Rear-View Mirror Offers Preview of Road Forward
By Marie Powers
CHICAGO – The BIO International Convention is celebrating 20 years in 2013, and in some ways everything old is new again.
Created in 1993 from the merger of the Association of Biotechnology Companies (ABC) and the Industrial Biotechnology Association, the Biotechnology Industry Organization (BIO) held its first combined conference in Toronto in May 1994, where the crowd of approximately 1,500 attendees worried aloud about then-President Bill Clinton's proposals for health care reform and the specter of indirect price controls. That conference was named the Eighth International Biotechnology Meeting & Exhibition – a throwback to the meetings formerly sponsored by ABC – and current BIO president and CEO Jim Greenwood was still serving in the House of Representatives as Rep. Jim Greenwood (R-Pa.).
Two decades later, there's been a sea change in the industry, the convention itself has grown more than 10-fold and Greenwood has accrued eight years at the helm of BIO. But some things never change. In the industry's perennial hunt for financing, the emphasis on one-on-one partnering and related educational sessions has gained a growing sense of urgency over the past five years.
The number of educational sessions at BIO has fallen since 2009, when the industry was in the depths of the Great Recession.
Tracks also have declined and morphed from a mixture of science and business into a decidedly commercial outlook. In 2009, when attendance at the convention in Atlanta fell to about 14,500 visitors from 20,000 in San Diego the year before and nearly 22,000 in Boston in 2007, many of the 170 sessions across 22 tracks focused on the minutiae of drug discovery and development, including biomarkers, clinical research and trials, drug delivery, exciting science, federal science and opportunities, global biotechnology issues, the biotech work force and translational medicine.
Those tracks are gone – though some of the topics have moved to super sessions, boot camps, roundtables and forums. Broad topics related to clinical development remain – regulatory approval and compliance, drug discovery and development and vaccine innovation, for instance – but many of the 125 sessions across 17 tracks at BIO 2013 target business strategy, including patenting and tech transfer, business development, finance, international market briefings and – new this year – market access and commercialization.
Increasingly, convention participants have built some or all of their convention calendars around partnering meetings – expected to number 25,000 30-minute sessions involving more than 3,000 companies – and informal networking. That's especially true for biotech start-ups, where the financing picture remains bleak.
The initial public offering market has been active, and publicly traded biotechs are current market darlings, with the Nasdaq Biotech Index hitting record levels this year. (See the related story in today's issue of BioWorld Insight.)
However, "it's very, very difficult for first-time funders," Greenwood admitted.
The MoneyTree Report, released Friday from PricewaterhouseCoopers LLP and the National Venture Capital Association (NVCA) based on data provided by Thomson Reuters, showed that first-time financings in the life sciences fell 52 percent in the first quarter of 2013, to $98 million, compared to the previous quarter. Biotech accounted for $74.4 million of the total. The amount was the lowest quarterly total since the third quarter of 1996 and only the fourth time in the survey's history that the total fell below $100 million in a single quarter.
"The venture capital environment in biotech is severely stressed," said Jonathan Leff, partner at New York-based Deerfield Management and chairman of the Deerfield Institute, who serves on the boards for both BIO and the NVCA and has attended the convention for most of his 17 years as a venture capitalist.
"What we saw in 2012 was a continuation of the trend that we've seen over the last several years, but it was the lowest number of companies in life sciences getting first-time venture capital financing at any time since 1995," Leff told BioWorld Today. "That's the front end of the innovation funnel. If new, innovative companies aren't getting started and financed, down the road there will be less innovation coming through the pipeline."
Rachel King, founder and CEO of GlycoMimetics Inc., has seen that erosion firsthand.
"As an emerging company, it's so much more difficult to raise traditional venture capital," she said.
The situation has forced early stage biotechs to look at alternative funding sources – for example, from pharmas and disease-focused foundations.
And the 1Q 2013 numbers suggest the problem is getting worse, not better, Leff add, citing a dearth of new funds dedicated to life science and increasing caution by institutions and limited partners about the return on investment in biotech compared to software and other high-tech industries.
"We face great opportunities over the next five years," Leff said. "But we have to be able to make that case to institutional investors – pension funds, endowments and foundations – that are looking in the rear-view mirror and questioning the merits of this asset class."
Emphasize 'Strategic Potential' in Partnering
Partnering, where conversations often begin or escalate at BIO, is more of a mixed bag.
The number of partnering deals – both licenses and strategic alliances – has been declining since 2006, Greenwood said, and deal valuations have not expanded to make up the difference.
Despite ongoing talk of big pharma's patent cliff, most of the major drugmakers snapped up partners several years ago. In 2009, alone, Merck & Co. Inc. and Schering-Plough Corp. completed a reverse merger, Pfizer Inc. acquired Wyeth and Roche Holdings AG snagged Genentech Inc. Sanofi-Aventis SA followed the trend, picking up Genzyme Corp. in early 2011. (See BioWorld Today, Jan. 27, 2009, March 10, 2009, March 13, 2009, and Feb. 7, 2011.)
"There was a spate of deal-making to wrap up the most promising companies," Greenwood told BioWorld Today.
In the wake of those blockbuster deals, "it's been a bit of a buyer's market out there," he added, with big pharma seeking to de-risk its pipeline by plucking companies with extraordinary science or those adept at re-purposing existing drugs.
Big biotech is busy, too, added David Thomas, BIO's director of industry research and analysis for emerging companies. Gilead Sciences Inc., Biogen Idec Inc. and Amgen Inc. are among the heavy hitters that have adopted big pharma's acquisition model.
"Because there are only so many of these late-stage assets, they're all competing at the same level," Thomas noted.
Private companies meeting with potential partners at BIO should recognize that "we're seeing more contingent components," with a significant portion of the deal structure in downstream milestones, Leff said. "Those kinds of deal structures are here to stay."
He also advised small biotechs to emphasize their "strategic potential" during partnering meetings, as investors are no longer seeking to fund a business model that seeks to move assets from discovery to commercialization.
"If you look at the venture capital environment over the past decade and ask where investors have earned returns, it's been disproportionately by investing in companies that were ultimately acquired," Leff observed.
Regulatory Environment Surprising Bright Spot
Not all of the indicators heading into BIO 2013 are sobering. Greenwood and others pointed to the regulatory environment – including the passage of PDUFA V – as a bright spot for the industry.
Compared to five years ago, the FDA is showing increased willingness to engage in dialogue with biotechs and to look favorably on innovative approaches and mechanisms of action with the potential to address serious unmet medical needs.
For biotechs, the key is to narrow their focus into orphan diseases and personalized medicine or to segment large indications into subpopulations, according to Ron Cohen, president and CEO of Acorda Therapeutics Inc. In fact, the Myriad Genetics case currently before the Supreme Court, while timely, "may be a day late and a dollar short," he said, as the entire industry moves not only to develop but also to pair diagnostics with therapeutic approaches. (See BioWorld Today, April 12, 2013, and April 16, 2013.)
He urged BIO 2013 attendees to immerse themselves in sessions outlining government policy and regulatory issues, calling health care reimbursement one of the biggest challenges confronting the industry.
"One trend that's come into full bloom over the past five years is the tremendous pressure to reduce health care costs," Cohen told BioWorld Today. "People are realizing that the ground that was previously sown and then harvested in making small modifications to existing molecules is becoming less and less viable. Payers – whether government or private insurers – are insisting on understanding the value proposition of new drugs."
King agreed, noting that companies seeking to raise money for early stage programs need to think carefully about the commercialization and reimbursement strategies that will apply to their programs.
"Ten years ago, if you had a good strategy to address an unmet need and could make that case, you could probably finance that," she said. "Now, you've got to make the reimbursement case much earlier."
Although Cohen will spend one day of BIO 2013 attending the organization's board meeting and plans to participate in educational sessions and networking events, the convention offers an invaluable opportunity for a deeper dive into these policies.
"We all tend to be focused on our own particular pieces of the farm," he observed. "We'll go and look at that technology, and we'll look at other companies in that space, and that's important. But the bigger issues are ultimately those that affect all of us: tax policy, capital formation and regulatory policy."
BIO 2013 also offers a superb opportunity to bring much of the global biotech community into a single setting. King uses the opportunity to touch base with a host of international collaborators, calling the convention "a place where we actually have a chance to see each other face to face." Indeed, BIO's reach has grown enormously over the past five years, with more than 60 state and foreign pavilions among the 2,000-plus exhibitors this year.
"The increased number of international attendees at BIO has been exciting," she said.
In the end, BIO always comes down to relationships, and those are never more important than during unsettled times when pharmas are shedding employees and some biotechs are closing their doors. Thus, the convention offers an opportunity to identify talent and rekindle friendships.
"Something that's unique about scientists is that they want to do something meaningful," said Mark Lanfear, global practice leader for life science vertical at Kelly Services Inc., which has been tracking a growing "talent gap" in biotech. With the baby boomers who created blockbuster drugs now heading into retirement, he said biotechs have an opportunity to spot fresh talent and begin to groom them internally.
That's a notion worth considering. Just imagine the program possibilities for BIO 2033.
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