Life science 2008: Where are we? Where are we going?

Life science 2008: Where are we? Where are we going?

Is the biotech industry facing a nuclear winter as some have forecasted? Will many of the smaller companies disappear due to lack of financing monies? Tough times surely lie ahead, but we are a resilient industry, and there are still many diseases needing more effective medicines, a rapidly aging population requiring increased healthcare, and persistent entrepreneurs to bring these to the forefront!
What are some the top trends that have taken place in 2008 that we may see carried through to 2009? This is my take on the top six at the advent of a new presidency:

  1. Healthcare reform in the U.S.
  2. Growth of stem cell research.
  3. Big Pharma rushing to transform itself into biotech.
  4. Japanese and Indian pharma globalization.
  5. Biofuels on a backburner but an increased need for alternative renewable fuels.
  6. Biotech consolidation.

Let’s take a look at each of these.
Healthcare Reform
Obama, Hillary Clinton, and McCain campaigned heavily on the need to increase healthcare coverage in the U.S. Although the oft-cited number of 45 million Americas without healthcare coverage is at the forefront of this change, with all the layoffs this year (and more coming next year), surely this number has increased significantly. Moreover, there is a need to contain rapidly escalating healthcare costs at U.S. hospitals.
This cost has increased to the point that U.S. insurers are now more open to reimbursing patients for “medical tourism,” that is medical treatment in another country at a substantial cost discount to the U.S., including the cost to fly there and stay in a hotel in that country. There are some two million U.S. “medical tourists” today and this is expected to increase to 10 million in a few years by experts. U.S. hospitals may find themselves going the way of U.S. car companies if they are not careful to contain their cost structure because consumers (patients) no longer have the patience or money to afford the incredibly high expense of American healthcare.
Both Wal-Mart and the pharmacy chains such as CVS and Walgreens have realized the need for lower cost healthcare starting up low cost patient clinics in their stores. These clinics are expected to expand significantly in 2009. Additionally, they have fired yet another cannon on healthcare costs by making a large amount of generic medicines available at low cost ($4 for a one-month supply of medicine). Speaking of generics, not only will 2009 (and 2010) mark major years of blockbuster drugs coming off patent (which will help American consumers but create havoc in Big Pharma), but it is highly likely that the FDA, like its European counterpart EMEA, will authorize a “bio-similars” (bio-generics) approval process, enabling the entry of a number of generic biotech drugs into the U.S. market.
This is also an important message to both Big Pharma and the biotech industry: the days of exorbitant pricing of new biotech drugs are coming to an end. Yes, it takes a long time and a lot of money to develop a new drug and get it approved by an ever more conservative FDA, but new more cost-effective models for drug development are needed with better predictive tools on how a drug will fare in human testing.
Growth of stem cell research
This one seems to be a no-brainer; the Obama government will most likely revoke the Bush Administration executive order limiting embryonic stem cell research, hopefully stimulating a wave of new research in this promising field. Although the U.S. research efforts in adult stem cells and cord blood stem cell research has gone forward during the Bush years, the limitation on embryonic stem cell research to a few limited lines has vastly limited U.S. research efforts, allowing countries like Israel to jump far ahead of us. This area of medicine has vast transformative potential for treating a giant array of diseases and will hopefully accelerate. To help the U.S. regain the lead, the Obama government should also increase NIH funding of this research modality.
Big Pharma rushing to transform itself into biotech
This trend is more than the tried-and-true strategy of mergers & acquisitions (M&A), which really is about acquiring product pipeline. The problem with Big Pharma acquiring biotech companies is that the discovery genius behind the drugs often left soon after the merger, and Big Pharma often did not know how to capitalize on these new drug discoveries. More recently, Big Pharma has realized that it is not just swapping large molecules for small molecules but transforming the way it does R&D and the culture of doing R&D, where centralization and “brute force” doesn’t work.
Many of the Big Pharmas are trying to radically change their R&D environment, but it is not clear how successful they are. One measure is the creation of Big Pharma biotech incubators out of downsized facilities, hoping that some of the small company culture will rub off on its own scientists. The latest rumor is that Pfizer, as it is getting closer to the precipice of generic Lipitor, is considering a run at Amgen. Even though Pfizer has some $26 billion in cash, this is no easy feat given Amgen’s market cap of $61.3 billion (compared to Pfizer’s market cap of $116.7 billion). Taking out Amgen will go for a lot higher than the current market cap.
Surprisingly, 2008 has not been a year of major M&A activity of large companies, but rather of smaller bite-sized acquisitions. Even Roche has been stymied in its acquisition of Genentech, a company it already owns a significant chunk of.
Japanese and Indian Big Pharma globalization
2008 (and 2007) have clearly been the years when Japanese Big Pharma has been on the move with voracious M&A appetite, with Takeda acquiring Millennium, Eisai acquiring MGI Pharma, Astellas making a number of smaller biotech acquisitions, and Daiichi-Sankyo acquiring Indian company Ranbaxy, taking advantage of a strong yen-dollar relationship.
Indian companies, while not as flamboyant and with less cash, have also made acquisitions in Europe and the U.S. Both will continue this trend in 2009 and beyond. For the Japanese, it’s all about supplementing pipeline, and for the Indian companies it’s about acquiring infrastructure and presence.
Biofuels on a backburner, but the need for renewable fuels increases
With the price of oil dropping to below $40/barrel, and even with the OPEC nations cutting back on oil production, it’s not likely that we will see above $100/barrel pricing in 2009 (although one never knows). As a result, biofuels has taken a major hit in the U.S. in its first stage. The biofuels industry, particularly here in the Midwest, was heavily criticized for its non-energy efficient approach of taking Midwest biomass of corn and soybean as its primary source of fuel in the rush to ramp-up production as an alternative source of fuel. The result was a large escalation of grain prices and food prices that depended on these grains.
While the Midwest has huge biomass in this area, a more efficient conversion process of this biomass is needed; this technology does exist at Midwest research universities and at places like Argonne. If U.S. biofuels is to succeed in its second stage, it will need to look at perhaps other more efficient biomass sources. There will also need to be a greater utilization of the Midwest’s nanotechnologies capability in other alternative fuels sources, whether it is solar or wind-driven energy, or other energy sources.
Biotech consolidation
Given that the overall level of financing for the biotech industry for the first nine months of 2008 was only about 38 percent of full year 2007 levels, and that partnering revenue was only about 46 percent for the same period of time, it is evident that: 1) biotech companies are getting much less funding for 2008; 2) biotech cash position is reaching critical levels; and 3) the ability to raise cash in 2009 is not going to be much easier and probably more difficult, there is expected to be at high rate of company failures and/or mergers during 2009.
The industry, realizing this dilemma, made a visit to Washington to pitch the utilization of what the industry has most of – losses. In their pitch, biotech leaders requested consideration of being able to convert these losses, which for revenue-generating companies is useful as tax loss carry-forwards, into cash as long as it is used for R&D expense. There is precedent for this, as the state of New Jersey has been doing this for some time.
The biotech industry has proposed a cap of $30 million per company. While this move is good, the actual sale mechanism of these tax losses is neither simple nor quick, and may not alleviate the problem short-term. Furthermore, a number of biotech companies are projected to be delisted from NASDAQ and AMEX due to the rapid fall in their stock prices.
Why doom is fleeting
Doom and gloom in the biotech industry is not a new topic and the industry has weathered tough times before, but perhaps never on some many fronts. The one point of optimism is Big Pharma’s continued urgency for new product pipeline, and they are now getting it at bargain prices (in a number of cases at 30 to 40 percent less than what it would have cost 6 to 12 months ago).
I am keen on seeing the stimulus created by the change in policy regarding stem cell therapy and hopefully new impetus here. Let’s see what Santa Obama will bring to the New Year!
Happy Holidays to all, and continued thanks for reading this column over the last five years!
Recent articles by Michael Rosen

Michael S. Rosen is president of Rosen Bioscience Management, a company that provides CEO services, including financing and business and corporate development to start-up and early-stage life science companies such as Renovar and Immune Cell Therapy. Rosen also is a founder and board member of the Illinois Biotechnology Industry Organization. He can be reached at rosenmichaels@aol.com.
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. The article is not meant to be a stock recommendation.
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 Wisconsin Technology Network, LLC. WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.