Does Biotech History Repeat?

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According to Mark Twain, “History does not repeat itself, but it does rhyme”. Little did he know that one day that would hold true for something called “Biotech”. Indeed, there seems to be a lot of rhyming going on with Biotech IPOs today with recent history.

When we compare the accumulated number of IPOs in the last IPO window (2003-2007) with the current window (2009-now), we see an amazing overlay. Not identical, but not too far from it. As of March 2012, we have 34 IPOs. That compares to 33 back in March 2006:

If this continues through 2012, we will add 12 more IPOs over the next three quarters, for a grand total of 46 IPOs since 2009. Then in 2013, we would need to see 20 more to reach the final 2007 goal of 66 IPOs.

After that, let’s hope Twain’s observations no longer hold true, and we don’t repeat 2008.

Fireside Chat with Moncef Slaoui, GlaxoSmithKline

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Moncel Slaoui, chairman of research and development (R&D) at GlaxoSmithKline (GSK), opened the 2012 BIO CEO & Investor Conference with a Fireside Chat where he provided insight in to his company’s biopharma R&D strategy.

“GSK has announced that our R&D budget is no more a percentage of sales. If you think about it, it doesn’t make sense,” Slaoui stated, “because, sales are a marker of R&D 10 and 15 years ago.”

Right now, GSK has 30 programs in phase III, four programs that are completed and ready to be filed, and 6 more programs that they will file in 2012.

“If less than 50 percent to 60 percent of these are successfully developed, I’ll view it as mediocre,” Slaoui explained. “If it’s more, I’ll view it as a success.”

For GSK, R&D is about making the right decision, Slaoui explained. His company takes an approach that looks at their programs in a very transparent way, so that their failures occur early rather than late.

“Failing at the end is more expensive,” he said.

Biopharma Industry Enthusiastic About 2012

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By Eric S. Langer, president and managing partner, BioPlan Associates, Inc.

2012 Annual Study shows budgets, optimism taking a big jump

It looks like the biopharma industry is actually weathering the economic downturn quite comfortably. This year we’ve surveyed hundreds of biomanufacturers and suppliers, and the industry is expressing more raw optimism and confidence than at any time in the past 9 years we’ve been surveying this industry.

More Spending

What this means is that wallets are more open, and investments are being made for the future:

• The firings and hiring freezes that have taken place since 2007, at least within areas that affect productivity, are reversing, and hiring budgets are back up,
• Vendors are spending more on developing new and better technologies,
• Pent-up demand for skilled scientists, and operations staff among biomanufacturers is resulting in more hiring,
• Outsourcing, and off-shoring are being done more rationally, and are no longer a synonym for ‘you’ve just been laid off.’

Our 9th Annual Report and Survey of Biomanufacturing¹ surveys 400 biomanufacturers in 31 countries ever year. And along with the 180 vendors surveyed, we get a good picture of industry trends, problems, and opportunities. This year, we found that both biologics manufacturers and their vendors are spending more, demanding better technologies, and expressing greater optimism for the future than we would expect, given some of the recent gloomy economic trends, and “end-of-world” catastrophe predictions.

Below are just a few of the trends associated with the industry’s buoyant atmosphere. We will continue this discussion during the coming year, and share some of the data from our studies. With a whopping 37.3 percent of suppliers to this industry indicating that their company did either “better” or “much better” than expected in 2011, and with 49.4 percent expecting they will do even better in 2012, I expect this broad optimism will be translating into increased spending, stronger R&D budgets, more capital expenditures, and more hiring.

Short Answer: If you haven’t invested in this industry in some way, now’s probably a good time.  Here’s why:

Industry Growth Rate—Sales growth among vendors is a leading indicator of how the overall bio/pharma industry is doing. On average, sales growth to this industry is currently at around 14 percent annually. This compares to 13.0 percent in 2010, and 14.1 percent in 2007.  Most IRAs don’t return growth rates like that.

Budget Trends—Budgets are also a good indicator of industry strength. And budget estimates for 2012 are, once again, up strongly for areas such as acquisition of new technologies, capital equipment, and training. In fact, early returns from respondents to our 9th Annual Report are projecting increases in all 12 areas measured in 2012, except for outsourcing. Spending this year, in particular, is occurring in:

• New technology;
• Capital equipment;
• Process development and optimization; and
• Personnel training and development.

Other Positive Trends:

• Biopharmaceutical markets—The world market for biopharmaceuticals is now about >$140 billion²;  growing at 15-18 percent annually, definitely a very healthy rate.

• Approval-related Innovation and Progress—Good news: In 2011 FDA biopharmaceutical approvals involved genuine innovation and advances, with nearly all products being approved for new indications or for which the last product approval was granted well over a decade ago.

• Biopharmaceutical Approvals—Despite increasing sales, the rate of biopharmaceutical approvals in the U.S. is flat (12 biopharmaceuticals in 2011). (see www.bioplanassociates.com/biopharma).

• Company and country approval trends—A record number, four (33 percent), of newly-approved U.S. biopharmaceuticals are manufactured outside the U.S. — in the United Kingdom, Germany, Mexico and Italy.

• Biosimilars (biobetters / biogenerics)—Patents are expiring and biosimilars are accelerating worldwide. Expect the entrance of many new manufacturers, and multiple biosimilars for each currently successful biopharmaceutical.  Our global facilities analysis³, indicates that biosimilar/biobetter companies are present in virtually every biotechnology-capable region.

• Internationalization—The biopharma industry continues to expand its presence worldwide, particularly in developing countries.

• Internationalization of Manufacturing—Much of the industry growth involves new capacity being added at existing foreign facilities. This is illustrated by BioPlan’s Top 1000 Global Biopharmaceutical Facilities Index, which ranks facilities in terms of capacity, employment, and production.

• Internationalization of R&D—Large international (Big Pharma) companies continue their expansion and off-shoring of R&D.

• Demand for Local Production of Biologics—Companies are developing manufacturing strategies that include local manufacture of vaccines, for example. This contributes to developing countries’ scientific/technical infrastructure and provides continued availability and price stability.

• World Standardization of Manufacturing—As more biopharmaceutical manufacturing is performed worldwide, product developers are working to standardize their products and manufacturing processes.

• Internationalization of Single-use Manufacturing—The increasing adoption of single-use/disposable bioprocessing equipment allows products to be developed, standardized and the same manufacturing systems shipped and installed at multiple facilities; benefitting emerging markets.

• Single-use Bioprocessing Technologies—In 2011, single-use/disposable bioprocessing systems further increased their dominance for the manufacture of biopharmaceuticals for pre-clinical R&D and clinical testing. In 10 years about half of new commercial biopharmaceutical manufacturing systems can be expected to single-use based.

• Microbial manufacturing—Most industry attention in recent years has concentrated on mammalian cell culture-produced recombinant proteins. A confluence of trends is contributing to increased use of microbial (bacteria, yeasts, other fungi, etc.) host cells for recombinant proteins manufacture.

• Outsourcing—Companies of all sizes worldwide continue to increase their outsourcing, particularly R&D, and increase use of CROs, particularly for screening, and clinical research. Based our global survey of biomanufacturing, among 24 areas of outsourcing, the primary outsourced activities included product characterization testing, with 70 percent of biopharmaceutical companies outsourcing at least some activity.

• The Economy—The worldwide economic downturn continues to impact biopharma. Yet, with its underlying sales revenue, the industry has remain insulated.  Financial issues affect most companies; however, demand for new, profitable products, ensures R&D will continue;  ≥$70 billion is being invested by the pharmaceutical industry in R&D.

• Mergers/Acquisitions—The trend for industry mergers, acquisitions will continue.  However, some companies are recognizing that gutting their core competencies such as R&D and manufacturing is counterproductive.

Summary

Most of the fundamental indications are pointing to a positive, healthy industry; and bio/pharma is emerging from the current global economic situation by spending more, becoming more efficient, and, perhaps most importantly, showing great optimism.

I welcome comments on these trends and their impact on the industry.

References:

1. 8th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production:  A Survey of Biotherapeutic Developers and Contract Manufacturing Organizations, BioPlan Associates, April 2011, 490 pages.
2. Rader, R.A., Biopharmaceutical Products in the U.S. and European Markets (database), BioPlan Associates, www.bioplanassociates.com/publications/pub_bpuseu.htm
3. See BioPlan’s Top 1000 Global Biopharmaceutical Facilities Index™, http://www.top1000bio.com/index.asp Accessed June 20, 2011
4. Biopharmaceutical Expression Systems and Genetic Engineering Technology: Current and Future Manufacturing Platforms, BioPlan Associates, Inc. 2008]

Eric S. Langer is president and managing partner at BioPlan Associates, Inc., a biotechnology and life sciences marketing research and publishing firm established in Rockville, MD in 1989. He is editor of numerous studies, including “Biopharmaceutical Technology in China,” “Advances in Large-scale Biopharmaceutical Manufacturing”, and many other industry reports. You can contact him at: elanger@bioplanassociates.com or 301-921-5979.

Biomedical Innovation: How the U.S. Can Stay Number One

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By Ross DeVol, chief research officer of the Milken Institute

“The first step in winning the future is encouraging American innovation,” declared President Obama in his last State of the Union speech. A logical place to start is making sure that where we hold a lead, we keep it.

Today, the U.S. has such a lead in biomedical innovation — the process of transforming scientific discoveries into vaccines, diagnostics, devices and therapies that improve and save patients’ lives. This industry represents one of the great American success stories of the past century.

But success can breed complacency, and there are signs that U.S. dominance is eroding as other countries build formidable research, testing and manufacturing capabilities. Within the Beltway there’s little awareness of how the U.S. became a biomedical powerhouse in the first place — and of what’s at stake if we don’t bolster a critical industry.

As recently as 1980, European firms defined the biomedical industry, both in terms of market presence and their ability to produce new products. But beginning in the 1980s, the United States surged to the forefront. This sudden and remarkable shift was no accident. It was the direct result of smart federal policies: the absence of price controls, the clarity of regulatory approvals, the ability to attract foreign scientific talent to outstanding research universities, and a thoughtful intellectual property system.

With the resulting ecosystem — defined by university-business collaborations, industry clusters, private equity finance and entrepreneurship — the American student far surpassed the European master. The innovative leaps made in biopharmaceutical research, medical devices and diagnostics transformed the industry in the United States.

On the investment front, Switzerland-based Novartis AG established its main research hub in Cambridge, Mass., in the early 2000s, while another Swiss firm, Roche, acquired a majority stake in Genentech in 1990 and bought out full ownership in 2009. Sanofi, which is headquartered in France, announced a deal in February 2011 to acquire the Cambridge-based biotech firm Genzyme. These moves underscore how the rest of the world values U.S. assets.

On the jobs front, more than 1.2 million Americans were employed by the biomedical industry in 2009, according to the most recent data from the Bureau of Labor Statistics. The average job in the U.S. biomedical industry paid $78,600, more than 70 percent higher than the national average. And once the ripple effects of its supply chain are taken into consideration, the industry accounts for 5.3 million jobs, or 4 percent of America’s non-farm employment.

The United States assumed the mantle of global biomedical leadership by putting the right infrastructure in place and then being first to commercialize recombinant DNA research. But its continued standing doesn’t come with a long-term guarantee.

If another nation develops a similar ecosystem and subsequently makes a pivotal breakthrough, it could tip the scales in the other direction. This scenario isn’t all that far-fetched. Witness the nanotech-related patents granted between 1996 and 2008: While the U.S. led with 29.7 percent of the world’s patents in this field, China was a close second with 24.3 percent.

Another reliable measure of a nation’s innovation capacity is its ability to maintain high levels of R&D expenditures. In 2004, the United States accounted for 55 percent of the total biopharmaceutical R&D spending of leading nations. By 2008, this figure had slipped to 51 percent.

Europe and Japan have made aggressive moves to channel public funding into research, speed commercialization of new discoveries, and ensure that start-up firms in the life sciences have better access to capital. China, India and Singapore have made impressive strides in scientific research and instituted crucial regulatory reforms.

Just as global competition is heating up, shifts in public policy are beginning to hinder the U.S. industry’s productivity. While other countries are increasing government support for biomedical research, funding for the National Institutes of Health (NIH) has declined. The efficiency and predictability of the FDA’s review process was once a key advantage for the U.S., but today the system is marked by increasing complexity and rigidity.

But Washington can take steps to help the U.S. biomedical industry retain its competitive edge. For starters, it’s critical to increase the R&D tax credit by 25 percent and make it permanent. Research and development in the biomedical industry carries substantial risks of product failure and investment losses, but tax incentives can mitigate these risks. The U.S. pioneered this policy but has now fallen behind other nations in the generosity and predictability of its tax credits. Likewise, the U.S. corporate tax rate needs to be brought into line with the OECD average.

Though the deficit looms large, not all federal spending is created equal, and Congress should commit to robust funding for both the NIH and the FDA. The FDA needs additional resources to better manage the review process and accelerate the adoption of more flexible approaches, such as adaptive trials. In addition, the agency needs to focus on revamping the approval process for medical devices and prepare for the age of personalized medicine. The NIH needs additional resources to support clinical trials and translational research, a role that could improve productivity throughout the scientific community.

The U.S. also needs to beef up support for cutting-edge areas like nanotechnology, personalized medicine and stem-cell research. These new frontiers are likely to provide the greatest societal returns in the decades ahead.

Finally, policymakers need to recognize the value of human capital in the innovation process. U.S. immigration policy should welcome top international science talent, perhaps offering green cards in exchange for working in biomedical research. In addition, science, technology, math and engineering education must become a national priority if American students are going to become the scientists of tomorrow.

The greatest impediment to U.S. biomedical innovation is underestimating the risk of losing it. Protecting this legacy is not a task that can be left to the talented scientists and technicians working in the lab. Policymakers have a crucial role to play in creating an environment that allows innovation to flourish.

Ross DeVol is the chief research officer of the Milken Institute and author of its recent study, The Global Biomedical Industry: Preserving U.S. Leadership.