A 25-Year Retrospective on the Biotech Business

Throughout BioPharm International 's 25^th anniversary year, we will be looking back at articles published in the first volume of the journal. This month, we rewind to an article titled "The BioTechnology Industry" by G. Steven Burrill, who now writes the journal's "Burrill on Biotech" column and is head of the global financial services firm Burrill & Company. The following is an abstract of the original article, looking at "new" issues and concerns facing the industry back in 1988.

Having emerged from the relative safety of the laboratory, biotechnology companies now confront the next set of management concerns and strategic issues. As industry generally begins to commercialize its products, it faces dilemmas over patents, regulation, competition, and the need to find capital in a changing economic environment.

Pricing. In the forefront of the commercialization issue are debates about product pricing and the acceptability of those prices. Generally, those biotechnology products that have made it into the marketplace are expansive; in fact, many people fear that their costs are prohibitively high. Although this expense is attributed principally to the high costs of product development, lack of industry precedent also has contributed to the general confusion....

A single dose of Activase [(a tissue plasminogen activator manufactured by Genentech and approved by FDA on Nov. 13, 1987)] currently is priced between $2000 and $2500. The most competitive product to Activase on the market, streptokinase (Hochest-Roussel Pharmaceuticals, Somerville, NJ), costs about $200 per dose. The question is, 'Will the substantially lower price for streptokinase effectively undercut Activase sales?' At this point, Activase's superior effectiveness appears to be a significant competitive factor. The question the medical community seems to be asking is, 'Under what circumstances do we choose to use less than 100% of the available firepower when a human life hangs in the balance?'....

Regulation. The regulation issue continues unresolved for industry, receiving ample attention from the media and creating an atmosphere of uncertainty for executives and investors. Biotechnology companies are expected to meet a baffling array of conflicting requirements as established by governments and agencies at the municipal, county, state, and federal levels. The resulting chilling effects may deter innovation and curtail entrepreneurs' enthusiasm and willingness to take risks.

Ironically, just when the industry is beginning to harvest the fruits of its labor, the American public is withdrawing its financial and political support. Having funded basic research for decades, Americans suddenly are afraid of biotechnology's end products. Rather than educate their constituents, government and community leaders are responding to public concerns by applying multiple layers of regulation, which obstruct the industry's attempts to reach the marketplace. Ultimately, ramifications will be felt in the international marketplace as countries such as Japan (whose government is dedicated to developing biotechnology) adapt and then market US innovations, just as they did with electronics. Out of the bureaucratic jumble, however, clarity is emerging. For instance, the ways in which biotechnology products move through FDA and EPA channels are becoming more defined.

Competition. Thus far this year, industry faces stiff competition from other biotechnology enterprises: large, established corporations, such as those in pharmaceutical, agricultural, and chemical industries; and foreign companies. Both Japan and West Germany have formed consortia to study and promote protein engineering, an area that many industry experts consider to be biotechnology's real future. Japan's stated mission is to be the leader in biotechnology by the year 2000, and the country's government has acted on this promise by forming the Society of Diet Members for the Development and Protection of Biotechnology.

The United States has no such consortia, even though its biotechnology companies operate in the international arena, competing for resources, patents, and markets. If these companies are hobbled by overzealous regulatory bodies instead of supported by legislation and capital grants, this country will lose the international race—the US economy will forfeit the profits of yet another technological sector.

Foreign companies are especially effective competitors given the recent changes in US financial markets. Biotechnology companies that had planned to finance R&D or to develop manufacturing and marketing through initial public offerings now must find financing from private sources. For example, cash-rich Japanese companies not only have capital for which US biotechnology companies hunger, but also long-term investment philosophies that accommodate long product-development cycles. The lack of domestic funds will create a vacuum that foreign investors will be only too happy to fill.