© 1998 by Oxford University Press
Nearly three decades after two California scientists pioneered recombinant DNA technology, biomedical research is undergoing explosive growth, and the industry fueling that growth is poised to break even financially for the first time ever.
Over the last year, the biotechnology industry in the United States has seen a 20% jump in product sales, setting a new industry record. This milestone is due in large part to the accelerated pace at which biologics have gained marketing approval in recent years: almost as many biologically based drugs and devices were approved by the Food and Drug Administration in 1997 as were approved in the entire decade of the 1980s.
"We are on the brink of a revolution in medicine," summed up David G. Nance, president and chief executive officer of Introgen Therapeutics, Inc., in Austin, Texas. "The medicines used to treat our parents and keep them comfortable aren't the medicines that will be used to treat us and keep us comfortable."
Even President Clinton has joined in the enthusiasm surrounding biomedicine's rapid progress and its potential to develop drugs that could help millions of Americans who suffer from chronic, degenerative, and often fatal diseases including cancer. In his 1998 State of the Union address, Clinton marvelled at how rapidly scientists pinpointed the gene that causes Parkinson's disease. "In the 1980s, scientists identified the gene causing cystic fibrosis, it took 9 years," Clinton said. "Last year, scientists located the gene that causes Parkinson's disease -- in only 9 days!"
The biotechnology industry uses living organisms to produce medicines and diagnostic tests for human use. Biotech uses the human body's own tools and weapons -- proteins, enzymes, antibodies, and other naturally occuring substances -- to diagnose and fight disease. Of the 49 new medicines approved by the Food and Drug Administration in 1997, 10 were biologics, including the first monoclonal antibody approved for cancer treatment in the United States (for non-Hodgkin's lymphoma) and a platelet growth factor for cancer patients.
Of the almost 1,300 biotechnology companies in the United States, 200 are working on cancer-related products, according to the Washington, D.C.-based Biotechnology Industry Organization, a trade association. Most of these companies are focused on the three major cancers: breast, prostate, and lung cancer. About one-quarter (or 52) of the biotech firms working in cancer are developing products for breast cancer; 33 are developing drugs for prostate cancer; and 31 are developing them for lung cancer.
The Pharmaceutical Research and Manufacturers Association, the pharmaceutical industry trade association, also in Washington, D.C., estimates that nearly half of the more than 300 new drugs in development for cancer are biologics. Another 200 biologic drugs are in development for other diseases or conditions. Since the first biotech drug (recombinant human insulin) was approved in 1982, more than 50 drugs have been approved by the FDA -- half of them in the last few years. Eleven of these biotech products are cancer-related.
Break-even Point
Not only are more biotech products being approved, but more biotech companies have products on the market. In addition to the two California biotech giants, Genentech, Inc. and Amgen, Inc., many mid-sized and smaller biotechs have products on the market as well.
Cancer-related biological products already approved in 1998 include a HER-2/neu gene-based test for breast cancer from Oncor, Inc., a diagnostics company in Gaithersburg, Md.; the first approved biologic for the treatment of metastatic melanoma from Chiron Corp. in Emeryville, Calif.; and a broadened approval for a granulocyte colony-stimulating factor from Amgen in Thousand Oaks, Calif.
With increasing and faster drug approvals,"the biotechnology industry is rapidly approaching the break-even point" financially, according to the 1998 Ernst & Young Twelfth Biotechnology Industry Annual Report. Product sales and revenues are up for the industry as a whole, and net loss declined for the second year in a row, down 9% for the industry as a whole and 18% for publicly traded companies. The Ernst & Young report predicts that improved industry performance may bring it to the break-even point by the year 2000.
Biotech is an industry arising from small start-up companies: an estimated one-third of biotech companies employ 50 or fewer employees, while two-thirds employ fewer than 135. Most biotechnology companies are privately held, but the number of publicly traded companies, currently about one-quarter of the industry, is rising, the Ernst & Young report states.
Historically, the industry has sprung up around major universities involved in biomedical research, with one in three biotech companies located in California. Although the San Francisco Bay Area -- the birthplace of biotech -- has the most companies, New England and the Mid-Atlantic have been gaining ground in recent years as more and more biotech companies locate there.
Mergers of biotech companies and large pharmaceutical companies have dominated business news in the last few years, with more than 50 mergers taking place from 1996 to 1997. Although mergers of biotechnology companies and large pharmaceutical companies continue, pharmaceutical companies are relying more on collaborations with biotech rather than mergers to gain access to new drugs, according to Ernst & Young.
"Big Pharma continues to look toward biotechnology to fill its research and development pipeline into the next millennium," the report states. Of the top 10 biotech products, which generated $6.3 billion in 1996, only 3 were marketed by the biotech companies that produced them, according to Ernst & Young.
Most biotechnology companies are not yet profitable, and those that are, are dwarfed by the earnings of big pharmaceutical companies. Amgen, which owns the two top-grossing biological drugs on the market (Epogen and Neupogen, which each had 1996 worldwide sales of $1 billion) was also the top company by revenue in 1996 for the biotech industry with $2 billion in revenue, whereas the top-grossing major pharmaceutical company that year was Johnson & Johnson, New Brunswick, N.J., with revenues of $21 billion.
In addition, biotechnology companies put more of their money back into research and development than do large pharmaceutical companies. Amgen's R&D expenditures as a percent of revenue was 23%, while J & J's was 9%. Amgen has less than 5,000 employees; J & J has almost 90,000.
The biotech industry has had to be creative in its financing arrangements. Because venture capitalists are consolidating their funding, start-up biotechs are now often looking to individuals rather than venture capitalists for funding, the Ernst & Young report says. Often these individuals are high-tech billionaires like Larry Ellison, chief executive officer of Oracle Corp., Redwood City, Calif., and Bill Gates and Paul Allen, co-founders of Microsoft in Seattle, Wash.
"Over the last 15 years, the most significant change is the increased sophistication of financing partners about drug development and the clinical research process," said Samuel K. Ackerman, M.D., president and CEO of Pentose Pharmaceuticals, Cambridge, Mass. "However, the financing paradigm has stayed fundamentally the same, with periodic changes in emphasis."
Industry observers expect mergers and consolidations of biotechs with each other and with pharmaceutical companies to continue well into the next millennium. "Pharmaceutical firms can't survive on just the fruits of their own labor. They need biopharm to help them," said James Cavanaugh, president of Health Care Ventures, a venture capital company in New Jersey. "We are looking for technology that will improve the future of medicine."
The health care industry may be looking to biotech to improve the future of medicine, as well. "Many healthcare formularies are beginning to understand the fundamental pharmacoeconomic truth about biotech products: although some may be expensive in the short-term, they offer substantial savings in the long-term through better prevention and more effective interventions that ultimately shorten treatment times," states the Ernst & Young report.
One such endeavor that Nance believes will "change the face of medical care" one day is gene therapy. "Only a few years ago, gene therapy was still considered science fiction," said Nance. And yet, "this remarkable treatment is [already] helping cancer patients."
Addressing a recent congressional forum on biotechnology, Henri A. Termeer, chairman, president and chief executive officer of Genzyme Corp., Cambridge, Mass., waxed equally enthusiastic about biotechnology's potential.
"If the 1990s are the golden age of biomedical research, " he said, "then I believe that the 21st century will be the platinum age. . . . Breakthroughs in fundamental knowledge about the biology and chemistry of life are creating vast new opportunities to understanding the mechanisms of hundreds of serious and life-threatening diseases."
Termeer also acknowledged the economic incentives that spur industry efforts. Along with the "profound opportunity we have to improve patient health," he told the congressional committee, "we also have a chance to achieve incredible economic benefits from this research."
Even so, the government's role in the growth of biotech got more than a passing nod at the 1-day forum in June. Judah Folkman, M.D., of the Harvard University School of Medicine, whose work with antiangiogenic inhibitors gained national attention earlier this year, credited the National Institutes of Health with much of the industry's fast paced growth. "One would not have any of the knowledge of genes that we have. . . . There would be whole fields that would not exist" -- if not for the sponsorship of NIH, Folkman maintained.
-- Maggie Reh
Biotechnology Industry Roars Into The Millennium
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