17 May In Globalizing Biotech, Midwest Must Differentiate From Pack
CHICAGO – In a column I wrote last year, I alluded to the internationalization of biotechnology. I was wrong. This business has become global. In fact, there are now 4,284 biotech companies in 25 countries, according to a May 2004 article in BioPharm International.
The biotech industry has 622 publicly traded companies around the world.
The industry spent $16 billion in R&D in 2001.
The industry employed more than 188,000 people around the world in 2001.
It is estimated that the global sales of biotech products could reach $100 billion by 2010.
Global sales of biotech products in 2003 achieved $41 billion and has been growing at a compounded growth rate of about 21 percent.
If the total pharmaceutical industry (which has sales approaching $400 billion a year) is growing at a rate of about 10 percent per year, traditional pharmaceutical products are growing at somewhere around only 7 percent per year (if you pull out the biotech products segment).
OK, so Wal-Mart is still bigger than our industry (we used to use the Merck analogy, which was supplanted by Pfizer and is now being supplanted by non-life science company Wal-Mart).
You know this is a growth business when you find out that tiny Switzerland (which traditionally is a country that’s strong in pharmaceuticals with companies like Hoffman La Roche, Novartis and Ares-Serono) has 227 biotech companies.
While the origins of the biotech market and industry are uniquely U.S., it shouldn’t surprise us that the U.S. is losing its share of this market given the proliferation of the biotech industry around the world.
After all, the U.S. doesn’t have a monopoly on scientific research and thought and biotech is an industry rooted in academic scientific research that begins at universities. There are still some driving forces that will allow the U.S. to maintain an edge in this industry. They are:
1. The largest pharmaceutical drug market (about 50 percent of the world market),
2. The largest conglomeration of venture capital ($2.8 billion raised for biotech in 2003, which ties for the best year in VC funding of biotech),
3. The most functional and receptive financial markets for the industry: the Nasdaq and the Amex ($13 billion was raised for biotech in 2003 in a combination of debt and new equity issues, according to Burrill and Company),
4. Huge U.S. government spending and funding (via grants and other funding vehicles) on the treatment and prevention of diseases,
5. The largest philanthropical interests in helping solve the mysteries of diseases (we’re not just talking about the more than $1 billion invested by the Bill & Melinda Gates Foundation),
6. The FDA, which is viewed by many as the world’s regulatory authority when it comes to new medicines because of its rigor and discipline in approving new drugs and because of new policies for approving drugs (such as fast tracks for drugs that treat life-threatening diseases). The FDA approved 25 biotech drugs last year (a record!).
7. Finally, the U.S. biotech industry has successfully developed and launched seven drugs with sales of at least $1 billion per year.
Be that as it may, the globalization of the biotech industry is a fact and it has already happened. Furthermore, it’s no longer just a U.S. and European phenomena. Case in point, according to the same article mentioned above, there are hotbeds of biotech companies all around the world.
Just looking at publicly traded companies (which is one measure of success because to become publicly traded means that a company has weathered several years of venture financing and has been deemed sufficiently valuable so as to weather the storms of “going public”), one sees the following trend around the world:
The governments of other countries realize the importance of this industry, and while not able to match the U.S. in funding the industry, they have been creative in stimulating the growth of their local biotech industry. Even the conservative Japanese (which have traditionally not embraced biotechnology and have held onto the vestiges of a not-very-creative local pharmaceutical industry) have dramatically changed their position on this industry.
They are now actively and vociferously supporting a shift into this industry given the huge impact that its aging population and the related health-care spending will have on its already overburdened health-care system over the next 20 to 30 years.
Biotechnology companies and partners are now emerging in other countries such as China, Cuba, Russia, Malaysia, Korea and Taiwan. Of course, biotech in India is growing like gangbusters.
In particular, the Chinese government has been spurring the growth of this industry as there is a long pharmaceutical and indigenous medical tradition (herbal medicines) in China. Shanghai and Beijing are emerging as bioclusters that are attracting talent and venture capital.
Given the combination of many highly educated and skilled scientists and a low-cost structure, the Chinese are poised to become big players in biotech and the pharmaceutical industry. This combination plus a huge internal market (in terms of number of people needing health care) will provide significant economies of scale to gain a competitive advantage over western companies.
BIO 2004 in San Francisco
There is no better place to visualize the globalization of the biotech industry than in BIO’s annual meeting in June. This year, the meeting will go back to biotech’s roots, San Francisco, on June 6 through June 9. The meeting represents the Olympics of biotech (except it’s held every year). This year’s attendance is expected to approach 20,000 people from all over the world.
The exhibit area for this event is like walking through Epcot Center at Disney where you have all these countries and cultures represented from around the world (except that it’s all about biotechnology).
The Midwest’s presence at this event should prove much stronger than in the past as momentum is being built toward holding the BIO annual meeting in Chicago in 2006. Remember that there are about 300 biotech companies in the Midwest (of which about 30 are publicly traded).
The problem is that given the increasing globalization of biotechnology, the Midwest’s efforts may get lost in the international noise of this event. A very large Japanese contingent is expected this year in San Francisco that’ll join with the always large presence of the Germans and the Australians.
In order for the Midwest to take a leadership role in this kind of event, it must differentiate itself from the pack. Given the importance of agriculture in the Midwest and the Midwest’s role as the breadbasket of the U.S., one important area of differentiation is agricultural biotechnology.
Another point of differentiation is in the area of medical devices, biomaterials and diagnostics and the intersections of these industries with drugs. The Midwest has strong companies in these sectors in Minnesota, Illinois, Indiana and Michigan and should leverage this leadership position in these life science business segments.
Michael S. Rosen is president and CEO of Barbeau Pharma and a founder and board member of the Illinois Biotechnology Industry Organization (IBIO). He can be reached at email@example.com. This article has been syndicated on the Wisconsin Technology Network courtesy of ePrairie, a user-driven business and technology news community distributed via the Web, the wireless Web and free daily e-mail newsletters. They can be found at www.eprairie.com.
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