Biotechnology: Past, Present, and Future

Thirty years after the first biotechnology company opened its doors, the sector is reaching a new level of maturity and globalization.
Oct 01, 2007
Volume 20, Issue 10

Biotech companies once vied for strategic big pharma alliances; today Big Pharma looks to biotechnology for its future success. The current challenges that biotechs face include global issues, dramatically increasing drug development costs, and contentious regulatory issues. Meanwhile, biotechnology is driving a global transformation from the treatment of illness to the treatment of wellness. US capital markets remain the major sustenance for biotechs, but opportunities are arising abroad. Initial public offerings (IPOs) will continue, but the hot biotech IPO market of 2000 will probably never return. Partnering deals will also continue, as companies seek to gain early-stage technology access. Biotechs will become increasingly global as companies look to India and China for manufacturing and clinical trials.

G. Steven Burrill
By and large, the fledgling biotech industry of 1986 was highly dependent on the pharmaceutical industry; its success was measured, particularly by the capital markets, in terms of how many strategic alliances a biotechnology company had signed with Big Pharma. The biotechnology industry comprised approximately 700 companies (150 of them public) that were just beginning to fulfill their basic promise as commercial ventures. Those were the days when decision-making for a biotech company's senior management and its investors was relatively straightforward. A series of venture capital rounds would fuel product development until Phase 2, then the company would court a US-based Big Pharma and strike an alliance for late-stage testing and regulatory filing in return for low double-digit royalties. At that time, the list of pharmaceutical companies willing to work with a biotech company was long—about 40. Over the past 15 years, however, Big Pharma has progressively consolidated; now only about half as many pharmaceutical companies are willing to work with biotech companies, and the deal makers are likely to have European or Japanese addresses (based on an analysis of the top pharmaceutical deal makers over the past six years). These statistics are a clear indication of biotech's transformation into a global game—one that is fiercely competitive and has companies vying for leverage, technology leadership, and market share.


Quick Recap
With in-house research and development productivity (R&D)less than stellar, and with healthcare cost-containment policies driving the need for differentiation in the flow of new products, establishing effective alliance networks to secure innovation is critical for the pharmaceutical sector. In addition, pharmaceutical and large-cap biotech companies are in a fierce competition to find best-of-breed drug candidates, and they are willing to pay a premium for these even though they may be only in the laboratory or at the preclinical stage. This trend is one of the most interesting to emerge over the past four years. Big pharmaceutical companies are increasingly seeking alliances with biotech companies. Multinational pharmaceutical companies must cope with a dwindling number of products in their pipelines and impending patent expirations of their blockbuster drugs. Not helping matters is the fact that the pharmaceutical industry is experiencing a productivity crisis. The number of new molecular entities (NMEs) and priority review drug approvals has remained relatively flat in the past decade, despite huge investments in research and development. The amount of money that pharmaceuticals have poured into R&D has increased year over year from about $15 billion in 1995 to $43 billion in 2006.

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