21 Feb Burrill: Plenty of capital, not enough connections
Madison, Wis. – Greater Madison biotechnology executives should stop worrying too much about raising capital and focus on mastering a new biotech business model, according to life science venture investor G. Steven Burrill.
Burrill, founder of Burrill & Co. in San Francisco, is considered a pioneer in the world of biotechnology investing. The Madison native returned to his alma mater Thursday to deliver a lecture in the Microbial Science Building on the University of Wisconsin-Madison campus.
His subject was the global transformation now taking place in areas like biotech and biofuels, but his best advice may have been aimed locally. Burrill spoke of a bio business model that is transitioning from vertical integration for research, manufacturing, clinical and regulatory steps, and sales and distribution to more of a virtual integration model with partnerships for all of these functions.
Burrill, who publishes an annual report on the biotechnology industry, said the changing model means it will be far less important to be in San Francisco and more important to be virtually integrated. “To succeed in Madison, you don’t have to get me here,” Burrill said. “You have to be linked.”
The value of integration, he said, is evident in the RCA example. RCA invented the color television set, but could not sell color TVs initially because none of the national television networks broadcast in color. The company’s solution was to acquire the NBC television network and make it the first network to broadcast in color. The rest is history.
In contrast, healthcare still is one of the few industries in which important pieces – buyer, payer, and practitioner – are delinked, he noted. The industry will need a greater degree of integration, he said, as it helps deal with issues like pandemic disease and regulatory harmonization.
Burrill & Co. is a life sciences merchant bank that concentrates on companies involved in biotechnology, pharmaceuticals, diagnostics, and other health-related industries. The firm, which primarily raises money from large companies, has more than $950 million under management worldwide and is increasingly raising money globally. Following his visit to Madison, Burrill was off to Dubai in the Middle East, where a surge in petroleum revenues is creating vast sums of wealth.
During his apperance in Madison, Burrill said something that would surprise those who are working to raise Wisconsin’s profile to outside investors – there really is no shortage of venture capital. “I would put every dime in Madison if the best deals were here,” he said.
World in transition
The new bio business model will continue to emerge as it becomes more difficult, thanks in part to the Vioxx scare, to get new products approved, as researchers increasingly turn to the private sector for grants, as Congress attempts to give Medicare more power to negotiate what it pays for drugs, and as the pharmaceutical industry is increasingly seen as the bad guy when it is, in fact, part of the solution. These are all challenges that Burrill said would accompany the opportunities that await biotech.
New business models are only part of a transformation that is changing the scientific world from one dominated by chemistry to one ruled by biochemistry, from one-size-fits-all to personalized medicine, and from the mindset that says aging “just happens” to an era in which aging is optional.
The longer life spans that result will raise healthcare costs from the current $2 trillion, or 18 percent of the Gross Domestic Product, to $4 trillion, or double its current percentage of GDP by 2015. Medicare, he added, is on track to spend more than it takes in by 2013.
Some, including HIMSS chairman John Wade, don’t believe this slice of GDP is sustainable and view greater adoption of healthcare information technology as a mitigating factor. Burrill, however, believes it’s inevitable. He cited the combination of greater longevity made possible by new drugs for AIDS and cancer, and the aging population they create. None of the presidential candidates, he added, will be able to stop it.
While many believe the bulk of healthcare costs are linked to drugs, 75 percent of healthcare dollars actually are spent on chronic care. “What has happened is we’ve taken all these things that used to kill us – a dead patient is a cheap patient – and by keeping people alive through chronic care therapy, it’s costing us money,” Burrill said.
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