that this might not be the right model for most innovative medicines, because without a strong internal scientific capabilities, it would be virtually impossible to distinguish potential winners of lemons. Thus, "vertical integration may be more suitable for most new types of innovation." But that brings up another pull of the traditional companies have sought to integrate both internally developed and acquired leading biotechnology. "There is no good to be a vertically integrated company, however, operate each of the major technical or specialized functions as its own experience of the island," he adds.

In other words, there is no one size fits all solution for everyone. Even the fairly standard pharmaceutical / bio partnerships often do not work because they are usually arms-length relationships and collaborations, not true.

Low-hanging fruit

In light of all this, you wonder how it happened that some companies did Result signal successes, and what strikes you on the list of these is that most of them were early entrants into the biotech game. So as you look at their first winning products, shows that the majority was launched with much more achievable objectives of his successors. Genentech, for example, focused on its programme of recombinant insulin. Not only was he a product specific goal rather than trying to capitalize on advances in basic science, but provided an opportunity to partner with a company of its R & D agreement with Eli Lilly & Co.. Genentech provided with financing for development, while Lilly gained experience marketing that gave him a head start among major pharmaceutical companies eager to branch out into biotechnology. By the way, Lilly had tried to leave Harvard, Walter Gilbert of scientific discovery, but Gilbert preferred to start his own company-a clear example of why pharmaceutical has been largely forced to rely on costly acquisitions to enter the field biotechnology. But that has not stopped acquisitions and partnerships. As recently as 2005 to 2007, according to a GM & M analysis, there were 17 major pharmaceutical and biotechnology major deals, involving large companies such as Merck, Pfizer, GlaxoSmithKline, Lilly, Novartis, Roche and AstraZeneca.

One conclusion to all commentators agree is that several or even enter the business of biotechnology is fraught with dangers. First you have to get the science right, turning promising business opportunities in the experimental products. Then face multiple R & D and regulatory hurdles, while maintaining the money spigot open at one end as its funds to pour out the other. As Pisano puts in Business Studies, "the concentration of capital in biotechnology is how to get an official number of the Boston Marathon. It can be really difficult to do… but that only gets in the race. You still have to run the 26.2 miles! "

An interesting trip

But not keep people from trying. As Glen Giovannetti noted, the prospect of developing exciting technology that has the opportunity to meet unmet medical needs continue to attract investors, and where these products are created, there will be a market for them-and they are paid. His colleague Ernst & Young Gautam Jaggi, managing editor of "Beyond Boundaries", agrees.

“While change issues, the constant is that innovation is the driving force value in R & D, compared to the structures, and go to market strategies,” said Jaggi. “Yes, sometimes it feels like this industry is always at a crossroads or another. That may well be what can only come with the territory of being at high risk, high reward. But we should not complain. After all, these challenges, the biotechnology industry and innovative responses to them, have always kept the trip interesting. “