By Jim Shrine

BASEL, Switzerland - Leave it to William Haseltine to liven up a biotechnology conference through his willingness to be provocative and his ability to back up his statements.

Haseltine, chairman and CEO of Human Genome Sciences Inc. (HGS), told an audience of biotech executives at the Allicense 2000 meeting Thursday that they might be a lot better off if they could find a way to build their businesses with as little help as possible from pharmaceutical companies. And that came right after earnest presentations from large pharma officials who told of their ever-increasing need for biotech alliances.

"If the pharmaceutical companies think that biotech companies exist to serve their needs [they are mistaken]," Haseltine said. "That hope may be dashed as we find ways to bring those drugs to market and share in sales. This should be perceived as a threat to the pharmaceutical industry."

One alternative, Haseltine suggested, is biotech-biotech collaborations, made possible now since the industry is so much bigger than it was a few years ago, with players that aspire to rival big pharma, and because of the tremendous amount of money available to the industry. "There are a number of companies that have funds today or access to the market tomorrow to fund these products."

One such company, he said, is HGS, which has five alliances with biotechnology companies. In those cases, as well as with deals with pharmaceutical firms, the Rockville. Md., company has rights to share in a good piece of the product sales. That was the idea when HGS was formed in 1992 - to become a pharmaceutical company, "one of the giants. The transactions we've entered have always had that fundamental goal in mind," said Haseltine, whose use of neither notes nor slides added impact to his stark presentation.

Focus On Patients, Haseltine Advises

"I would urge those of you in the biotech industry, as you look to the future, to focus on patients as your customers, to focus on selling drugs and not technologies," he said. "Large pharma is full of technology and there is no end to technology innovation. You may find yourselves on an ever-growing list of partners that eventually will get just enough royalties trickling in to cover your costs."

Haseltine added that "The future for the companies is going to depend not on royalty generation, but on product sales." So while pharma companies are merging, demerging, spinning out units and otherwise distracting themselves, he said, biotech companies have an opportunity, especially in the area of biological drugs.

George Scangos, CEO of Exelixis Inc., which went public last month, agreed with Haseltine's premise that a young company needs to set its vision early and be guided by it as it matures. But he pointed out that many don't have the advantage of the $100 million HGS got early on from partner SmithKline Beecham plc. Unstated was the edge HGS has in achieving its goal of independence due to its rich genomics technology, which produced strong intellectual property positions, and, now, its substantial valuation.

"When you're a small company, you have to be somewhat opportunistic and take the money where you can get it," Scangos said. "Then you can become more strategic" and craft deals in a way that will lead the company toward the end position it envisions.

At a later presentation, Tamar Howson, SmithKline Beecham senior vice president and director, business development, referred to a survey showing large pharma anticipates significantly increasing the proportion of research and development spending earmarked for biotechnology and other outside providers. Consolidation among large pharmaceutical companies also will have a net positive benefit for the biotech industry, she said.

On the plus side of the consolidation equation for biotech, she said, is that pharma will need additional products for its larger sales forces; it will need new technologies because of increased bureaucracy and stifled innovation; it may opt to align with functional genomics houses rather than develop those technologies internally; there may be more opportunities for acquiring $50 million to $100 million products pharma decides to divest; and that top pharma talent will move to the biotech industry. The negatives for biotech, however, are that there are fewer potential partners; the large pharmas, at least in transition periods, will have larger R&D budgets, thus giving themselves the impression they can do the work themselves; and they will want further proofs of concept than they wanted previously.

But the suggestions for biotech partnering didn't point only to biotech and large pharmaceutical companies. A better bet might be with mid-sized pharma companies, such as Elan Corp. plc, of Dublin, Ireland. That's according to John Groom, Elan's president and chief operating officer.

Consolidation among large pharma is not good for biotech, he contended, because it leaves them "even more bureaucratic and indecisive," and causes fits among biotech officials because the constantly changing contacts at those companies force the reselling of ideas. "The good news is that medium-sized companies are here waiting to talk to you."

In an early session on the final day of the three-day conference, Goran Andro, president of R&D at Pharmacia Corp., said, "In spite of the consolidation in the pharmaceutical industry, the building of networks and alliances will rise."

And Jerry Karabelas, CEO of Novartis Pharma AG, asked whether there are too many targets or not enough. "Most say it's both. Success will depend on choosing one answer. My hypothesis is that functional targets will be in short supply. Choosing properly will enhance value," he said, adding that optimizing functional genomics groups will be a key to going forward.

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