A Global Village
Issue 11 » Biotech

Biotech and Big Pharma

Bringing Innovative Technology to the Patient

Dr. Kiran Nandra, Oxbridge Biotech Roundtable

There are more than 250 biotech healthcare products and vaccines currently on the market. More than 13.3 million farmers use agricultural biotech to improve farming techniques and yields, and more than 50 bio refineries are currently being built in the US for the production of biofuels. From improving the process of food production to keep up with the demands of a rising population, to developing novel and sophisticated biological treatments for life-threatening diseases, biotech can and does impact multiple aspects of our life.

Biotechnology, or biotech, is defined as "the use of molecular processes at a cellular level to fuel modern technology". Biotech covers a wide range of techniques including both yeast-based fermentation and single cell phage assays, which allows for the development of novel bioengineered products such as modified genes, monoclonal antibodies and biotherapeutics.

The term biotechnology was first coined by Karl Ereky in 1919 as a "technology which converted raw materials into a more useful product". The first use of biotech processes in the pharmaceutical industry was in the production of penicillin in the 1940s. At this time during World War II, large quantities of penicillin were needed, and so a fermentation technique was devised and used. A species of bacterium called P. chrysogenum was irradiated with x-rays, resulting in a mutant form that could quickly produce penicillin in fully aerated large metal tanks at rates a thousand times faster than before. In recent years the commercialisation of this science has resulted in what is commonly known as the biotech industry.

As an industry, biotech is beginning to thrive. Ernst & Young, a UK-based accounting firm, reported an increase of 37% in net income for the world’s most established biotech centres (including the US, UK, Canada and Europe) in the year 20121. This was reflected in a 27% increase in market capitalisation in these centres. Although biotech is not out of the woods yet, this financial success is set to continue. But what impact does the biotech industry have on the general public?

Ernst & Young
reported an increase
of 37% in net income
for the world’s most
established biotech
centres

Many biotech products are often under patent protection for 20 years, and once they are delivered to the market they are expensive and difficult to access. A prime example is the therapeutic use of monoclonal antibodies; the first of which was used clinically in 1986. Recently, Humira or adalimumab; a fully humanised anti-tumour necrosis factor (TNF) antibody developed by Abbott for pain relief and to reduce inflammation in a number of autoimmune diseases, accrued worldwide sales of approximately $9 million in 20122. The excessive cost of biological treatments such as these puts a strain on the cost of healthcare and the resultant effect is limited patient access to the treatment.

This article provides an insight into the impact of the biotech industry, particularly focussing on the implications of the collaboration between big pharma companies and smaller biotech firms in order to deliver novel drugs to the healthcare industry, and ultimately the patient. We will see that, in general, biotech is beneficial to the patient and the industry but it is not without its flaws, a few of which will be discussed here.

Biotech Blockbusters

The contribution of the biotech industry to the development of novel pharmaceutical products is significant. Big pharma is under continual scrutiny, and the development of a drug from the initial discovery of the molecule through clinical trials and to the market is a long and treacherous path. However, in 2012, The FDA approved 33 new molecular entities and 6 biologicals for clinical use, which is the highest number of approvals since 19971. Working together with larger pharma companies could maintain this progression, yet high failure rates and the limited protection of intellectual property have resulted in few drugs making it to the patient, and when they do they are very expensive.

The main problem that pharma has encountered in past 20 years is that it is simply too big3. In order to bring novel and innovative products to the market a company needs to be big enough to register new drugs and sell them globally. However, they also need to be small enough to develop and investigate different ideas at the early stages. This is where the biotech industry can help. Biotech companies, in general, have smaller scale laboratories than pharma companies which are usually run by experts in their field. This allows an idea to be developed on a small scale from its inception until it is ready to be taken into human trials and, later, to market.

However, the biotech industry is equally too small to do this alone, leading to a plethora of pharma-biotech mergers and acquisitions4. This allows the development of novel ideas managed by small biotech companies to be exploited by big pharma, hence ensuring that innovative technologies reach the patient in a more timely and cost-effective manner. This particular business model is called Partnered External Development (PED), and leads to a collaborative approach to the development of products that favours both industries and the patients.

Big pharma is
under continual
scrutiny, and the
development of a
 drug from initial
 discovery of the
molecule through
clinical trials and to
the market is a long
and treacherous
path

Perhaps the most successful example of a pharma-biotech merger is that between Roche and Genentech. Genentech was founded in 1976 by venture capitalist Robert A. Swanson and biochemist Dr Herbert Boyer, and is thought of as a pioneering company in the biotech industry. In 2009, Roche acquired Genentech for $46.8 billion. This saw the beginning of a profitable partnership driven by the influence of Genentech’s biotech approach to investigating the pathophysiology and treatment of disease. In fact, four of Roche’s latest blockbuster drugs began development at Genentech and now contribute to 55% of Roche’s sales5.

This partnership has given Roche the edge needed to maintain their standing as a leading pharma company, and provided Genentech with a platform to be directly involved in drug development and ultimately deliver their technology to patients. In order to build on this example, emerging and existing biotech companies need to work as part of similar networks to aid their expansion. One such organisation is the Oxbridge Biotech Roundtable (OBR). OBR aims to bridge the gap between academia and the pharmaceutical industry by providing a platform to discuss science and the business associated with it from both perspectives. OBR has a strong interest and involvement in the biotech industry and often liaises closely with emerging start-ups to help push their ideas forward. With eight chapters across the UK and US, they have a prominent presence in the Golden Triangle of Oxford, Cambridge and London and the Silicon Valley in San Francisco, and are actively playing a role in changing the dynamics of the biotech industry.

Funding and resources for the biotech industry are also improving. Recently, Imperial Innovations, a leading technology commercialisation and investment group, has announced that they have received a 12 year loan of £30 million from the European Investment Bank to invest in new healthcare ventures9. Imperial Innovations builds ventures based on intellectual property, often associated with spin-out biotech companies, developed at, or associated with, the UK’s four leading universities:  Imperial College London, Cambridge, Oxford and University College London.

 Combining biotechnology and pharmaceutical process engineering, bioreactors are key tools in bio-engineering novel products. (Credits: U.S. Department of Agriculture)

Pricing Perils

Collaboration between pharma and biotech to produce cheaper drugs sounds almost too good to be true, and to an extent it is. The cost of pharmaceutical products has not been significantly reduced by the growth of the biotech industry. Novel biotech products are often developed using sophisticated techniques and mass-production is difficult as many of these products are in an injectable form which varies in dosage. An analysis performed by Forbes clearly demonstrated that some of the most expensive drugs in the world are biotech products.

The single most expensive drug, Soliris or eculizumab, is a monoclonal antibody which specifically inhibits the complement cascade and is used to treat the rare disease paroxysmal nocturnal hemoglobinuria (PNH). It was developed by Alexion Pharmaceuticals, a US based biotech company, and costs a jaw-dropping $409,500 to treat one patient for one year6. In fact, it seems many biotech companies are focussing on the treatment of  rare diseases and, as the number of effected individuals is low, the cost of these treatments is subsequently very high in order to recoup the money invested in the development of the treatment.

This focus on expensive products is due to an inherent problem with the biotech industry, and it lies at the very early stages of the process. The biotech industry thrives mainly due to external investment from either pharma, venture capitalists (VCs) or angel investors. This funding provides sufficient financial and business support at the early stages of this process in order to kick-start the development of a drug. In general, biotech companies are required to perform Proof of Concept (PoC) studies on the proposed drug which can take 5-7 years at a cost of $100 million. However, investment in early stage biotech development is a high risk activity, and such funding is in decline as a result of the current economic climate. This equity gap or ‘valley of death’ at the very early stages of development is common in small biotech companies and poses a great problem for those trying to win funding to support their business ideas7.

This equity gap
or ‘valley of
death’ at the
very early stages
of development
is common in
small biotech
companies and
poses a great
problem for
those trying to
win funding to
support their
business ideas

There are many examples of large pharma companies acquiring small biotech companies, such as Merck & Co. acquiring Inspire Pharmaceuticals, and Novartis acquiring Genoptix; however these deals were worth less than $1 billion. More recently, GlaxoSmithKline acquired Human Genome Sciences for $2.6 billion5. Although these transactions can result in the delivery of the biotech’s product to the market, the process of acquisition is still a high risk strategy. Bristol-Myers Squibb Co. recently acquired Inhibitex for $2.5 billion with the promise of developing a novel Hepatitis C treatment. Unfortunately, a death in the Phase I clinical trial of this drug resulted in a halt in development and a substantial loss to the pharma company9. Therefore, issues surrounding initial funding for high risk investments must be tackled, or management of investment needs to be re-structured in order for biotech companies to succeed and deliver their products to the healthcare industry.

A Bright Future for Biotech

When considering both the positive and negative impacts of the biotech industry on development of new treatments, it seems that the future is bright. Small biotech companies provide employment where big pharma has had to cut back, and their focus is very much on the cutting edge of science. Reports from both Ernst & Young and the FDA suggest that the biotech industry, and its collaboration with the pharma industry, has significantly impacted the number of novel drugs and biologics being introduced to the market each year. Ultimately, this benefits the patient.

However, the cost of the drugs produced by these companies is increasing at an alarming rate and this will continue to happen so if the funding of research at the earliest stages is not improved. Overall, biotech is an essential bridge in the current climate to ensure that an evolution occurs from the current business model to a cost-effective and proliferative one – but this can only happen with continued investment and support from pharma.

Biotech has the potential to make a significant difference to the healthcare industry and to the lives of patients across the world. By working with pharma, biotech can ensure that the novel products reach the market and the patient. Over the past year, the biotech industry excelled and it is expected that it will continue to do so. This success has caught the eye of many investors and it is hopeful that this will result in financial backing ensuring stability and longevity of the industry. Consequently, the biotech industry can continue to have a positive impact on the lives of patients, and the negative impact on the cost of healthcare can be minimised.

Dr. Kiran Nandra is a PhD graduate from the University of London and she has recently started working in the medical communications industry. She was the former London Correspondent for the Oxbridge Biotech Roundtable’s (OBR) interactive blog.

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[1] Ernest & Young (2013) Beyond borders, matter of evidence, biotechnology industry report.
[2] Oxbridge Biotech Roundtable (2013) OBR London: Therapeutic use of monoclonal antibodies and future trends in biotherapeutics [online]  [Accessed 5 July 2013].
[3] Forbes (2012) The truly staggering costs of inventing new drugs [online] [Accessed 12 June 2013].
[4] Oxbridge Biotech Roundtable (2013) Pharma biotech mergers: the potential and the problems [online]  [Accessed 12 June 2013].
[5] Reuters (2012) Analysis: After Roche merger, biotech tail wags big pharma dog [online] [Accessed on 5 July 2013].
[6] Forbes (2010) The World’s Most Expensive Drugs [online] [Accessed on 5 July 2013].
[7] Oxbridge Biotech Roundtable (2013) The current funding environment in the UK biotechnology sector [online] [Accessed 12 June 2013].
[8] Fierce Biotech (2012) Bristol-Myers Squibb Discontinues Development of BMS-986094, an Investigational NS5B Nucleotide for the Treatment of Hepatitis C [online] [Accessed 13 June 2013].
[9] Imperial Innovations (2013) £30m, 12-year loan to Innovations from European Investment Bank for healthcare investment [online] [Accessed on 5 July 2013].