Biotech In The 1990s: What's In Store?

As scientist and educator, I think about the future of biomedical science and the people we train for careers in this area. Biotechnology is a very important part of that future. It is the child of a generation of scientists and businesspeople, and I am deeply interested in how this industry goes about fulfilling its promise in the coming years. The first biotech company--Genentech Inc.--was casually conceived in 1976 by Herbert Boyer, a University of California, San Francisco, biologist, and Robert Swanson, a member of a West Coast venture capital firm, while they were discussing, over a beer, the uses of recombinant DNA technology. Boyer presumably was excited by the prospect that this science could be used to improve the condition of mankind and provide meaningful employment to people. In 1976, it was not clear how to translate the new technology into its useful roles. But Genentech provided the model for attracting venture capital, reaching agreements with pharmaceutical companies, and securing Wall Street funding. Over the past two decades, this has remained the paradigm for transferring biotechnology advances from university labs to the commercial world. However, while the Genentech model is still valid overall, the success of biotech companies as we move through the 1990s will depend on how astutely they monitor and adjust their activities in light of such factors as the role of discovery research, shifting economic conditions, and the changing needs of large pharmaceutical firms. It was widely debated in the late 1970s whether biotechnology's value to the pharmaceutical industry would be sustained primarily by breakthroughs in its own private-sector labs or in universities with federally funded research facilities. The answer is now clear: Important science is not spawned primarily in biotechnology companies; it emanates from academic labs. There are several reasons for this, foremost among them the fact that the creation of a pharmaceutical company's wealth stems from the generation of proprietary compounds that are already protected by patents. Making a drug cheaper or better is not usually the critical issue; making a new drug that cures a new disease is the issue. Thus, the pharmaceutical industry is discovery-driven--not technology-driven-- and the value of biotech firms will be determined by their ability to parlay insights in medicine and biology, which stem from discovery- driven investigation, the province of academic research. This year, the National Institutes of Health will spend $10 billion supporting basic research. This total will be almost matched by funds from states, institutions, and foundations. The total funding for biomedical research that is released into the public domain, therefore, totals almost $20 billion. This is four times the amount that all biotechnology companies combined will invest in discovery research. At the same time, although the total investment in R&D by the pharmaceutical industry totals approximately $10 billion--the same as the NIH budget--much of this is spent on development rather than research. Thus, the basic discoveries in biomedical research that drive biotechnology remain primarily focused in public-sector institutions. What are the implications of the fact that discovery research in academia will continue to drive the biotechnology industry and that this research will primarily be funded by the public sector? It suggests that technology transfer between public institutions and privately held biotech firms will remain an important issue. If that is the case, the biotech companies that are good at finding the critical advances and securing the rights to new discoveries will succeed; so biotechnology companies must be receptive to new discoveries and must have the scientific expertise to develop them. Justifying Investment Currently, there are several hundred significantly sized biotechnology companies in the United States. A few of these are profitable, and among them are only a few that are not controlled by larger corporations. We can expect this trend to continue, although a few biotech firms could possibly emerge from the current era as independent, vertically integrated pharmaceutical companies with access to the capital required to adequately finance dramatic growth. But what if the capital markets are not available for the future development of any new, independent, free-standing companies? In that case, the technology and science in biotechnology companies must be evaluated on the basis of their competitive value relevant to pharmaceutical companies' investments in R&D. Can current R&D investments by the biotech firms be justified in terms of their value to the pharmaceutical industry? In pursuing an answer to this question, it is useful to compare the current biotechnology industry with a single giant pharmaceutical firm-- Merck & Co. Inc., for instance--which alone has approximately the same annual revenue as all of the biotech companies combined. The most interesting difference between Merck and the biotechnology group is the difference in their relative investment in research and development. Merck invests approximately $1 billion each year in R&D, while biotechnology industry firms collectively invest approximately $5 billion, with a large part of this focused on research. Now, if Merck can support a fully mature $40 billion company with $1 billion of R&D, and if biotechnology companies collectively are as efficient as Merck in converting R&D into valuable products, then--when the current set of biotech products are mature--the organizations supplying products to the pharmaceuticals should have an increase in value corresponding at least to that of Merck. Potential Hazards An alternative scenario is that the R&D base of the current set of biotechnology companies does not yield the scientific advances that will produce the future major pharmaceutical drugs within a reasonable time. If the biotechnology organizations have significantly underestimated the technical difficulty of, for example, developing their new candidate drugs, then the R&D resources are not being validly invested and they will be lost in the competition. Similarly, if organizations have misjudged the need or effectiveness of their new candidate drugs--that is, whether their use is cost-effective and beneficial in a societal sense--then the R&D investment will be lost in the competition. Thus, many questions arise. Is it premature to focus on approaches considered as "rational drug design"? Is the science and technology ready to move with some degree of certainty from, for example, a potential molecular target involved in a disease state to a small orally available and nontoxic drug that interacts with this target? A number of biotech companies have been established on the premise that this transition can be managed in a reasonable time. If this is the case, then our molecular understanding of diseases such as cancer, in terms of the activities of oncogenes and antioncogenes and the role of cell death and cell cycle control, offer exciting targets for pharmaceutical development. But if it is not possible to directly use rational approaches to move from target to drug, then the biotechnology investments in R&D in this area may not be more cost-effective than those of conventional pharmaceutical companies. Given the business expertise of large organizations, the competition will favor the more established companies if both small biotechnology companies and large pharmaceutical companies are equally effective in research. Small biotech firms can have particular problems with changes in direction given finite expertise and finances. For example, because financing is commonly dependent upon a specific drug target, a company may find it difficult to respond when a new discovery changes the possibilities for new drugs in its therapeutic area. Furthermore, the death of drug candidates is a serious issue for biotechnology companies. Clinical trials are experiments at the level of tens of millions of dollars, and even well-planned experiments sometimes do not work. When this happens, then organizations may find it difficult from a public relations perspective to close the trial and move on to the next opportunity. And if an organization cannot do this and it perpetually stays in phase II trials, then it will be doomed. Prospects There is little doubt that during the decade of the 1980s, the R&D investment in the biotechnology sector performed well in comparison with the R&D investment in the traditional pharmaceutical industry. Many valuable new products, such as erythropoietin, interferons, G-CSF, thrombotics, diagnostic methods for HIV, human growth hormone, and insulin, have emerged from the biotechnology sector. But what about the future? I am optimistic about the effectiveness of research to date in biotechnology, and I expect the industry will foster major products in the treatment of autoimmune diseases and inflammation, heart disease, and cancer. There also are big opportunities for drugs for diseases common to aging, such as osteoporosis and senility. In fact, it would not surprise me if research in neuroscience would not hold the most hope for innovative therapies, as it is commonly observed that 50 percent of all health costs are related to problems of the mind. I envision at the end of this decade a small group of freestanding biotechnology companies and a reinvigorated set of large pharmaceutical companies developing the discoveries of new biomedical science. And I envision the success of these companies to be primarily driven by research done beyond the boundaries of the companies--in laboratories of research institutions, medical schools, and hospitals. I anticipate that there may be an increase in formal arrangements between universities and hospitals, on one hand, and established companies, on the other, to transfer and develop technology. In the future, this transfer might involve "incubator" organizations, that is, private, research-oriented institutions that do not aspire to become vertically integrated, independent firms. As has been the case for the past 20 years, the biotech community must continue to evolve and change. The good news, as I have learned, is that people currently in the biotechnology community are committed to making this new science a meaningful part of mankind's future. Phillip A. Sharp, the 1993 Nobel Prize winner in physiology or medicine, is a scientist at the Massachusetts Institute of Technology's Center for Cancer Research. He also is Salvador E. Luria Professor and head of the biology department at the Cambridge, Mass., university. This essay was adapted from a keynote lecture Sharp delivered in mid-March at an annual meeting of the Massachusetts Biotechnology Council.

Biotech In The 1990s: What's In Store?

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