01 Aug At 30, biotech is an industry at a crossroads
So just how old is the biotech industry? The July 2006 edition of MedAd News sustains that the industry has hit its 30th birthday this year. On Aug, 23, 2004, I wrote an article for this publication on “The Birth of Biotech: San Francisco, Boston, Geneva, or Chicago?”
In this article I reviewed a number of key scientific events and dates and commercial milestones that date the industry back to the 1970s and perhaps the year Genentech and Amgen went public (1980). The authors of the above article postulate the seminal date as the date when the first major (and today largest cap biotech) company started: Genentech in April, 1976.
Let’s accept this premise for the moment, as it is a good one! How does this compare with the pharmaceutical industry? A number of American and European pharmaceutical companies started in the second half of the 19th century and as a result are at least 100 years old:
- Pfizer started in 1849 and is 157 years old.
- Bayer, the German pharmaceutical company, started in 1863 (143 years old).
- Takeda Pharmaceuticals, the largest Japanese pharmaceutical company, dates back to 1781, making it 225 years old.
So even the oldest of biotech companies is still in its relative infancy in comparison with the pharmaceutical industry! Remember that the pharmaceutical industry has its history closely tied to the chemical industry as most of its drugs, based on small molecules, are chemically synthesized. The exception, of course, is a class of drugs known as antibiotics, which are made from a fermentation process. Biotech drugs are “biologics,” usually peptides and protein-based.
After 30 years, the biotech industry reached a number of key milestones, according to MedAd News, including:
- All-time revenues of $63.1 billion, which grew 18 percent over the prior year (remember that the entire pharmaceutical industry grew 7 percent last year, and 5 percent in North America).
- Losses of $4.3 billion, which decreased 30 percent from the prior year.
- 32 new product approvals in the U.S., including 17 first-time approvals.
- The second highest year for raising capital, $19.7 billion.
- 66 M&A transactions.
- 23 IPOs in Europe.
According to MedAd News, some key industry trends that have emerged, other than continuous and ongoing merger and acquisitions (more than 50 percent of new biologic drugs launched in the last 5 years have either been acquired or licensed by Big Pharma), are:
- The onset of biogenerics: Both the European and U.S regulatory authorities have been grappling with this for several years, and both agencies have approved the first biogeneric: human growth hormone. The impact of biogenerics may affect biotech companies to an even greater degree than small-molecule generics has affected Big Pharma, as most biotech companies have few products on the market and sales are clustered into few products. A biogeneric would have an immense impact on a biotech company.
- Price-capping: Because biotech products have represented truly significant improvement in drug therapy, as opposed to slight incremental improvement, biotech companies have been able to charge exorbitant prices for their product (with some therapies costing patients up to $200,000 per year, such as Genzyme’s product for Gaucher’s disease). However there seems to be increasing public (and insurance company) resistance to such pricing, which may limit companies’ ability to achieve and maintain such pricing. With the onset of the first point, biogenerics, and increased regulatory approval of biogenerics, there will be increased price pressure on companies.
- Focus of cancer drugs on tumor types rather than tumor location: This dynamic is changing treatment modality in oncology. There are over 400 cancer drugs in development, and this development is changing how oncology clinical trials are being conducted. For example, it is not enough to say a patient has lung cancer today, as there are two broad types of lung cancer: small-cell and non-small-cell lung cancer. Each of these types of lung cancer, in turn, can be subdivided further into several subsets – squamous cell carcinoma, etc. New drug therapies are targeting these subsets. The cancer drug market is probably the fastest growing due to improved diagnostic technology, the recognition of specific types of cancer, and the continued growth of the disease. (While all of these drugs represent improvements, no drug has yet to be shown as curative.)
- Reimbursement and Medicare Part D: Biotech drugs, mostly considered “biologics,” have been poorly tracked under past and current medical benefits, but this may soon change as they are reimbursed in a manner similar to conventional drugs. Given the high cost of biologics, this reimbursement issue is becoming increasingly important.
In an article I wrote earlier this year (March 6, 2006), we looked at the leading biotech companies based on 2004 sales performance. Well, we now have, thanks to MedAd News again, numbers for 2005, so let’s take a look at the top 25 biotech companies in the world.
Leading Biotechnology Companies – 2005 ($ millions)
|Company/Country/Year Founded||Sales – 2005||% Growth over 2004||Income/Loss – 2005||% Growth over 2004|
|1. Amgen (U.S. – 1980)||$12,430||+18%||$3,674||+55%|
|2. Genentech (U.S. – 1976)||$6,633||+44%||$1,279||+63%|
|3. Genzyme (U.S. – 1981 )||$2,735||+24%||$442||+408%|
|4. Serono (Switzerland – 1906 )**||$2,586||+5%||<$105>||N/A|
|5. CSL (Australia – 1961)**||$2,494||+77%||$419||+149%|
|6. Biogen Idec (U.S. – 2003)||$2,422||+9%||$161||+541%|
|7. Gilead Sciences (U.S. – 1987)||$2,028||+53%||$814||+81%|
|8. Chiron* (U.S. – 1981)||$1,920||+11%||$181||+235%|
|9. MedImmune (U.S. – 1988)||$1,244||+9%||<$17>||N/A|
|10.Cephalon (U.S. – 1987)||$1,212||+19%||<$175>||<136%>|
|11.Millenium Pharmaceuticals (U.S. – 1993)||$558||+25%||<$198>||+22%|
|12.Celgene (U.S. – 1980)||$537||+42%||$64||+21%|
|13.Actelion (Switzerland -1997)||$533||+40%||$101||+44%|
|14.Elan (Ireland – 1969)**||$490||+2%||<$384>||+3%|
|15.ImClone Systems (U.S. – 1984)||$384||<1%>||$87||<$24>|
|16.PDL Biopharma (U.S. -1986)||$280||+192%||<$167>||<215%>|
|17.MGI Pharma (U.S. – 1979)||$279||+42%||$132||>999%|
|18.AEterna Zentaris (Canada – 1991)||$247||+38%||$11||>999%|
|19.QLT (Canada – 1981)||$242||+30%||<$325>||<96%>|
|20.Ligand Pharmaceuticals (U.S. – 1987)||$177||+8%||<$36>||+20%|
|21.OSI Pharmaceuticals (U.S. – 1983)||$174||+216%||<$157>||+49%|
|22.Enzon Pharmaceuticals (U.S. – 1981)||$166||<2%>||<$90>||N/A|
|23.Vertex Pharmaceuticals (U.S. – 1989)||$161||+56%||<$203>||<22%>|
|24.Amylin Pharmaceuticals (U.S. – 1987)||$141||+315%||<$207>||<32%>|
|25.Berna Biotech (Switzerland – 1898)**||$137||<16%>||<$11>||+45%|
|TOTAL TOP 25||$40,036||+25%||$5,273||+66%|
Source: MedAd News, July 2006
*=acquired by Novartis during 2005
**=started out as a conventional Pharma company
Of the top 25 companies, 18 companies are from the U.S., 3 from Switzerland, 2 from Canada, one from Ireland, and one from Australia. Note that the Irish company, Elan, was actually started by an American, Donald Panoz.
A key component of the biotech industry is the high investment in R&D and the productivity of this R&D. Let’s take a look at the level of R&D that the top biotech companies spend.
Leading Biotech R&D Expense ($millions)
|Company||2005 R&D Expense||% Growth|
|3. Biogen Idec||$748||+9%|
|9. Millenium Pharmaceuticals||$342||<15%>|
|10. Gilead Sciences||$278||+24%|
|Total Top 10||$7,215||+14%|
Source: MedAd News, July 2006
Clearly, Amgen and Genentech are spending prodigious R&D sums, comparable to Big Pharma levels, but the next 3 yo 4 companies are not too far behind. This R&D is the life blood of a biotech company.
All of the above trends noted by MedAd News really only focus on the drug part of biotech. As a result, I would add the following trends:
- The growth of agricultural biotech in the U.S., Asia, and Latin America. (Europe still hasn’t accepted genetically modified foods and crops; Monsanto has totally transformed itself from a chemically driven company in this field into a biotech company.)
- The growth of industrial and environmental biotech.
- The growth of nanotech (representing a miniaturization of products and processes).
The next 30 years of the biotech industry will surely see further growth and progress of the drug component, but the agricultural, industrial, and environmental segments will display much faster growth as these technologies begin to mainstream into our society and other societies around the world, using the same processes discovered in making novel drugs.
The opinions expressed herein or statements made in the above column are solely those of the author and do not necessarily reflect the views of The Wisconsin Technology Network, LLC. (WTN). WTN, LLC, accepts no legal liability or responsibility for any claims made or opinions expressed herein.