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How to save biotech

What the industry needs is not a bailout, but some sensible policies

By | February 17, 2009

Biotech is in trouble, again. 125 of the 370 US-based public companies have less than six months of cash -- a 90% increase in close-to-broke companies compared to 2007, according to the Biotechnology Industry Organization (BIO). And that number does not take into account the private companies suffering; about 40% of small private biotechs have less than one year of cash. Venture capitalists are hoarding cash or closing their doors; private equity firms are retrenching, the public markets are in tatters. Big Pharma is shopping with a discriminating eye; the companies that most need to be saved are the least likely to be bought. The industry expects many bankruptcy filings, clinical trial cancellations, layoffs and sell outs. The JP Morgan Healthcare Conference, arguably the premiere healthcare investment conference in the world took place in San Francisco last month. There is no better venue to dial into industry sentiment. Big Pharma, biotech CEOs, executive search consultants, attorneys, accountants, Wall Street analysts, institutional investors, investment banks, venture capitalists, hedge funds were all there. The conference buzz was: "No buzz." "Cautiously pessimistic." "Wait two years and come up for air." "The well is dry." Drug development has always been a tough game. Most companies live in a hand-to-mouth existence, hoping that their science progresses far enough with successful results to look appetizing to funding and sources. It takes 10-15 years before you know if you have a drug that passes human clinical testing, hundreds of millions of dollars in development cost. Companies with hot technologies or exciting drug candidates get funded either by venture capital, pharmaceutical partnerships, acquisition or the public markets. In past downturns, a small number of biotechs have merged or disappeared but most managed to survive. 2009 is different. Some will argue we are due a bailout. Surely the biotech industry is as deserving as the automobile industry. We discover and develop medicines that can save human life, a higher calling that should entitle us to at least as much help as the makers of gas-guzzling autos. There is no question that the cost of discovering and developing a pharmaceutical is off the charts and the failure rate is astronomical. On the other hand, there are too many biotech companies with non-viable businesses. It is a widely held opinion that many companies are "science projects" rather than real businesses. Companies with complimentary technologies or programs could benefit by pooling resources rather than maintaining their own duplicative infrastructures. Management teams have a vested interest in keeping their company intact to the detriment of their shareholders. Is it finally going to be the time to rationalize the industry? Some companies should continue life only as part of a merged entity. Some companies should sell their assets. Other companies may have to bite the bullet and shut their doors. Management needs to act responsibly for the shareholders even if it means their jobs will end. For the many firms that have created real value, there should be a future even in these economic times. For that to happen, though, government policy needs to facilitate the continuation of these firms, not obstruct it. Here are a few key policy changes that would help. FDA: Appoint a respected leader for the FDA and resource the agency properly. Do not go overboard with control in the post-Vioxx era, thereby preventing life saving drugs from coming to market. Let informed patients choose -- sick people without good options are willing to take some risk. Price controls: Do not make the mistake of interfering with free market pricing mechanisms. If a drug is overpriced relative to its efficacy, it will not sell. Setting a ceiling or instituting other price controls will only serve to insure that new drugs are not developed. Industry must see an economic return to invest in highly risky drug development or it will opt out. Intellectual property: Intellectual property protection is the lifeblood of the industry, and the reason investors will fund companies without revenue. Set policies to enhance and extend protection, not dilute it. Do not weaken the predictability, value and enforceability of patents such as provisions of the Patent Reform Act of 2007, which made it through the House but thankfully stalled in the Senate last year. Funding sources: Increase NIH funding so that fledgling companies have a pre-venture capital source of funds. NIH funding has remained stagnant for a number of years as costs continue to rise. Consider the national venture capital fund model used in other countries to provide financing during the "Valley of Death," the period when companies are engaged in translational research to bridge academe to industry and not yet fundable by venture capital. It is in the public interest to help the beleaguered biotech industry. Biotech companies have discovered hundreds of therapies, vaccines and diagnostics that impact human life. Biotech is increasingly serving as a productive engine for new drug development, replacing big pharmaceutical companies as innovation leader. We have accomplished much with scarce resources and deserve to survive and prosper. Stephanie Marrus is a life sciences management consultant/ interim executive based in the Bay Area who advises firms on strategy, business development, communications, operations, restructurings and M&A. She can be reached at portfoliostrategies@gmail.com.
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Comments

Avatar of: anonymous poster

anonymous poster

Posts: 7

February 17, 2009

The issue isn't saving biotech, it is returning ethics and honesty to biotech so that it is relevant for the future; worth saving.\nThere is a ludicrous belief among scientists and their companies that any, and every, thing done in the name of science should be allowed to grow and prosper. \nI live and work in the world of science, biotech science. I have not found one scientist or company unwilling to lie, cheat and steal and then justify their actions on "surviving." Fabricate/falsify data? No Problem! if that's what needs to be done in order to keep my job and survive. Hide safety/toxicity issues? No Problem! if that's what needs to be done to keep my job and survive. \nWhen I first started working in this field scientists were more honest then priests! You could never, never compromise their integrity. Today I cannot find one that hasn't been compromised. Save biotech? I don't think so.
Avatar of: Bob Hong

Bob Hong

Posts: 125

February 17, 2009

I totally agree with the anon poster below. In addition, the basic biology which is a critical prerequisite for developing the relatively safe and effective drugs or treatments are still lacking in sufficient knowledge for those purposes. Investing in biotech before we gain more reliable knowledge of how our bodies work, i.e., physiology, particularly at the molecular level, simply amounts to putting a cart before the horse. Of course, we cannot wait until we know all the minute details, but, currently, we have just too little to effectively and efficiently guide us towards finding the treatments or cures that actually work. More investments in basic physiological research is what is really needed, first.
Avatar of: anonymous poster

anonymous poster

Posts: 6

February 17, 2009

This is the important fundamental question that needs to be asked. Is it a good idea to have private companies developing cures to treat diseases and should companies be striving to generate profits from saving the lives of the sick? In this capitalist system driven by greed and profits where we see a peanut corporation delivering salmonella laced peanuts to turn a profit and financial investment bankers rewarding themselves with multi-million dollar bonuses for failing miserably - is this the market we want to harness to develop therapeutics to treat diseases. The answer is no. For personal beauty products, hygiene products that is fine, but associating a business and profit with life saving cures is a dangerous mix. As the poster above highlighted it is not surprising the some maybe most biotech employees will be willing to sacrifice their morals to keep their jobs and generate a profit for a company and themsleves. I think we need to eliminate the financial incentive from development of therapeutics and keep these developments within the realm of the NIH. This will eliminate the high prices of drugs and make healthcare more affordable for all. It will also eliminate those driven by greed from the pursuit of effective therapeutics and likely leave only those noble scientists that would not fabricate data to turn a profit - why would they, they would have nothing to gain by doing so....
Avatar of: null null

null null

Posts: 9

February 17, 2009

Excessive patent protection and easy going FDA will not save the Biotech industry. \n\nVery sick people are willing to take risk and sometimes to become guinea-pig, but they are doing it in the hope to improvement their condition and hope for a healthier future, not to boost the profit of companies.\n\nWhat would save biotech is ethics, humanity, humility. That even the CEO,CFO and the investors had a desire to invest in improvment of health, not improvement of their own wealth. \n\nProduct should always be sold and taken under medical control, they should not be advertised to patients and doctors should not receive financial insentive to prescribe a given drug! Without that biotech should die, it is toxic!
Avatar of: anonymous poster

anonymous poster

Posts: 1

February 17, 2009

I agree with the posters below who see the ethics of biotech as badly compromised and a major part of the problem. \n\nWe have entered the era of modern snake oil, where individual gain is the fundamental driver and far too many people are content to eek out useless, redundant, sometimes even harmful products. \n\nPolicy bailout? How about be a good scientist. How about looking at other people and your life's work as something more than a dollar sign. That would be a nice change in policy.\n\nIf biotech can't find religion, it should burn in the hell of its' own making.
Avatar of: anonymous poster

anonymous poster

Posts: 1

February 17, 2009

This is perhaps the best article I've read in awhile on this topic. \n\n?Doing well is the result of doing good. That's what capitalism is all about.? - Ralph Waldo Emerson
Avatar of: William Penrose

William Penrose

Posts: 5

February 17, 2009

Business as usual. The header says it all.
Avatar of: anonymous poster

anonymous poster

Posts: 35

February 17, 2009

Private initiative should be a recipe for success, but the patent system we use to reward pharmaceutical companies is not well designed. It taxes the sick to pay for research, and it seems to pay more to reward aggressive marketing and legal wrangling than the pursuit of new discoveries. Risk is compounded over many years, from the moment of insight until the sales figures come in, and while we would like to think that large profits and large losses are fairly averaged in the marketplace, the current financial situation illustrates that this isn't really so.\n\nI think it would be worth considering an alternate idea: persuade companies to agree to license patents to all interested parties with a restricted royalty rate, in exchange for their eligibility to receive bonus payments from taxpayer funds when beneficial drugs subject only to those patents reach milestones in development --- in essence, a "Wanted Dead Or Alive" poster for diseases. Benchmarks could range from in vitro activity to successful completion of phase II FDA trials. Of course, random audits of scientific paperwork and even occasional third party duplication of claimed results would be necessary to maintain the integrity of the system.\n\nWhatever the system, patents shouldn't be accepted uncritically. If patents require expensive litigation to sort out, surely that cannot be in the best interest of pharmaceutical development as a whole.\n
Avatar of: anonymous poster

anonymous poster

Posts: 1

February 18, 2009

I keep hearing how our HC expenses outpace other countries. That our share of HC/GDP keeps rising. It was the drug companies' fault in the early 2000's. It's been the out-patients hospital costs more recently. \n\nAnyone ever consider that HC spending typically reduces costs to the patient and community? \n\nWe need to stop subsidizing ex-US drug costs by requiring any company selling medicines in the US to sign an agreement that they won't underprice their medicines outside the US. If the US requires other countries to spend a certain percent of GDP on medicines, we can lower the costs to US companies. The UK, Swiss and other countries pay a higher share and African countries a lower share. Let each country determine each products' price. \n\nWorld-wide, medicines advance societies. If not pegged to reduce other costs (managed care model), let the patient pay more. \n\nTake my idea. Own it. Please. Just spread the word.

February 18, 2009

Well put on many topics, including IP, FDA and price controls.\nCalifornia companies employ more than 260,000 people. These companies are responsible for 210 treatments in phase III and companies are anticipated to invest $50 billion in new jobs, facilities and equipment to bring these treatments to patients.\nIt cannot go without saying that BayBio is doing all it can to keep this incredible opportunity in California. In the new economy, innovation must be at the heart of American competitiveness if we are to truly succeed during this economic climate. The life sciences industry truly holds economic salvation for the Golden State.\n

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