BIOTECH REINVENTED WHERE DO YOU GO FROM HERE? - PHARMACEUTICALS AND LIFE SCIENCES - PWC
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Pharmaceuticals and Life Sciences Biotech reinvented Where do you go from here?
Table of contents
Table of contents Introduction 2 How well has Biotech really done? 2 A business model that’s bust? 3 Blurring boundaries 7 Putting up a united front 8 The size of the prize 12 Chain links 14 Making the sums add up 14 Acknowledgements 15 References 16 Contacts 19 Biotech Reinvented
Table of contents
Introduction arena – and reinvent itself by adopting launched, and some of these therapies
a more collaborative approach. In have proved very effective in treating
The biotechnology industry (Biotech) is the following pages, we’ll look at the complex conditions.4 Five of the 10 top-
now about 30 years old – a long enough main trends dictating the need for selling medicines in 2009 originated in
time in which to evaluate how it’s done. a new way of conducting research Biotech’s labs (see Table 1).
Unfortunately, despite some notable and development (R&D), and two
The bad news is that Biotech hasn’t
successes, it hasn’t completely fulfilled organisational concepts that would help
made a significant difference to
its promise. biopharmaceutical companies become
Pharma’s productivity, measured in
far more efficient. We’ll also touch on
The business model on which Biotech terms of the number of new treatments
the implications for other parts of the
has historically relied is also breaking reaching the market. Between 1950
value chain.
down, as the research base moves east and 2008, the US Food and Drug
and raising funds gets harder. And the Administration (FDA) approved 1,222
distinctions between Biotech and the therapies (1,103 small molecules and 119
How well has Biotech large molecules). Given that it takes about
pharmaceutical industry (Pharma) are
disappearing, with the convergence really done? 10 years to develop a drug, the total
of the two sectors. But Biotech can’t number of approvals should have started
turn to Pharma for guidance because If the birth of modern biotechnology rising in about 1990, if Biotech had
Pharma’s business model has other can be pinned down to any particular succeeded in improving Pharma’s output.
flaws – as we explained in “Pharma date, it’s probably 1980, when the US But, as Figure 1 shows, the number
2020: Challenging business models”, Supreme Court ruled in Diamond v. of approvals has remained broadly
the White Paper we published in April Chakrabarty that a genetically modified constant.5
2009.1 So what should Biotech do? microorganism could be patented.2 The reason’s simple: Biotech hasn’t
Amgen was formed the same year, and reduced the inherent risk in drug
We believe it should capitalise on the
Genentech (now part of Roche) was discovery and development. Average
opportunities emerging in the healthcare
four years old.3 Since then, Biotech development times for the kind of
has profoundly changed the sort of molecules on which biotech firms
What is Biotech? research Pharma conducts and the sort generally focus – i.e., recombinant
of products it makes (see sidebar, What proteins and monoclonal antibodies – are
Biotech isn’t a distinct sector so
is Biotech?). But how well has Biotech slightly longer than they are for small
much as it’s a collection of disruptive
really done? molecules (97.7 months versus 90.3
technologies for discovering and
developing new medicines, and The good news is that it’s produced months). Average development costs
diagnosing and treating patients some valuable new platform are much the same (US$1.24 billion
more effectively. We’re going to technologies and treatments. RNA versus US$1.32 billion). And the overall
focus here on Biotech’s business interference has, for example, provided success rate is still only 9.1%, compared
model – more specifically, its impact a way of analysing gene activity to with 6.7% for a small molecule.6 In other
on pharmaceutical productivity, and identify novel disease targets. More words, biotech companies don’t develop
its sustainability (or otherwise) in than 100 different recombinant new medicines much more quickly or
the current economic and scientific protein-based drugs and at least 40 economically than pharma companies do.
environment. ‘companion’ diagnostics have also been
2 PwCTable 1: The best sellers of 2009
Rank Product Therapeutic Subcategory Technology Worldwide Sales ($m)
1 Lipitor Anti-hyperlipidaemics Chiral chemistry 12,511
2 Plavix Platelet aggregation inhibitors Small molecule chemistry 9,492
3 Seretide/Advair Other bronchodilators Small molecule chemistry 7,791
4 Enbrel Other anti-rheumatics Recombinant product 6,295
5 Diovan Angiotensin II antagonists Small molecule chemistry 6,013
6 Remicade Other anti-rheumatics Monoclonal antibody 5,924
7 Avastin Anti-neoplastic MAbs Monoclonal antibody 5,744
8 Rituxan Anti-neoplastic MAbs Monoclonal antibody 5,620
9 Humira Other anti-rheumatics Monoclonal antibody 5,559
10 Seroquel Anti-psychotics Small molecule chemistry 5,121
Source: EvaluatePharma
Figure 1: A flat performance
Impact of faster more Increase due to
productive biotech PDUFA clearing
a 60 should have started backlog of
Small molecules (NMEs) here. An increase in applications
Biopharmaceuticals (NBEs) productivity has not
Number of NMEs or NBEs
50 Total been observed
40
30
20
10
0
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: Bernard Munos, “Lessons from 60 years of pharmaceutical innovation”
Biotech Reinvented 3A business model that’s Figure 2: Biotech’s business model
bust? Venture Capital + Enterpreneurial Source
Worse still, the business model on
which Biotech has relied for the past x
Start-up
x
30 years is now breaking down.
Start-up
This model is based on external
investment – typically, venture capital
– in an innovative idea arising from an
x
Start-up Secondary /
x
IPO / Trade sale
entrepreneurial source, often a group of Start-up
academics (see Figure 2). It assumes Start-up
that investors can realise value through
one of two routes: flotation on the public
markets or, more frequently, a trade sale
to an established pharma company. Small Biotech Pharma
And it carries a very high risk of failure.
In one recent study of 1,606 biotech
investments that were realised between
1986 and 2008, 704 investments
Big Biotech Market
resulted in a full or partial loss, while 16
Source: PricewaterhouseCoopers
only covered their costs.7 Big Biotech
The same study shows that the gross
rate of return on these 1,606 biotech
investments was 25.7%, compared
with a pooled average return of 17% Figure 3: Big variations in cash multiples
on all venture capital invested over 476
the same period. But costs and the
‘overhang’ from unrealised investments
reduced the net rate of return to about
15.7%, and there were huge variations
in the cash multiples earned by the
886 investments that made a profit 269
(see Figure 3).8 Ten-year returns have 228
also deteriorated dramatically since 207 206
2008. The average return on a 10-year
investment ending in December 2008 116
was 35%, thanks to the lingering effects 88
of the technology bubble. In March
2010, it had plummeted to -3.7%.9 16
So what distinguishes the successes Full Partial 1 1-2 2-3 3-4 4-5 5 or >
from the failures? Our analysis of the loss loss x Cost x Cost x Cost x Cost x Cost x Cost
companies behind some of the top- Source: Iain Cockburn & Josh Lerner, “The Cost of Capital for Early-Stage Biotechnology Ventures” (2009)
selling biologics on the market shows Note: Figures include all exited biotech deals as of December 31, 2008
4 PwC116
88
2-3 3-4 4-5 5 or >
x Cost x Cost x Cost x Cost
they have several common features. Figure 4: Asia’s higher degrees of change
Most of them started up in the US in the
late 1970s and 1980s, floated very early United
in their history and raised a substantial States
amount of funds in the process. They
were all subsequently acquired by big China
pharma companies, and the products
they make are now marketed by one or India
more such firms (see Table 2).
Germany
However, many of the external
conditions that enabled these biotech
United
companies to thrive are rapidly Kingdom
vanishing. The research base is shifting
geographically, the emerging economies France
are competing more aggressively and
0 2,000 4,000 6,000 8,000 10,000 12,000
financial investors are getting more
cautious. 2006 1998
Source: US National Science Foundation
Eastward ho! Note: Data are for 1999-2006 in the case of France and 1998-2005 in the case of India
The research base is moving East, as
Asia’s emerging economies invest more
in higher education and the ‘reverse
brain drain’ picks up pace. Between
1998 and 2006, the number of students
graduating with doctorates in the
physical and biological sciences soared
43% in India and a staggering 222%
in China, far outstripping the rate of
increase in the West (see Figure 4).10
The ‘returnee’ trend has been equally
Table 2: Winning ways
Product Originator Company Product Origins in Initial Public Well Big Pharma Marketed by Big 2009 worldwide
Founded Launch US Offering Financed Acquisition Pharma sales ($m)
Herceptin 1976 1998 P P P P Roche 4,862
Avastin 1976 2004 P P P P Roche 5,744
Remicade 1979 1998 P P P P Centocor/J&J 5,924
Enbrel 1981 1998 P P P P Amgen/Pfizer 6,295
Rituxan 1985 1997 P P P P Roche/ Biogen Idec 5,620
Humira 1989 2002 P P P Abbott 5,559
Sources: PricewaterhouseCoopers and EvaluatePharma
Biotech Reinvented 5pronounced. In the past two decades Capital constraints venture capitalists – particularly
about 100,000 highly skilled Indian and European venture capitalists – from
The recession has also made it much
Chinese expatriates have left the US for investing in the sector. In 2009, the
their native countries. Another 100,000 more difficult for biotech companies
amount of venture capital raised by
are expected to follow them in the next in the developed economies to raise
biotech companies based in Europe
five years, as the opportunities at home capital. In 2008, Biotech raised just
was just €800 million ($1.1 billion), less
improve.11 $16.3 billion in the US, Europe and
than at any time since 2003.17 And
Canada – 45% less than the previous
money’s likely to remain very tight, as
year. The situation improved in 2009,
Hotter competition most biotech executives recognise;
but the total amount raised fell well
84% of the participants at a recent
Some of the emerging countries are short of historical levels, and nearly half
biopharmaceutical conference thought
also actively building domestic biotech of it went to a handful of established
funding was the industry’s single
industries. Singapore launched its public companies in follow-on offerings
biggest challenge.18
Biomedical Sciences Initiative in 2000 (see Table 3).15
and has already created a powerful They’ve got good reason to worry.
biopharmaceutical nexus. South Korea There are plenty of other signs of the
According to one estimate, 207 of
set up a similar scheme in the late toll the past two years have exacted.
the 266 private and public European
1990s, and has earmarked $14.3 billion In 2009, for example, 10 biotech firms
biotech companies with products or
for its ‘BioVision 2016’ programme.12 (including the highly regarded deCODE
platform technologies in the clinic or
China has invested $9.2 billion in genetics) filed for bankruptcy in the US,
already on the market urgently need
technological R&D, including biotech, while another nine firms closed up shop
to raise funds – and they need a good
in the last 18 months alone.13 And India without being officially bankrupt.16 And
$4.8 billion between them.19 Given that
is currently exploring plans to become though financing conditions have now
the total amount of European venture
one of the world’s top five biosimilars started easing, most industry observers
capital invested in the sector was just
producers by 2020.14 believe the window for initial public
€501 million ($666.6 million) in the first
offerings won’t open again anytime soon.
What’s more, many of the companies half of 2010, it’s very doubtful they’ll all
based in the emerging economies This has inevitably deterred many succeed.20
aren’t just imitating the West; they’re
learning from its mistakes. They’re
dispensing with the costly infrastructure
that burdens companies in developed
countries to create new business Table 3: Fundraising below pre-recession norms
models that are leaner and more 2009 2008 2007 2006 2005
economical, as well as pioneering Initial Public Offerings 823 116 2,253 1,872 1,785
innovative products and processes.
Follow-on Offerings 6,579 1,840 3,345 6,303 4,600
So the US is gradually losing its pre-
eminence as a centre of biomedical Other 10,044 8,244 16,928 14,930 8,442
research. It still leads the way and is Venture 5,765 6,131 7,407 5,448 5,425
likely to do so for at least another five Total 23,211 16,332 29,932 28,553 20,252
years. But it’s no longer the only gorilla Source: Ernst & Young, Beyond Borders: Global Biotechnology Report, 2010
on the block. Note: Numbers may appear inconsistent because of rounding
6 PwCBlurring boundaries – up from a third in 2000-2002 – and following suit, while Novartis has moved
the industry leaders have piled in even its research headquarters to Cambridge,
However, yet another change is more heavily over the past year.23 In Massachusetts, and hired a Harvard
taking place: the boundaries between November 2009, for example, Pfizer professor to run it.26
Biotech and Pharma are blurring. One licensed the rights to a new treatment
So Biotech and Pharma are effectively
for Gaucher disease, a condition fewer
sign of the change is the fact that becoming one industry – the
than 6,000 Americans suffer from.24
several large pharma companies have biopharmaceutical industry – although
In February 2010, GlaxoSmithKline
established corporate venture capital there’s a limit to how far Pharma can go
launched a standalone business unit for
arms specifically to make strategic, down the Biotech route. First, biotech
orphan drugs, and Pfizer did likewise a companies typically perform a few key
as opposed to financial, investments
few months later.25 trials, rather than using the belt-and-
in Biotech. Novartis has created an
option fund with the right to in-license Some of the oldest biotech companies braces strategy favoured by Pharma.
innovative products or technologies are simultaneously repositioning This is partly because most of them
from the companies it backs, for themselves as biopharmaceutical have fewer resources. It’s also because
example.21 Similarly, Merck Serono companies, and several pharma small companies are less likely than
has set up a fund ‘to support scientific companies are restructuring their R&D large companies to ask for scientific
functions to emulate Biotech’s more advice from the regulators and, even
excellence in [its] core fields of interest
entrepreneurial approach to discovering when they do ask, they’re less likely
and provide start-up companies with
new medicines. GlaxoSmithKline started to comply with the advice they get.27
the opportunity to interact’ with it.22
this trend in 2000, when it divided But biotech companies pay a price for
Many pharma companies are also thousands of its researchers into groups taking the fast route, with much higher
focusing on developing biologics and of 400 or so and gave them their own failure rates in late-stage development
specialist therapies for orphan diseases, budgets to manage. It subsequently (see Table 4).28
because they offer a faster and more created even smaller Discovery Second, therapies for very small patient
focused route to market. In 2006-2008, Performance Units of 20 to 60 people, populations can’t deliver the returns
Big Pharma produced more than half each focusing on a different disease produced by mass-market medicines,
the orphan drugs approved by the FDA or technology. AstraZeneca is now unless they’re sold for very high prices.
However, patients in many countries
can’t afford such prices and, even in
more affluent markets, cash-strapped
Table 4: Biotech companies fall more often at the final post
healthcare payers are pushing back.
FDA Percentage of Phase III Percentage of
The European Union recently altered
approvals FDA approvals failures Phase III failures
its orphan drug law, for example, to let
Biotech 47 45% 68 74% regulators reduce the 10-year period
Biotech-pharma alliances 16 16% 18 21% of market exclusivity for orphan drugs,
Acquisitions/licences by pharma 4 4% 0 where they think the profits from non-
Pharma 36 35% 5 5%
orphan indications are ‘unseemly’.29
Total 103 91 In short, the external conditions that
Source: Elizabeth A. Czerepak & Stefan Ryser, “Drug approvals and failures: implications for alliances” (2008) helped produce a drug-discovery
Note: All products were approved for the first time by the FDA between January 2006 and December 2007 powerhouse like Genentech have all
Biotech Reinvented 7but disappeared. Pharma can’t copy because each has access to only one agencies, universities, academic
Biotech’s discovery and development part of the biochemical puzzle. This medical centres, research institutes and
methodology too closely and, even not only slows down the discovery and patient groups. They aim to overcome
if it could, Biotech hasn’t brought a development process, it also increases common bottlenecks in early-stage
golden era of productivity that would costs, as numerous organisations biomedical research by enabling the
justify doing so. All biopharmaceutical replicate the same studies on the same participants to piece together the
companies – whether they’re targets. Conversely, collaboration scientific data on the pathophysiology
biotechnological or pharmaceutical in accelerates and facilitates the process, of specific diseases and potential
origin – will ultimately, therefore, have to and two new concepts – precompetitive targets sitting in their separate
adopt a very different business model. discovery federations and competitive organisations (see Figure 5).
development consortia – lend A number of precompetitive discovery
themselves to just such an approach. federations have already been
Putting up a united front established. Most of these collaborations
Precompetitive discovery have been set up fairly recently and
So what might such a model look lie towards the philanthropic end of
federations
like? If it’s to be successful, it’s got the spectrum. They focus on areas
to be more efficient – and one way of Precompetitive discovery federations of unmet need in the less developed
becoming more efficient is to become are public-private partnerships in which world or diseases for which it’s
more collaborative. Sequestering biopharmaceutical companies swap particularly difficult to develop safe,
intellectual property in different knowledge, data and resources with effective medicines. Alternatively,
organisations impedes innovation, one another, as well as with government they aim to make a particular region
Figure 5: Precompetitive discovery federations facilitate and accelerate innovation
Data Aggregator
Biopharmaceutical Research
Companies Organisations
Alzheimer’s disease
Lung cancer
Melanoma
Precompetitive Discovery Federations
Source: PricewaterhouseCoopers
8 PwCmore competitive (see sidebar, they do will be performed virtually,
Connecting the dots
Connecting the dots).30 But at least as the world becomes increasingly
one such alliance has already proved interconnected. And each federation In early 2010, Eli Lilly, Merck and
an outstanding success. This is the will be disbanded once it’s solved the Pfizer formed the Asian Cancer
Structural Genomics Consortium – problem it was set up to deal with, Research Group to promote research
backed by GlaxoSmithKline, Merck and although the insights it generates on lung and gastric cancers, and other
Novartis, among other organisations – will live on – just as filmmakers form forms of cancer commonly found in
which published 450 protein structures syndicates to produce different films Asia. The three companies plan to
within three years of starting work, and and the films they create outlast the create one of the ‘most extensive
aims to publish another 660 structures syndicates themselves. pharmacogenomic cancer databases
by July 2011.31 known to date’ over the next two
There are many advantages to this years. Meanwhile, the Coalition
Translating such findings into useful approach. It would enable each Against Major Diseases is focusing
new therapies is another matter – participant to save money by investing on the development of quantitative
and it’s much too early to assess the less than it would have to do to support disease progression models
impact of precompetitive discovery its own internal research or exclusive for complex neurodegenerative
federations in terms of reducing lead external research programme. It would diseases like Alzheimer’s disease
times and costs, or treating intractable also reduce unnecessary duplication, and Parkinson’s disease. And the
diseases. Nevertheless, the industry help all the participants make faster, Innovative Medicines Initiative (IMI) is
clearly isn’t averse to the idea of better progress by combining their orchestrating the European Union’s
collaborating, and we think that, by insights and permit them to take more efforts to address major obstacles
2020, all precompetitive research will be informed investment decisions. To put it in drug discovery by pooling the
conducted in this way. another way, precompetitive discovery resources of biopharmaceutical
Experts from numerous organisations federations could end the “current modus companies, research institutions and
will assemble to solve a specific operandi in which commercially driven patient groups throughout Europe. It
problem, regardless of whether they clinical trials fall like dominos in the clinic has a €1 billion grant from Brussels
work in industry or academia, and – to the detriment of each company, to and is currently supporting 15
whether they live in the Americas, the detriment of the patients and with research alliances.
Europe or Asia. Much of the work relatively little [shared] learning”.32
Biotech Reinvented 9Table of contents
Of course, determining the boundaries The potential cost savings might also Competitive development
between precompetitive and prove incentive enough to stimulate consortia
competitive research is difficult – and a new attitude to intellectual property
opinions will vary, depending on the management. Pharma companies The discovery process isn’t the only
interests of the respective parties. typically patent all the information they area of scientific R&D that would
Nevertheless, it’s possible to see how hold to block their rivals from working benefit from closer collaboration.
some of the lines might get drawn. in the same area. But evidence from The development process could also
Data preceding the point of filing for a other industries suggests that most be improved with the introduction of
patent (e.g., data on genes, pathways patents remain uncommercialised; competitive development consortia
and bioactivity) could provide various Siemens and Procter & Gamble recently (as we’ve called them) in which rival
opportunities for precompetitive reported, for example, that they’ve only biopharmaceutical companies join
collaboration, for example. And some used 10% of their patent portfolios.34 forces with each other, as well as with
companies might well be prepared to go It would therefore be far more sensible contract research organisations and
considerably further. GlaxoSmithKline is for all companies to segment their platform technology providers (see
one such instance; it recently proposed information into three categories: Figure 6). At present, four or five firms
an industry-wide, open-access ‘patent information they can openly share; often focus on the same target at the
pool’ and offered to license all its information they can safely sell to a third same time, and each might develop
patented knowledge for free, as long as party; and information they plan to use two or three compounds to hit that
the knowledge is used solely to develop themselves.35 target. But if they pooled their portfolios,
treatments for neglected diseases in the they could concentrate on the best
50 poorest countries.33 drug candidates, regardless of which
Figure 6: Competitive development consortia minimise waste and enhance productivity
Healthcare Healthcare
Payers Regulators Providers
Data Aggregator
Biopharmaceutical Contract Research &
companies Platform Technology Providers
Competitive Development Consortia
Source: PricewaterhouseCoopers
10 PwCcompany had invented them, thereby and securely – have been extensively
eliminating a great deal of waste. documented. Making sense of disparate New best friends
pieces of information and identifying AstraZeneca and Merck recently
Big Pharma has traditionally shied away
meaningful correlations between embarked on a landmark partnership
from such arrangements, yet competing
superficially unrelated phenomena is still to develop a combination therapy
heavyweights in a number of other
an incredibly labour-intensive task. for cancer, with each contributing an
industries have successfully come
together to develop new products. However, solutions to all these problems investigational compound to the mix.
General Motors, Daimler and BMW are slowly emerging. The Human Combination therapies for cancer
collaborated to create the hybrid Proteome Organisation’s Proteomics are common, but they’re usually
petroleum-electric powertrain solution, Standards Initiative has already tested late in clinical development or
for example. And there’s evidence released standards for representing and after registration. Or a new potential
that some large pharma companies exchanging proteomic data from mass treatment is tested in combination
may now be willing to take a more spectrometry, molecular interactions with the standard therapy. However,
open stance (see sidebar, New best and protein separation techniques, AstraZeneca’s compound was still in
friends).36 for example, while the Clinical Data Phase II, and Merck’s compound had
Interchange Standards Consortium only been tested in 100 people when
(CDISC) is developing standards for the two companies decided to join
Robust data aggregators forces.
exchanging clinical research data
The success of precompetitive and metadata, and various other data They entered into a staged agreement,
discovery federations and competitive standards are well underway.37 beginning with preclinical trials. When
development consortia clearly hinges the results proved promising, they
on the existence of data aggregators Similarly, use of semantic technologies
for integrating and analysing data decided to collaborate further and
capable of collecting and synthesising jointly devised a plan for testing the
data from all the participants in a is growing. Johnson & Johnson is
conducting a pilot semantic project to treatment in Phase I trials. Under the
particular group. No such organisations terms of the deal, the two companies
currently exist. Nor, indeed, do some capture metadata on biological data
sources and make the information will share the decision rights and
of the tools required to manage vast costs, and any intellectual property
amounts of biological and chemical data. easier to retrieve.38 Pfizer, Merck,
Novartis and Eli Lilly are also that arises from the collaboration. The
The challenges – including the sheer experimenting with the semantic web.39 big question is how the regulators will
heterogeneity of the data, lack of And technologies like cloud computing respond if they’re successful, since
data standards, limitations of the are evolving to create a secure, reliable nobody has ever co-registered two
available data-mining technologies and and flexible infrastructure for sharing unregistered drugs before.
immaturity of the IT platforms needed data and applications.
to let researchers share data easily
Biotech Reinvented 11Meanwhile, several big technology ‘innovation culture’ is equally important. industry researchers need discoveries
providers have entered the In view of the investment levels and that have commercial potential. And
computational bioinformatics space. risks associated with drug discovery it’s all too easy for a biotech company
IBM leads the way. It’s currently and development, all the members of a with a single platform technology or
engaged in about 20 projects, ranging precompetitive discovery federation or molecule to overvalue its intellectual
from the development of sophisticated competitive development consortium property. It’s only by understanding
analytical tools to original research will need to be agile, willing to explore such differences in perspective and
on ‘junk’ genes and RNA interference new ideas and open to insights negotiating fairly that a precompetitive
in eukaryotes and viruses.40 Oracle, produced outside their own walls. discovery federation or competitive
Hewlett-Packard and Intel are also Senior management will also need development consortium can prosper.
actively focusing on bioinformatics. to encourage creative brainstorming, If the venture capital industry is to play
networking, calculated risk-taking, a major part in the future of biotech, it
Some formidable obstacles remain,
experimentation and questioning of the will have to be more pragmatic, too. The
but we believe these companies
status quo.42 most successful funds aim for returns of
will eventually play a major role in
analysing genomic and clinical data two to four times the initial investment,
to help individual consortia research A new spirit of realism which is the equivalent of a compound
new medicines and the regulators annual growth rate of 7-15% over a
That’s not all. If this new business
evaluate submissions more accurately. typical 10-year investment period. By
model is to work, it will require greater
Some of them may even assume way of comparison, the FTSE Small-
realism on the part of everyone
responsibility for developing disease Cap Index generated a total annual
involved. Biotech executives and
models and predicting the interaction of return of 1.1% between May 2000 and
academics sometimes complain of Big
different molecules with a given target. May 2010 – evidence of just how high
Pharma’s ‘arrogance’, for example.43
We outlined how this might work in the bar has been set.44
But size isn’t everything and the biggest
“Pharma 2020: Virtual R&D”, where we pharma companies can’t expect to have
discussed how the largest technology everything their own way. So they’ll
vendors could host ‘virtual patients’ on need to become more flexible.
The size of the prize
behalf of the industry as a whole.41
The research institutes and biotech So there are some considerable cultural,
firms they join forces with will also need behavioural and practical hurdles,
An innovation culture
to have more realistic expectations. and some of them may be difficult to
Reliable data aggregators aren’t the Whereas academic researchers prize overcome. But we believe they’re well
only prerequisite for success; an scientific knowledge for its own sake, worth resolving, given the rewards
12 PwCcollaboration can bring. It’s no accident would cut R&D costs by about $160m, medical centres will be responsible for
that IBM has doubled its software as well as accelerating market launch generating original ideas and providing
revenues to more than $20 billion, since by nearly five months. In fact, a 5% disease biology and platform
embracing open-source computing.45 improvement in phase transition rates technologies on a fee-for-service basis.
alone would trim about $111m from
Precompetitive discovery federations The biggest companies will thus benefit
the tab.46
and competitive development by getting access to more innovation,
consortia could collectively enable However, the participants would profit cutting their costs and becoming more
the biopharmaceutical industry to use individually, too. We envisage that the productive – improvements that will help
precious resources more intelligently, largest biopharmaceutical companies them fend off criticism from healthcare
make more astute investment decisions will be responsible for coordinating and payers and patients angered by the
and develop better medicines more funding the federations and consortia in high prices of many new medicines.
economically (see Figure 7). Even which they participate. They’ll also draw Meanwhile, the smaller ones will get
incremental improvements could yield on their huge compound libraries to more stable, long-term financing,
significant savings. We estimate that, develop new molecules and shepherd better opportunities for benchmarking
given average development costs and them through the regulatory evaluation the value of their own contributions
lead times, a 5% increase in success process to the marketplace. Meanwhile, and access to critical regulatory and
rates for each phase transition and a smaller biopharmaceutical companies, marketing skills.
5% reduction in development times research institutes and academic
Figure 7: Greater collaboration will help everyone
Feedback Loops
Precompetitive
Competitive Development Consortium Market
Discovery Federation
• Systems biology • Molecule invention and protec- • Clinical testing in the most ap- • Patient
• Disease analysis and modelling tion propriate environment • Regulator
• Biomarkers • Much higher probability of suc- • Shorter development time due • Payer
• Functional proteomics cess as a result of the work of to live licensing • Provider
the PDF • Lower cost as a result of higher
• Predictive screening
probability of technical and
Blinded screening commercial success
Fewer, more certain
Better ideas Transparent testing Better cheaper treatments
candidates
Source: PricewaterhouseCoopers
Biotech Reinvented 13Table of contents
Chain links The shift from product provider to Making the sums add up
outcomes manager has yet more
We’ve focused on R&D so far, but consequences. Information will The English philosopher Thomas
greater collaboration will be required become as important a part of the Hobbes famously described life in the
in the rest of the value chain, too – sales proposition as the products 17th century as ‘nasty, brutish and
and any company that masters the themselves, and much of the short’.48 Healthcare has come a long
art of working closely with other R&D information that’s generated will come way since then; life expectancy at birth
organisations will have a head start from external sources. In effect, each is now at least 75 years in large swathes
over its competitors because it will be biopharmaceutical company will need to of the world, compared with 35-40
able to apply the lessons it’s learned create its own information supply chain years when Hobbes was writing his
to the other parts of its business. Take and manage it as carefully as it does Leviathan.49 But greater longevity brings
commercialisation. Most treatments manufacturing and distribution. new challenges, and few people can
perform much better in clinical trials The changes taking place in the afford to pay many thousands of dollars
than they do in everyday life, and traditional supply chain have similar for the most advanced treatments.
healthcare payers almost everywhere implications. Biologics are much more Hard-pressed governments with a
are demanding more for their money. difficult to make and move around growing number of elderly citizens will
The opportunities for generating value than small molecules because they’re be equally unable to foot the bill. So,
from standalone products are therefore more susceptible to impurities in the if we’re to make the most of the years
getting smaller. production process and more vulnerable we’ve gained, more effective, more
to damage during shipping. And since economical medicines will be vital –
That means biopharmaceutical
most such therapies can’t be taken and that entails collaboration between
companies will have to switch from
orally, new delivery devices – e.g., micro everyone concerned.
selling medicines to managing
outcomes. They’ll have to bundle needles, magnetically targeted carriers,
different products together and nano-particles and polymer capsules –
supplement their therapies with health are being developed. But these devices
management services like compliance are also hard to manufacture.
monitoring, dietary guidance and fitness The industry will therefore have to
regimes. However, most companies collaborate much more extensively, both
won’t be able to create packages of with contract manufacturers capable of
branded medicines and generics for making biologics and complex devices,
different conditions singlehandedly, and with specialist carriers capable of
so they’ll have to collaborate with transporting sensitive pharmaceutical
rival manufacturers. And few, if any, freight in cold-chain conditions. If it’s to
companies will be able to deliver all capitalise on the increasing prosperity of
the services patients need, so they’ll the emerging markets, it will also have
have to collaborate with numerous to build a much more geographically
other organisations, including hospitals, dispersed supply chain – and it will only
clinics, technology vendors and lifestyle be able to do this by joining forces with
service providers.47 local manufacturers and service providers.
14 PwCAcknowledgements We would like to thank the many people at PricewaterhouseCoopers who helped us to develop this report. We would also like to express our appreciation to all those external experts who so generously donated their time and effort to the project including: Barrie Ward, Board member, Onyvax, Cancer Research Technology, Pharming Group N.V. Cheryl Bishop, Business Development Manager, Roche Pharmaceuticals Clive Birch, former PwC UK Life Sciences Leader Mr David Dally, CFO, Merlion Pharmaceuticals Pte Ltd. Gordon Cameron, CFO, Quotient Biosciences Ms Nandita Chandavarkar, Director, Association for Biotechnology Led Enterprises Peter Keen, Non Executive Director, Ark Therapeutics Ray Spencer, Founder & CFO, Saturn BioSciences Ltd; Founder & Director, MGB Biopharma Ltd Rob Arnold, Chairman, Clasemont Limited (& former PwC Life Sciences Partner) Sam Smart, Independent Consultant Dr Vijay Chandru, President, Association for Biotechnology Led Enterprises. The views expressed herein are personal and do not reflect the views of the organisations represented by the individuals concerned. Biotech Reinvented 15
Table of contents
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Biotech Reinvented 1744. Details of the performance of the FTSE Small-Cap Index are available at http://www.ftse.com/Indices/UK_Indices/Downloads/FTSE_All-Share_
Index_Factsheet.pdf
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Biotech Reinvented 19Tablefurther
For of contents
information, please contact:
Global Europe
Simon Friend Jo Pisani
Partner, Global Pharmaceutical and Life Sciences Partner, Pharmaceuticals and Life Sciences, Strategy
Industry Leader PricewaterhouseCoopers (UK)
PricewaterhouseCoopers (UK) jo.pisani@uk.pwc.com
simon.d.friend@uk.pwc.com [44] 20 7804 3744
[44] 20 7213 4875
Sandy Johnston
Steve Arlington Partner, European Pharmaceutical and Life Sciences
Partner, Global Pharmaceutical and Life Sciences Advisory Advisory Services
Services Leader PricewaterhouseCoopers (UK)
PricewaterhouseCoopers (UK) sandy.johnston@uk.pwc.com
steve.arlington@uk.pwc.com [44] 20 7213 1952
[44] 20 7804 3997
Asia Pacific
Michael Swanick
Partner, Global Pharmaceutical and Life Sciences Sujay Shetty
Tax Services Leader Director, Pharmaceutical and Life Sciences
PricewaterhouseCoopers (US) Advisory Services, India
michael.f.swanick@us.pwc.com PricewaterhouseCoopers (India)
[1] 267 330 6060 sujay.shetty@in.pwc.com
[91] 22 6669 1305
United States
Beatrijs Van Liedekerke
Doug Strang Director, Pharmaceutical and Life Sciences
Partner, US Pharmaceutical and Life Sciences Advisory Advisory Services
Services Leader PricewaterhouseCoopers (Singapore)
PricewaterhouseCoopers (US) beatrijs.vanliedekerke@sg.pwc.com
douglas.s.strang@us.pwc.com [65] 6236 4322
[1] 267 330 3045
Marketing
Middle East
Attila Karacsony
Sally Jeffery Director, Global Pharmaceutical and Life Sciences
Partner, Healthcare Advisory Services, Middle East PricewaterhouseCoopers (US)
PricewaterhouseCoopers (United Arab Emirates) attila.karacsony@us.pwc.com
sally.jeffery@ae.pwc.com [1] 973 236 5640
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Marina Bello Valcarce
Global Pharmaceutical and Life Sciences
PricewaterhouseCoopers (UK)
marina.bello.valcarce@uk.pwc.com
[44] 20 7212 8642
20 PwCTable of contents pwc.com/pharma PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for our clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2010 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” and “PwC” refer to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL). Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.
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