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Biotech around the World: An Overview

by Faiz Kermani and Pietro Bonacossa in June, 2003

New drug development

Pharmaceutical companies are finding it increasingly difficult to boost the output of new drugs. Growth rates in the double digit range have been commonplace in the industry, but with analysts suggesting that companies will have to triple their annual launch of new chemical entities to remain competitive and innovative, high growth rates cannot be taken for granted.

In recent years, some of the major companies in the industry have received some criticism by those who believe that they lack new ideas and methodologies. They assert that the industry is producing too many new drugs that are similar to each other and that offer little clinical advantage over those who are already on the global market.

As a result, many have looked to biotechnology to provide continuing innovation in the field of new drug development. Although still in its infancy, the biotechnology industry promises to deliver many benefits, such as medical treatment tailored to the individual patientfs biological make-up.

The potential of biotechnology

The development of novel medicines is critical if diseases and disorders are to be effectively treated. Despite the considerable medical advances that have occurred over the last few decades, there still remain major areas of unmet need.

Worldwide, there are more than 350 biotech drug products and vaccines currently in clinical trials which are targeting more than 200 diseases, including various cancers, Alzheimer's disease, cardiovascular disease, diabetes, multiple sclerosis (MS), AIDS and arthritis (1). The clinical impact that the current generation of biotech products have had for MS illustrate the exciting potential that biotechnology has to tackle disease (2). It should also be remembered that biotechnology is responsible for hundreds of medical diagnostic tests that detect medical conditions early enough to be successfully treated and keep the blood supply safe from various viruses. Home pregnancy tests are also biotechnology diagnostic products.

The number of biotech compounds has been increasing steadily over the last twenty years, reflecting the key contribution that biotechnology is now making to healthcare. The attention that has been paid to biotechnology is highlighted by the fact that between 1990 and 1999, global biotech R&D increased by 262%, whereas that for (non-biotech) pharmaceutical R&D increased by 121% (3). In 2001, around 35% of new drug launches were biotech products, whereas in 2000 the number had been less than 15% (3). This was surprising, given that the contribution of biotech to new drug launches had been declining for the previous two years (4). Therefore, it appears that in terms of new drug development, the future for biotech is promising.

Managing the R&D Process

The R&D process to produce new drugs involves a large investment of financial resources and time in the face of considerable risk. At every stage, the company must evaluate the time, logistics, expense and expertise that it can allocate. This also entails knowing when to rely on in-house capabilities and when to take advantage of skills that exist externally, such as those offered by Contract Research Organisations (CROs).

Although R&D is a scientific endeavour, it has to be balanced with commercial considerations. Biotech companies have less experience in the commercial arena than the large pharmaceutical companies and thus often struggle for financial survival. For example, according to Recombinant Capital and Signalsf May 2002 Stock Report, only 16% of biotech companies have sufficient finances to survive for more than five years - and 69% may not be able to carry on for further than a year (5).

The costs of drug development have increased steadily over the years, with the latest estimates putting it at around US$800 million (6). The majority of the R&D expense occurs at the stage when clinical trials are required. Although the chances of a new drug in development reaching the market increases with each stage of the R&D process, the route is still far from straightforward. Despite the efforts made by companies to improve success rates, it is estimated that only 15% of new drugs entering development will subsequently reach the market (7).

The picture worldwide

Worldwide there are more than 4,000 biotech companies (8). The most well known companies are located in the US and Europe, but there are significant companies emerging in Canada, Australia, New Zealand and throughout Asia. Most of these companies are small in size and limited when it comes to finances.

For many of these smaller companies, if they cannot get a drug to market on their own, there is the possibility of forging an alliance with a bigger pharmaceutical company. This will give the smaller company the finance to carry on with their R&D and for the bigger company it will have the result of supplementing their new drug pipeline.

This approach has proved very successful and some of the major pharmaceutical companies have well-established programmes for establishing collaborations with biotech companies. For example, the recent announcement, that Switzerlandfs Roche established with UK biotech firm Antisoma to exclusively buy worldwide rights to the companyfs portfolio of oncology drugs revitalised the biotech companyfs fortunes (9). The size and scope of the collaboration surprised many in the pharmaceutical and biotech industries but was viewed as advantageous by both parties. From Antisomafs perspective, if all its products were to reach the market, the company could earn US$500 million in revenues (9). For Roche, the deal allows them to supplement their already impressive oncology portfolio, which already includes lymphoma treatment MabThera, breast cancer treatment Herceptin, and breast and colorectal cancer treatment Xeloda, with innovative products to tackle other types of cancer (9).

Biotechnology in the US

The US biotech industry spent US$15.6 billion on research and development in 2001, which greatly exceeds the amount spent by foreign biotech industries. In general terms of productivity and in terms of attracting finance, US companies are well ahead of their nearest rivals in European. Around 72% of the global biotech revenues are from US companies (8).

There is little doubt that the US has a better environment for biotech companies to flourish than other geographical regions of the world and this is clearly illustrated by the level of general funding available for businesses. Thanks to the availability of such funding, the number of biotech companies in the US has steadily been growing. In 1992, there were 1231 companies with 79,000 employees, but by 2001 this had risen to 1457 companies with 191,000 employees (8, 10).

According to BIO, although the US industry as a whole remains unprofitable, biotech companies produced revenues of US$20 billion (10). US companies such as Genentech, Amgen, Biogen, Chiron and Genzyme have demonstrated impressive growth over the last twenty years and have brought to market important products, which counters the view that biotech companies cannot balance their scientific flair with commercial awareness.

Biotechnology in Europe

The biotech industry in Europe has struggled with funding problems, but there is still considerable enthusiasm for its future. According to Ernst & Young, Europefs biotech sector attracted US$1.4 billion in private equity in 2001, compared with US$1.2 billion in 2000 (8). This is a positive sign for the industry, given that overall investing by European venture capitalists has dropped following the failure of others in the technology sector such as the dot.com companies. In fact, the current uneasiness regarding the telecom and Internet businesses might encourage those with a technology-focus to consider investing in biotech companies. Of particular interest are companies that are more product-focused rather than technology platform-focused.

There are 1,879 biotech companies in Europe, with most of these being located in Germany, the UK, France and Sweden. At present, Europe accounts for 22% of global biotech revenues (8). One of the problems that these companies face in terms of attracting new funding is to convince investors that they have the ability to get their products to market. Despite some successes, at the moment, they are somewhat behind their American counterparts in this respect.

Biotechnology in Japan

Japanese biopharmaceutical companies have played an important part in new drug innovation. Some of the worldfs leading drugs, such as Bristol-Myers Squibbfs pravastatin for high cholesterol, TAPfs lansoprazole and Daiichifs levofloxacin were discovered in Japanese laboratories (11). With this history of important drug research there is keen interest in biotechnology.

The Japanese market is becoming more accessible, offering new opportunities for small-stage biotech companies that have exhausted partnering prospects and had difficulty receiving funds from U.S. investors. Under Japan's socialized health-care system, reimbursement rates for prescription drugs can be as much as 10 times higher than reimbursement rates in other parts of the world. Moreover, Japan also has one of the highest prescription drug consumption rates in the world, and a solid trial run in Asia can improve prospects for the modest number of biotech companies that will ultimately survive.

Today, Japan has an established pharmaceutical market, comprising roughly 12 percent of the global pharmaceutical industry (12). Now battling a flagging economy, Japan is looking to gain notice in the biotech field and is seeking out US companies to help it gain a larger share of a limelight that has shone mostly over the United States and Europe. In addition, an improvement in the international regulatory climate should make it easier for US companies to obtain drug approval. The International Conference on Harmonisation of Technical Requirements for the Registration of Pharmaceuticals for Human Use (ICH) has been a strong driver in this regard (13). ICH aims to eliminate redundant studies and promote global clinical development with the anticipated impact of further reducing development times and costs. ICH is a unique project that brings together the regulatory authorities of Europe, Japan and the United States and experts from the pharmaceutical industry in the three regions to discuss scientific and technical aspects of product registration (13)

With the assistance of the Japan External Trade Organisation (JETRO), which matches US companies with their Japanese counterparts, many US biotech firms are in talks with companies in Japan about possible alliances with the purpose of entering the Asian market.

Established in the 1950s as a government-funded nonprofit, JETRO's original mission was to promote Japanese exports overseas to aid in the development of Japan's post-war economy. Having met that goal, JETRO, with seven US offices and 80 overseas offices, changed its mission completely and is now trying to promote imports into Japan. To accomplish the new goal, JETRO sponsors study programs for US companies, carrying them overseas at no expense and lining up the kind of pressed-suit meetings small biotech businesses have difficulty obtaining.

According to Ernst & Young, the Japanese biotech sector should experience strong growth in the next few years, partly because of continuing support from the government (8). For example, the government selected genetic research as one of the key areas in its eight Millenium Projects. These are joint industry-academia-government projects and have around US$1 billion in funding allocation (8). Despite this focus, the biotech industry has some way to go. Current estimates suggest that the number of biotech companies in the USA is 25 times that of Japan (8).

Funding for small companies should also improve through initiatives such as the Japan Bio-Venture Development Associationfs (JBDA) collaboration with Global Tech Investment (14). This initiative aims to connect technology-based researcher in universities with interested parties in the business community. With a team of ten professors, the JBDA is in charge of identifying potential technologies in the university environment whilst the GTI concentrates on developing funding through its business specialists (14)

Another interesting development is a recent change in the law that allows faculty members at national universities to serve simultaneously as corporate executives in start-ups (15). This will be a major boost to the concept of the start-up company and should lead to an increased focus on biotechnology in Japanese new drug development.

The challenge for biotech companies

Although the medium to long-term potential for biotechnology is promising, the short-term funding problems are very real. As with most sectors affected by the current state of the world economy, the biotechnology industry is experiencing funding difficulties. Capital to finance new ventures has become less certain, and biotechnologyfs entrepreneurs (who are both businessmen and scientists) find themselves stuck between the desire to make money and the desire to find treatments for diseases.

Shares in biotechnology companies have done very poorly during the last three years, and this is partly because of the risks involved in producing biotech drugs. Only a small fraction of potential drugs will make it through the hazardous process of clinical trials and regulatory approval.

However, along with high risks, biotech companies can achieve high rewards. For those drugs that do make it through the final trial phase and regulatory approval, the potential demand is huge. After all, medical need does not depend on the economy and there remain disease areas where the current therapies are less than ideal. Although the biotechnology industry has endured several slumps over its 20-year history, the overall trends have been positive by many important measures: number of companies, number of approved products, market capitalisation and revenues. It is these positive factors that should help companies with the right scientific and commercial strategies to prosper in the future.

References

  1. Biotechnology Industry Statistics. Biotechnology Industry Organization (BIO). http://www.bio.org
  2. Kermani F. (2000). Global Pharmaceutical Pricing: Strategic Issues and Practical Guidelines. Urch Publishing http://www.urchpublishing.com/
  3. Kermani F and Findlay G (2000). The Pharmaceutical R&D Compendium. CMR International. http://www.cmr.org/
  4. Kermani F & Van den Haak M (2002). Drug development 2001. CMR International. http://www.cmr.org
  5. May 2002 Recombinant Capital and Signalsf Stock Report. http://www.signalsmag.com/
  6. Outlook 2002. Tufts Center for the Study of Drug Development. http://csdd.tufts.edu
  7. G Ashton and F Kermani (2002), gGetting to grips with attrition ratesh, CMR News, Vol 20 (1), pp. 8–9. CMR International. http://www.cmr.org
  8. Beyond Borders. The Global Biotechnology Report 2002. Ernst & Young.
  9. Antisoma hails eground-breakingf Roche cancer deal. PharmaFocus November 18, 2002. http://www.pharmafocus.com/Pharmafocus/News/story.asp?sID=2684
  10. Biotechnology Industry Statistics. Biotechnology Industry Organization (BIO). http://www.bio.org
  11. Pilling D (2001). Pharmaceuticals 2001/Japanese Focus. Financial Times.
  12. 2002 World pharma sales growth: slower, but still healthyhttp://www.ims-global.com/insight/news_story/0302/news_story_030228.htm
  13. The Value and benefits of ICH to Industry (2000). http://www.ifpma.org
  14. Murai F. (2003). Global Outsourcing Review. Vol 5 (2): 95-96.
  15. Japan Biotechnology Industry. Biotech Japan. http://www.biojapan.org

This article is a contributed to BioJapan by
Faiz Kermani, Ph.D. (Faiz.Kermani@chiltern.com) and
Pietro Bonacossa, MBA (Pietro.Bonacossa@us.chiltern.com),
both at Chiltern International, on June 12th, 2003.

Copyright remains with the authors. For questions and comments, please do not hesitate contact them directly.
BioJapan.de is grateful for this timely contribution.

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