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Monday, Dec 4, 2023

BIOTECH–Biotechnology Changes Affect Business Model

Biotech: Professor Predicts Responses to Rapid Progress and Competition

An expert on corporate strategy warned biotech leaders they’d better rethink their business model. If not, the companies won’t be able to compete in a business environment marked by rapid scientific progress and fierce competition.

The presentation delivered by Harvard University professor Gary Pisano, who has been following the biotech industry for years, didn’t fall on deaf ears.

Some industry members took careful notes during Pisano’s captivating speech at the BIO 2000 conference in Boston.

The four-day conference, sponsored by the Biotechnology Industry Organization, drew nearly 10,000 people from all over the world to the Hynes Convention Center.

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They came to learn about business strategies from financial experts, hear business leaders talk about their science and business plans, and network with other members of the global biotechnology community.

According to Pisano, rapid scientific progress, such as the use of robotics to identify and screen hundreds of thousands of targets for potential drugs and discoveries in the world of genomics, will lead to multiple products in overlapping treatment areas.

Pisano said genomics, the study of human genes and their function, opens the door for tailored drugs.

The old business model of drug makers focusing on finding a rare blockbuster drug, in which high price and exclusivity in one treatment area guaranteed long-lasting profits, is fast becoming obsolete.

His prediction: Therapeutic obsolescence will be an issue long before patents expire.

“In the past, it could take up to 10 years before someone could come out with an equivalent or better therapeutic substitute,” he said. “New technological advances, especially in molecular technology, have diffused the basic know-how. This will intensify rivalry as companies will introduce equivalent drugs a lot faster.”

Local Firms Taking Initiative

Joseph Panetta, chief executive of San Diego’s industry association Biocom, said Pisano’s business strategy is precisely the approach local biotech leaders have begun pondering.

“It’s not news to us that platform technologies like genomics and sequencing will lead to a whole new array of potential products to be developed more quickly,” Panetta said when asked about Pisano’s views. “Companies have to recognize there are going to be multiple companies focusing on many of the same kinds of therapies.”

Panetta emphasized local biotech leaders shouldn’t simply drop development of products into which they have funneled millions of research dollars over the last decade and shift their attention to new areas.

Indeed, Pisano said, small biotech firms may have a competitive edge in the fragmented market of the future.

He said big biotechnology and pharmaceutical companies are unlikely to focus on $100 million products, because their cost structure isn’t set up for such small markets.

He believes smaller biotech firms will continue to supply bigger players with services, and also enter into partnerships and license products to them. The key for smaller players is to stay afloat and have multiple products in the pipeline, he said.

Granted, that’s easier said than done, he admitted. To develop one drug takes more than a decade in research and development, costing some $350 million, according to industry members.

Only one out of 10,000 drugs actually makes it to the market, according to published reports. Investors channeling their funds into such high-risk ventures did so because of the promise of a blockbuster drug that spelled lucrative returns after years of empty pockets.

“Most investors weren’t interested in putting money in a drug (that would achieve) $100 million in sales,” Panetta said.

He estimated the lack of a blockbuster drug won’t turn off investors in the future.

“Look at the interest that is generated by the gene-sequencing companies,” said Panetta, citing one example.

Indeed, from October 1999 through March 2000, biotech stocks saw a spectacular surge across the board. The Wall Street frenzy was short and sweet.

Added Pisano, “the market gets fickle in how much they are willing to fund these guys. They have been hammered in the last couple of weeks.”

Pisano said while large sums of capital are necessary to fund costly research and development, biotech leaders can identify ways to streamline the process and cut costs. One of the biggest problems, he said, is biotech firms are still organized like they were 30 years ago.

Most biotech firms are too hierarchical in structure, he said. They are run by “weak teams,” responsible for individual sectors.

But the teams aren’t working together to leverage the process from drug discovery to development, he said.

“Companies spend an awful lot of time on processing information up the hierarchy and down,” he said.

His advice: “You need to operate more like in the auto or semiconductor industry , operate like a small business within a business.”

Most biotech firms make the mistake of not spending enough money early on in areas of drug development, manufacturing, and preparing to launch a drug, he said.

“Historically, companies were worried about drugs being safe and would worry about marketing later,” Pisano said. “Companies spend very little time if they are developing a drug on how (their) competitors may market a competitive drug.”

The winners in the competitive race will have carved out their market niche early on. To come out ahead of the game, biotech leaders must concentrate on cutting costs in clinical trials.

New Business Model

Firms must design trials more effectively by cutting enrollment time for patients and tracking them carefully and be diligent with documentation, he said.

“The most waiting time is not with the Food and Drug Administration, but inside the companies to make decisions,” he said.

On the other hand, he said, firms and the FDA need to rethink guidelines to make clinical trials more effective as well.

The arrival of tailored drugs is good news for patients, Pisano said.

“The pro for consumers is suddenly it isn’t one size fits all,” Pisano said.

Tailored drugs are likely to be less costly than conventional blockbuster drugs, offering subgroups of populations a variety of effective treatments for the same disease, from heart disease to cancer and the neurological disorders.

Biotech firms that can establish dominance in niche areas with multiple products can expect “nice returns,” Pisano said.

He predicted the Internet will be central to the new business strategy.

“Doctors will be too busy to keep up with new drugs,” Pisano said. That means biopharmaceutical firms need to find ways to target consumers directly.

To critics who argue biology and experimentation take time, Pisano offered the following analogy:

“In the past, it took six years to make one car,” he said. Today, hundreds of cars are assembled by the hour. If carmakers can get up to speed, chances are drugmakers can crank out biology faster, too, he said.


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