The greatest life-science developments of 2004

The greatest life-science developments of 2004

What have been the greatest developments in life sciences for 2004 and what impact will these have on the future? While a lot of things have happened in 2004 in the land of biotech and pharmaceuticals, the answer could be:
1. Merck’s taking Vioxx off the market due to potent cardiovascular side effects and the resultant scrutiny on the FDA for not being on top of a company’s drug reporting. By the way, the recent Pfizer debacle with Celebrex in the last two days has confirmed that this cardiovascular side effect may well be a drug class effect.
Two long-term issues arise out of this situation.
First of all, will venerable Merck survive after all is said and done (not just due to the resultant loss of sales and profits of Vioxx but also due to the potential class liability suits under way against Merck and to a number of key drugs going off patent). The answer is that Merck will probably survive but not in its current shape or form.
Second, will the FDA reshape its policy regarding drug reporting information by pharmaceutical companies (that is to say the reporting of information once the drug has been approved)?
Once again, the answer is that there most likely will be increased scrutiny on drug reporting. However, the way in which this will be mandated is still not clear. Currently, we don’t even have a new FDA commissioner and the agency is being managed by acting commissioner Lester Crawford.
2. The acquisition of Guidant by Johnson & Johnson for $24 billion. This news was just announced within the last week and marks Johnson & Johnson’s largest acquisition to date. The acquisition of ALZA was the previously largest acquisition. Remember that Guidant was Eli Lilly’s former medical device division, which was spun off a few years ago.
Johnson & Johnson’s pharmaceutical pipeline has been ailing and it also needed to shore up its stent and device business. Guidant fit that bill. Via acquisitions, Johnson & Johnson has rapidly built an increasingly strong place in the industry to hedge its bets on both drugs (Pfizer) and medical devices (Medtronic).
3. The mergers of four Japanese companies this year. Anyone who has studied the Japanese knows that mergers between Japanese companies are not only not common but are in fact very rare. There is a growing realization that many Japanese pharma companies are in a difficult situation because they haven’t internationalized during the last 20 years.
The mergers of American and European pharma companies have created much larger presences in Japan in addition to the fact that these companies have reclaimed full ownership of their former joint ventures with Japanese companies. Additionally, American and European pharma acquired Japanese companies (Merck acquired the remaining part of Banyu that it didn’t own and Roche acquired Chugai).
Out of survival necessity, the M&A process in Japan has finally started with Yamanouchi acquiring Fujisawa this year and creating the new “Astellas” and Sumitomo Pharmaceuticals having recently acquired Dainippon.
My response is that there is still much more to come in 2005 and beyond and at a faster rate as there are still many Japanese pharmaceuticals companies that are in the same boat. These include companies such as Mochida, Eisai, Sankyo, Kyowa Hakko, Otsuka, Daichi, Tanabe, Shionogi, Green Cross Meiji Seika, Yoshitomi, Tsumura, Nippon Kayaku and Ono.
Quite frankly, my final answer (as Regis would say) to the original question is: None of the above!
I think the most significant trend is the emergence of both India and China as major pharmaceutical markets and forces in the life science field for the next 20 to 30 years. While I have written a bit about the life sciences efforts of both countries, a very recent article in the Pharmaceutical Executive December 2004 edition (called “Unleashing the Dragon” by Zhu Shen) made me think even more about China.
Look at some of the data supporting China becoming a major force in life sciences (according to Pharmaceutical Executive):
Pharmaceutical Market:

  • China is currently the seventh-largest health-care market in the world.
  • By 2010, it is expected to become the fifth largest with pharmaceutical sales of $24 billion. In comparison, the U.S. market is currently almost 10 times as large today.
  • Some experts say that China could surpass the U.S. by 2020 to become the world’s largest pharmaceutical market.
    Disease Profile:

  • Hepatitis B and C and HIV/AIDS are still major problems in China.
  • The overall Chinese disease profile is beginning to look more and more like that of the Western world.
  • Cancer (liver, lung, gastric and colorectal) and cerebrovascular, cardiovascular and respiratory diseases accounted for 77 percent of deaths in 2000.
  • Changing lifestyles should increase the amount of diabetes and obesity in China as it has done in nearby Korea.
    Expanding Chinese Consumer Class:

  • The Chinese “luxury consumers” are expected to reach 100 million people by the next decade and will be the force behind the rise of new private hospitals with U.S.-style premium services. This has already started with the introduction of U.S. in vitro fertilization clinics in China.
  • These consumers will demand better health-care and will be able to pay for it.
    Investment By American and European Big Pharma:

  • Pfizer has invested more than $500 million in China since the 1980s but has current annual sales of less than $150 million.
  • GlaxoSmithKline has invested about $400 million and has annual sales of about $300 million.
  • AstraZeneca has invested about $140 million and has annual revenues of about $151 million. This company expects to increase its sales force to 900 people in China. Also, this company opened an East Asia clinical trial center in Shanghai.
  • Novartis has invested about $70 million in China and has annual sales of about $120 million.
  • Roche opened an R&D center in Shanghai, which is its first in Asia and fifth worldwide.
  • Eli Lilly also opened up an R&D facility in Shanghai.
  • Novo Nordisk opened up an R&D facility in Beijing.
    Expertise in Biology:

  • China has about 20,000 biologists with a master’s degree or higher. They are paid 20 percent to 33 percent of what similarly qualified biologists make in the U.S.
    Return of Chinese Biotech Expats:

  • These Chinese entrepreneurs are often students who pursued science graduate degrees in the U.S. during the 1980s and 1990s and went into U.S. biotech or Big Pharma companies. They have returned to China and started up new Chinese biotech companies.
    Examples include Kevin Chen of Shanghai, who started up South Gene Technology (the commercial arm of Shanghai’s National Human Genome Center) and Shanghai IgCon Therapeutics (a joint venture between SGT and the California biotech company Genastix).
    Also, Ge Li (who founded Shanghai-based biotech company WuXiPharmaTech), Liu Ye (who founded Beijing Honghui Meditech) and Yiyou Chen (who was educated in Beijing and Utah and founded StarVax).
    The Expansion of Chinese Research Parks:

  • This is not unlike the creation of the research parks in Japan during the 1980s (such as Tskububa City). The Chinese now have the China Beijing Bioengineering and Pharmaceutical Industrial Park with close to 7,000 acres of land for development. This is the largest industrial park in China dedicated to life sciences.
    Some 40 Chinese pharmaceutical companies and institutions have signed leases to move into this park in the next two to three years. The facility is close to 100 universities and top research institutions. By the way, the Shanghai Zhangjiang Hi-Tech Park includes both facilities for Roche and Eli Lilly.
    Intellectual Property Protection:

  • This has been an area of major concern to American and European pharmaceutical companies. Before 1993, China didn’t grant drug patents. China was granted entry into the World Trade Organization in 2001. The government’s interest in attracting foreign investment has improved the outlook for IP (including 20-year patent life).
  • The China Patent Office received 105,318 applications for inventions in 2003 (about the same number as filed in the U.S.). Of this, about 46 percent were for foreign patents and 54 percent were for local Chinese companies.
  • The recent Viagra case in China (where Pfizer lost and is appealing and its patent was declared invalid because it failed to accurately explain the use of its drug’s key ingredients) was a signal to many pharmaceutical companies. Nevertheless, the situation is improving and local companies have been fined.
    Injunctions to stop infringement are routinely granted now (though the court system does not grant damages).
    Perhaps another sign of the Chinese government’s willingness to attract companies, technology transfer and grow its pharmaceutical and life science business is the allowance of foreign pharmaceutical companies to participate in the Chinese pharmaceutical distribution industry (a major trade barrier for companies in Japan).
    By the end of 2004, the entire retail and wholesale drug market will be open to foreign companies. It has already opened in selected cities. Finally, the Chinese have reduced tariffs on imported pharmaceuticals from 9.6 percent to 4.2 percent on average.
    Though American pharmaceutical companies have not had the kind of penetration that other American companies have achieved in China, the profits can be significant. According to Pharmaceutical Executive, General Motors had a profit of $437 million in 2003 in its Chinese operations, which was more than 50 percent of its entire North American profits.
    Intel generated revenues of $3.7 billion from China in 2003 and China became the third-largest market for this company and one of its most profitable markets. Intel has invested in start-up technology companies in China and currently has venture investing of more than $200 million in 50 Chinese companies.
    With the right kind of strategy, it’s clear that a company can achieve significant sales there now. It’s not necessarily about pricing low given the difference in income levels with the U.S.
    GlaxoSmithKline launched its drug (Heptodin) for the treatment of Hepatitis B. This drug was priced at $1,000 per year (cost of treatment) per patient, which was a comparable price to the U.S. or Europe. This product is the top-selling drug in its class.
    When will a Chinese pharmaceutical company enter the U.S. market? While it’s not clear when, I would expect that we would certainly see one within the next five years just as we are already seeing the entry of three Indian pharmaceutical companies in the U.S. (Dr. Reddy’s, Ranbaxy Laboratories and Sun Pharmaceuticals).
    It would not be surprising if the first might be the Beijing Pharmaceutical Group (one of the largest Chinese pharmaceutical companies). Of more importance is how the Midwest can play a role in attracting these companies to our region of the U.S. as well as creating a significant business in China with our own life science companies.
    These companies include Abbott Labs, Baxter, Monsanto, Procter & Gamble, Cargill, Dow Chemical, Cardinal Health and Medtronic. It seems that the Midwest’s Eli Lilly is already putting in the building blocks of success in its China strategy. See you next week and happy holidays!

    Michael S. Rosen is the chairman and CEO of Immune Cell Therapy, a new start-up out of the University of Illinois at Chicago developing cancer vaccines. Rosen is also a founder and board member at the Illinois Biotechnology Industry Organization (IBIO). He can be reached at

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