BioWorld Perspectives Contributing Writer

Editor's note: Lisa Meyer is director of global marketing at ISI.

There can be no doubting that the recession has had a profound effect on the biotech industry, leaving many emerging companies at the mercy of a volatile and cash-tight market. But for an industry founded on innovation, such obstacles have been met as opportunities for creativity and many companies have circumvented the pitfalls that have left other industries – retail and auto, among others – floundering.

Delivering Innovation in a New R&D Paradigm
Sessions and discussions held during the annual eSolutions conference sponsored by ISI, a specialist in regulatory submissions, explored – among a host of other strategic regulatory topics – the industry's ability to evolve, whether from a research or broader business perspective, as it responds to market forces and searches for new and innovative ways to fund scientific breakthroughs.

Speakers at the conference, Accelerating Change in the New R&D Paradigm, held in Barcelona, Spain, in September, while sensitive to the difficulties facing biotech and pharma players large and small, were optimistic about the industry's prospects and its ability to develop new models to meet the challenges that lie ahead.

In reminding attendees of U.S. Secretary of State Hillary Clinton's comment, "Never waste a good crisis," keynote speaker Carlos Buesa, CEO of Spain's Oryzon Genomics SA, portrayed biotech's ability to reinvent and adapt rather than become submerged by economic issues.

The impact of the current economic situation on biotech should not, however, be dismissed, warned Buesa and other speakers. Certainly, lack of capital has created uncertainty for many emerging companies and has made it impossible for many others to get off the ground. Where the biotech industry has the edge is its ability to deliver innovation in an area of perpetual need: chronic and life-threatening illnesses.

Hard Market Realities Can Be Beneficial for Biotechs
Hardship has had an interesting, and even contradictory, impact on the biotech industry. On the one hand, venture capital funding has contracted substantially, leaving many companies short of cash. Data presented by Buesa, for example, showed that in 2008, 44 percent of U.S. public companies had less than one year of cash in their coffers, compared with just 25 percent in 2007.

Buesa's presentation underscores a hard market reality: On the other hand, an innovation gap at large pharma is proving to be beneficial to biotech. Big pharma companies have been hit hard by patent expirations on their blockbuster products at a time when pipelines are sparse. According to data from Burrill & Co., Pharmaceutical Research and Manufacturers of America member companies had just 19 new molecular entity approvals in 2007 despite spending $48.5 billion on R&D; that compares to 53 approvals in 1996 on the back of just $16.9 billion in R&D spending.

As a result, pharma companies are turning to the more agile and innovative biotech industry for partnerships and in-licensing opportunities, and the two sectors of the life sciences industry have become increasingly interdependent.

The nature of the agreements also has swung more in favor of small biotech companies. While big pharma companies would invariably prefer a "rock-solid" investment – i.e., one that has cleared many of the hurdles presented by early stage programs – competition has led to compromise. Today, in fact, most deals are made in the early stages, preclinical and Phase I; moreover, the value of such deals has grown exponentially in recent years. One such example is the deal forged between GlaxoSmithKline plc and clinical-stage biotech company Concert Pharmaceuticals Inc. in June 2009, which is potentially worth $1 billion to Concert. The deal covers three of Concert's products, all in preclinical or set to enter Phase I. The small biotech partner receives $35 million in up-front payments as part of the agreement. (See BioWorld Today, June 3, 2009.)

This and other examples demonstrate the enhanced negotiating strengths biotech companies enjoy. So while there is no longer what renowned life sciences venture capitalist Steven Burrill describes as the "once relatively easy access to cheap capital," the biotech industry is demonstrating that it is as adept at business innovation as it is at technology innovation.

In his eSolutions presentation, keynote speaker Buesa noted there are early signs of renewed funding hope for biotech. After a period of drought for IPOs, several companies have begun testing the waters again, albeit specialty pharma rather than strict biotech companies. At the end of September, Talecris Biotherapeutics Holdings Corp. enjoyed a successful market debut, raising $950 million in its IPO. It followed Cumberland Pharmaceuticals Inc.'s IPO in August, the first biotech or specialty pharma IPO in several quarters. Analysts remain cautious, hardly surprising given the dark times that preceded, but it does indicate the biotech death knell may well be at an end. (See BioWorld Today, Aug. 12, 2009, and Oct. 2, 2009.)

The Pace of Innovation
The steady progress of deals between pharma and biotech underscores the continuously resourceful nature of biotech and its ability to come up with cutting-edge technologies, some of which are starting to show real promise.

One such example is that of Human Genome Sciences Inc., whose innovation over the past decade has paid off with indications that its lupus drug Benlysta (belimumab) demonstrated positive results from a late-stage trial. Pointing to the way the stock market rewarded this news, with a huge rally of HGS shares after the news was released in July, Buesa said the signs were more positive for biotech. HGS shares, which had slumped to just 45 cents a share in March, reached a high of more than $20 a share in August and soared to more than $28 a share in early November after a second late-stage trial again demonstrated strong results. (See BioWorld Today, July 21, 2009, and July 30, 2009.)

Innovation is the key and as the HGS example shows, it's a high-risk strategy that both punishes and rewards biotech companies. After all, it was just last year that HGS was penalized when Genentech Inc. and Biogen Idec Inc.'s lupus candidate failed in late-stage trials. (See BioWorld Today, April 30, 2008.)

But it's this very innovation and risk-taking that attracts the traditionally more cautious pharma industry and, increasingly, big pharma is taking a chance on truly early stage innovation in novel and unprecedented ways.

Novartis AG, for example, has established an option fund, providing seed money to early stage companies, Buesa noted. The funding has led to deals that present diverse opportunities for the Swiss pharmaceutical giant, such as an option from Peptimmune Inc. to develop and commercialize its P1-2301 compound, a peptide copolymer designed to improve the regulatory response of the immune system in some diseases, such as multiple sclerosis. (See BioWorld Today, Jan. 20, 2009.)

Biotechs Must Adapt or Die
These positive developments for biotech are not a panacea for the entire industry, however, and Buesa speculated that some selective pressure, analogous to Darwinism, is likely.

Drawing on an example from nature, Buesa compared the fate of the Moloch horridus, a lizard native to the Australian desert, with the coyote. While the lizard must live on a diet of specific types of ants, the coyote has a highly adaptive diet. The former can only survive in a highly stable environment, while the latter can survive in any circumstance. He poses it as a lesson for biotech: Be prepared to adapt when the environment is not stable or face the consequences.

Published: December 17, 2009