Biotech & Pharma

The Next Wave

Can the innovative business of biotech recharge the pharmaceutical industry?

by Linda Myers

Who’s Driving Innovation?

“It’s only a matter of time before we will see actual stem cell–based therapies being used for cancer and degenerative diseases, replacing needed tissues or organs,” says Zhu Shen, MBA ’98, founder and CEO of San Diego-based BioForesight. Zhu, who consults on biotech investment opportunities in Asia, also believes that advances in molecular diagnostics will lead to a more-personalized, targeted approach to medical care, edging out blockbuster drugs as the driver for economic growth among the makers of pharmaceuticals and other healthcare products. “It’s a really exciting new frontier for medicine,” says Shen, who was a co-founder and treasurer of the Biotechnology Club when she was a student at the Johnson School.

The future may be now. “There’s a whole new class of MEMSbased [micro-electromechanical systems] medical implants — monitoring and therapeutic devices,” says Jonathan Greene, MBA ’04, CEO of Ithaca-based Widetronix. “Our firm’s technology, betavoltaics, enables MEMS to be deployed in the body for such applications as glucose monitoring and real-time monitoring of cancer markers in at-risk patients,” Greene says.

After several years of collaborative work with customers, Greene says the path forward is clear for him and his team, but it wasn’t always so obvious. When he started working with the company in early 2007 the market opportunities for its semiconductor technology were limited. “Simply stated, it was a crowded market space, capital was tight, and our IP [intellectual property] position was limited,” he says.

The turning point was a chance conversation that year with people at Lockheed Martin. “They were searching for small batteries with 25 year lifetimes, which is nearly unheard of for traditional lithium technology,” says Greene. The team resurrected a product development effort completed at Cornell nearly three years earlier, applying its new semiconductor materials technology. “We didn’t think there was demand for a nuclear-powered battery, but we were wrong,” Greene says. Widetronix is now working collaboratively with customers in prototyping and testing its technology in a variety of defense and medical applications.

“If you are a market leader you always have to innovate,” observes David Parmelee, MBA ’00, who manages a product development team at Genzyme. An established and successful biotech firm based in Boston, Genzyme started out developing cures and treatments for rare diseases with fewer than 5,000 patients. It now also makes remedies such as Synvisc, a top treatment for pain from common knee arthritis. A senior director for program management, Parmelee oversees the team responsible for its product development strategies.

“There’s a growing need for ways to manage everyone’s healthcare issues less expensively and with fewer side effects,” says Brad Siff, MBA ’85, founder and CTO of Connecticut-based Biowave. The company makes medical devices that comfortably deliver proprietary therapeutic electrical signals through the skin into deep tissue below to dramatically reduce acute and chronic pain and improve function. Users of Biowave’s three products, Deepwave, Homewave, and Sportswave, include professional and college sports teams, Veterans Administration and military hospitals, weekend athletes, and older people with significant chronic pain issues.

Ironically, while awaiting FDA approval of his product, the physically active Siff went skiing and tore essential ligaments in his knee. “Following knee surgery, the pain was so excruciating I could barely get out of bed,” he relates. “I used our product as part of my recovery, and within one minute, pain went down to a much lower level and stayed down after I turned the device off. It gave me insight into how it could be used.”

With injuries like the one Siff sustained, “You need to get a range of motion back quickly,” he asserts. “If you don’t, scar tissue forms. With Biowave therapy I could soon bend my knee an extra 25 degrees, so it facilitated and accelerated recovery. I was on the tennis court in five weeks.”

Expiring Patents and the Cost of Prepping New Products

The high cost of bringing drugs and other healthcare-related products to market may be the most pressing problem that biotech and pharmaceutical companies face. “The cost of successful drug development is $1 billion for one drug, and it escalates every year,” says Shen. Adding to the squeeze, “major pharmaceutical companies face financial pressure due to the expiration of patents on top-selling drugs,” she says, with generic versions of those drugs waiting in the wings to take over the market. “Yet pharmaceuticals are expected to keep growing their revenues. With that price tag, continued growth becomes difficult to sustain,” Shen comments.

“The easy diseases have been cured,” observes Bruce Ganem, the Clark Professor of Entrepreneurship and Roessler Professor of Chemistry at Cornell, who advises the Biotechnology Club at the Johnson School. “What’s left are the toughest: diabetes, Alzheimer’s, stroke, cancer. Biotech companies take 15 to 20 years to develop a product, but tackling ambitious problems will take longer. There’s the potential for great breakthroughs, but with great risk at every level.”

Much of the cost of developing healthcare-related products comes from health and safety concerns in a highly regulated industry, says Parmelee. “At Genzyme we’re also in a state of change because of the healthcare bill. The government wants to create a more efficient system that can treat more people. It’s part of our company’s culture to ask, ‘How does this impact the patient?’”

Added to those worries is the economic downturn that began last year, which hit Big Pharma and biotech research development budgets hard, says Greene. “They are spending less money in the R&D pipeline.”

Some criticize the rules that govern patents for pharmaceuticals and healthcare products in the United States for deterring new, needed medications. “We have an absurd intellectual property arrangement,” says Alan Biloski, a Johnson School finance faculty member who, together with Ganem, will teach a new class in spring 2010, Innovation in Pharma/Biotech: The Challenge of Change. “Copyrights like the one for Mickey Mouse are protected for 50 to 100 years, while, because of the Waxman-Hatch Act, someone can copy your recipe for a pharmaceutical and sell it at 95 percent off just 20 years after you filed a patent on it. It takes ten to 15 years for a new drug to get approved, so that’s only five to seven years protection. If drug companies can’t get their money back, they won’t pursue it.”

“Generics grew out of traditional pharma, from drugs that are easy to copy,” explains Ganem. But with such biotech products as monoclonal antibodies, which are used to treat blood cancers; nucleic acids, used in gene therapy; and others, Ganem says, “it’s hard to make an identical macromolecule.” That makes making an uncontaminated generic version difficult to impossible.

A short patent life for drugs leads to the overvaluation of biotech products, which accounts for Genentech, a biotech, being acquired for $60 billion by the Roche Group, a giant pharma, in 2009, asserts Biloski. “Biotechs wouldn’t look like such high performers to investors if all the mergers and acquisitions were taken away. But pharmaceuticals are getting smaller and biotechs are getting bigger, and eventually the game will come to a halt,” he predicts.

 

Are Biotech and Pharma the Best Bedfellows?

“The lines have blurred significantly over the last few years between biotechs and pharmas,” says Parmelee. “Pharmas are now making more biologic or protein-based products for smaller groups, which is what biotechs do. Genzyme has always been known as a biotech. We’re not there yet, but as you grow you start to look more like a pharma.”

There are pluses to such changes, he says. “We’re now hiring more people with needed business skills from industries where there has been an emphasis on efficiency, on bringing products to market quickly”— something that biotechs haven’t always been good at, Parmelee says.

“Historically, pharma and biotech have built successful alliances, and they have mutual needs,” says Shen. “Biotech’s goal is continuous innovation, while pharma has not been the best at R&D. Some companies have grown from biotechs to mini-pharmas as they’ve acquired new marketing skills, although it’s still the exception, not the norm.” She cites Gilead Sciences in the San Francisco Bay area, which makes anti-HIV and anti-hepatitis drugs, as an example.

“The culture of the two industries is different,” says Ganem. “Traditionally pharma has been more vertically integrated, whereas the biotech culture has been more freethinking, independent, with less structure. You don’t have to wear a jacket and tie to work. But fastforward to 2009. Pharma companies that acquire biotechs have learned they need to give them the freedom to innovate, but that takes a certain management approach. I’m optimistic that pharma can get the biotech goose to keep laying golden eggs. The two cultures will co-exist.”

With or without coexistence, the competition for the best ideas remains fierce. “At Genzyme we tap all the sources we can,” says Parmelee. “We have teams that scour the scientific literature and talk to small companies that have innovative product ideas. To find out where we want to place our bets we conduct a lot of advisory boards that include academics, medical doctors, and community thought leaders. We have a process for evaluating opportunities, risk, and the probability of success.” When good ideas emerge, Genzyme has done everything from signing confidentiality agreements to licensing the ideas to outright acquisition, he says.

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