The Business of Biotech
- Article 1 of 7
- iSight, July 2003
The role of start-up biotechnology companies is becoming ever more important as the big pharma companies look to partners to provide innovation and inspiration.
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Biotechnology promises much for healthcare: more and better drugs; medical treatment tailored to an individual patient’s biological make-up; and the potential for reduced side effects, for example.
The commercial rewards of biotechnology are also clear. Last year, sales of biotech drugs rose 23% to $20 billion, and they should jump 25% more this year, according to consultants Bain & Co.
Stocks are following suit. The Standard & Poor’s Biotech Index is up 19.6%, while the broad-based S&P 500-stock index has only risen by 2%.
But paradoxically, there is virtually no money for new biotechnology ventures at present. The sector has been through funding crises before, but almost everyone agrees that this is the worst one yet. “Availability of capital has been tighter in the last nine months to a year than it has been in my entire 35-year career,” says John Norris, chairman of Coprindm and former deputy commissioner and COO of the FDA.
Capital for new ventures has dried up, and the big pharma companies won’t jump in to finance start-ups until they see positive late-stage trial results.
Initial public offerings (IPOs) have stopped, and over the past three years, the share prices of some publicly quoted companies have declined so much that many firms are worth little more than the cash they have in the bank.
As a result, the top 10 biotechnology deals of 2002 were worth just $3 billion, down from $25 billion in 2001, according to PricewaterhouseCoopers.
But there is hope in sight. And for biotech start-ups, that hope stems mainly from the big pharma companies’ inability to develop the next blockbuster drugs themselves.
ALL DRUGGED UP
According to the Centre for Medicines Research (CMR), an industry think-tank, 31 new drugs were launched on the market last year, compared with 52 a decade earlier. So to maintain their profit growth, the giants of the industry need to create roughly three new drugs apiece a year.
Since 2000, however, Pfizer and GlaxoSmithKline, two of the largest pharma companies, have produced just three between them.
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