Biotech innovation: how to get the engine started again

Editor’s note: This article is published in advance of the Association for Corporate Growth San Diego’s Nov. 15 “Biotech: Restarting the Engine” event.

Biotechnology has changed over the past 20 years. In the past, large pharma was sustained by its own pipeline, and research was done in-house. The internal thinking was that large pharma knew more than the biotech upstarts.

As related to development of a new drug, this was in large true. However, the innovation from within large pharma was often stifled by conservative, conventional ways of doing things. Much of this industry’s growth over the last 20 years came from merger and acquisition activity. Pfizer in particular went the merger and acquisition route, buying other pharma companies to fill their pipeline. The market machine within the drug conglomerate was second to none in promoting new products, and they drove the company at the expense of the R&D department, which, with so many mergers and subsequent layoffs, could not bring focus to the pipeline in a self-sustaining way.

But times are changing. After October 2008, when the world company economy collapsed, the venture capital funds that initiated and supported new and existing biotechnologies companies dried up. The industry went through a re-evaluation of biotech company projects, cutting those with the highest risk. The VCs supported the existing companies so as not to lose their investment, but they have been slow to support new ventures.

Additionally, recent federal legislation will change the playing field with caps on drugs, extra taxes and a shorter limit on drug exclusivity. The number of new blockbuster targets is also lower. Pharma companies who in the past have relied on billion dollar products are now entertaining more modest sized markets. The second paradigm shift is the move away from the small molecule market into the biologics or large molecule. The reason for this shift is multiple:

1. The complexity of the large molecule is difficult to reproduce, and the process defines the drug as well as the physical and therapeutic characteristics.

2. Small molecules once off patent lose approximately 90 percent market share in the first year they lose patent protection, whereas branded biologics may continue to hold market share and price after follow-on biologics are introduced to the market.

It is clear that the system is not working to generate the innovation and the funding of it as it once was. The problem is complex and will require not finger-pointing, but a meeting of all parties to air their concerns and from that discussion create a new process that will lead to the generation of innovative new drugs, devices and therapies. This is a critical meeting for the biotech industries not only in California but also for the entire U.S. medical industry.

Register is principal of Register Consulting and program chair of the ACG San Diego Nov. 15 event. He can be reached at

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1 UserComments
steve92081 10:01am November 10, 2011

So, who's going to do the large molecule stuff? It seems counter to the author's logic that big pharma isn't going to be the innovator bringing new drugs to market.