CHICAGO – So just how old is the biotech industry? The July 2006 edition of MedAd News sustains that the industry has hit its 30th birthday in 2006.

I wrote a column on MidwestBusiness.com (then ePrairie.com) on “The Birth of Biotech: San Francisco, Boston, Geneva or Chicago?” nearly two years ago. In this column, I reviewed a number of key scientific events and dates as well as 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 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. As a result, they are at least 100 years old:

1. Pfizer started in 1849 and is 157 years old.
2. Bayer, the German pharmaceutical company, started in 1863 and is 143 years old.
3. Takeda Pharmaceuticals, the largest Japanese pharmaceutical company, dates back to 1781. This makes it 225 years old.

Even the oldest biotech company 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 (which are based on small molecules) are chemically synthesized. The exception is a class of drugs known as antibiotics, which are made from a fermentation process. Biotech drugs are “biologics” and are usually peptides and protein-based drugs.

After 30 years, the biotech industry has reached a number of key milestones in 2005, according to MedAd News:

1. All-time revenues of $63.1 billion, which grew 18 percent over the prior year. The entire pharmaceutical industry grew 7 percent in 2005 and 5 percent in North America.
2. Losses of $4.3 billion, which decreased 30 percent from the prior year.
3. 32 new product approvals in the U.S. including 17 first-time approvals.
4. The second-highest year for raising capital: $19.7 billion.
5. 66 M&A transactions.
6. 23 IPOs in Europe.

Other than continuous and ongoing M&A, more than 50 percent of new biologic drugs launched in the last five years have either been acquired or licensed by Big Pharma. According to MedAd News, here are some key industry trends that have emerged:

1. 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 (the 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 clustered into few products. A biogeneric would have an immense impact on a biotech company.

2. Price capping: Because biotech products have represented truly significant improvement in drug therapy as opposed to incremental improvement, biotech companies have been able to charge exorbitant prices for their products with some therapies costing patients up to $200,000 a year (e.g. Genzyme’s product for Gaucher’s disease).

   However, there seems to be increasing public and insurance company resistance to such pricing, which may limit their ability to achieve and maintain such pricing. With the onset of biogenerics and increased regulatory approval of biogenerics, there will be increased pricing pressure on companies.

3. Focus of cancer drugs on tumor types rather than tumor location: This dynamic is changing treatment modality in oncology. There are more than 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 can be subdivided further into several subsets (e.g. squamous cell carcinoma). New drug therapies are targeting these subsets. The cancer drug market is probably the fastest growing due to improved diagnostic technology but also 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.

4. Reimbursement and Medicare Part D: Biotech drugs (mostly considered “biologics”) have been poorly tracked under past and current medical benefits. 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 a column I wrote on March 6, 2006, we looked at the leading biotech companies based on 2004 sales performance. Thanks to MedAd News, we now have numbers for 2005. Let’s take a look at the top 25 biotech companies in the world:

Of the top 25 companies, 18 are from the U.S., three are from Switzerland, two are from Canada, one is from Ireland and one is from Australia. Note that the Irish company (Elan) was actually started by Donald Panoz in the U.S. 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:

Amgen and Genentech are clearly spending prodigious R&D sums comparable to Big Pharma levels. The next four companies aren’t too far behind. This R&D is the lifeblood of a biotech company. The above trends really only focus on the drug part of biotech. As a result, I would add the following trends:

1. 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.
2. The growth of industrial and environmental biotech.
3. The growth of nanotech, which represents 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. The agricultural, industrial and environmental segments will display much faster growth as this technology begins to mainstream into our society and other societies around the world using the same processes discovered in making novel drugs.

See you soon!