Six months after rival efforts to map the human genome came together at the White House, the biotech industry is at a crossroads. Where does it go from here?
Four major players from the industry offered their views at the alumni conference in a lively panel discussion titled "Where Is the Biotech Revolution Leading?"
Burt Adelman, vice president of medical research at Biogen, kicked off the discussion with a look at the Massachusetts-based company's internal analysis of its business and how it can sustain itself.
"Our business is about creating products that are of high value to patients and physicians," said Adelman. "As we look forward three years, five years, ten years, we wonder: What does that product look like? How do we, as pharmaceutical companies, interact in the space that was historically confined to doctors and patients and, to some degree, to health insurers?"
A key, said Adelman, is for biotech and pharmaceutical companies to think of themselves as information providers.
"We believe that, going forward, the product that we have to provide to physicians is really knowledge and information," he said. "In a sense, the drug will be stapled to the back of the information."
Companies like Biogen, said Adelman, must be committed to helping physicians and patients figure out the right choices to make in terms of cost, adverse effects, and likelihood of response.
"We have an obligation to provide better info, and I'm confident that by doing that, the actual value of our product will be much greater in whatever the economic space is that ultimately is defined for the entire healthcare industry and for whatever given disease the product is being introduced to."
Another challenge, said Adelman, is to figure out where the next product is coming from and whether it is going to be important in the healthcare environment.
Finding valuable drugs in the healthcare space
"Biogen can't afford most pharmaceutical companies can't afford any longer to develop lookalike drugs, drugs that are not viewed as being significantly valuable in the healthcare space.
"We have to figure out how to [develop new drugs] and do that quickly in light of the potential information that's available to us and our competitors by the complete delineation of the human genome. I don't have a good answer for that. I don't think anybody does."
There are two conflicting approaches, he said. "At Biogen, the conflict on this issue of discovery is based on: Do you put your nickel on sort of nonhypothesis-driven science? ramming genes through cell-based assays limited to variable predicted value, which is sort of the push hypothesis. You know: Get all the genes, get ten thousand genes and push them through these assays and you hope that something comes out.
"Or do you take the more historical hypothesis-driven approach? Do you develop animal models, do you understand the biology of human disease and of the model systems, and, once you understand that, do you try to pull the genes into that biology and use them to develop drugs?"
The problem, he said, is that some of the genome-based companies will say that they own all that property, and the longer you wait, the more expensive and more competitive it's going to be to get access to it. ("Not that it's cheap now," he added.)
"So the conflict or the problem that we're trying to solve is: How do we get to the right balance of biology in which we pull genes through to discover important therapeutics, or how much do we invest in the process of sort of randomly pushing genes through?
"Because right now, economically, we can gain access to genes, whereas five years from now it may cost a fortune, or they may not even be available."
A question of expectations
For Mara Aspinall (HBS MBA '87), president of Genzyme Emerging Technologies at Genzyme Corporation, managing expectations is perhaps the biggest challenge facing the biotech industry.
"I am relatively new to the biotech industry," said Aspinall, who followed Adelman on the panel, "and I treasure my ability to still look back to when I was just a layperson and didn't fully understand the industry, and just wanted a drug to make me or my kid or my mother feel better.
"The industry where it is now reminds me of where it was in the early '80s, when there were just absolutely tremendous expectations," she continued. "But the expectations of the layperson are very different from either the expectations or the reality of what it is in the industry.
"I think that's a very dangerous, but also exciting, spot to be."
Aspinall outlined three areas where public expectations and industry perspectives differ. The first was finance. From a layperson's perspective, biotech where market value has quintupled in just three years has been tremendously exciting, she said.
"From the industry perspective, it's a little scary," she continued. "Of that increase, 40% is genomic stocks and genomics companies, but are those genomic valuations reasonable? Is that sustainable right now, given that the total revenues of that part of the industry are, let's just say, incredibly light today?"
Medically, said Aspinall, there is a real gap between public expectations and what the industry can do.
"You hear from the laypeople that we are at a point where we can virtually eliminate disease. You go to a lot of conferences, and people talk about completely eradicating cancer in our generation or our kids' generation.
"I find that pretty scary, that people talk as if we have the human genome, it's all fully understood, and it's just a matter of spending a little bit of time and picking what you need.
"That is a real problem, because those of us in the industry know there is very little of that that we can say with confidence will actually happen in our lifetime or our children's lifetime. We know that, while the human genome has been sequenced, sort of, it really is a draft, and we are by no means ready to say all we have to do is spend a little time picking out what we need."
The third area technology is the one where public and industry expectations are probably closest together, said Aspinall.
"We have made unbelievable advances," she said. "I believe that it is the combination of biology, which has been the base for the last 25 years, and the infiltration and integration of computers that can really move things forward in a way that we have not yet seen in the industry.
All that being the case, she said, there are challenges moving forward. "From a layperson's perspective, the biggest challenge is time: 'I don't understand; you have all this data, you have everything you need, you have lots of clinical trials happening, why aren't things moving faster?'
"But it's not so easy. I was looking at something yesterday that said 'best case 2008.' And I looked at the team and said, 'You know, it's very frustrating to see something that's so exciting and says 'best case 2008.' I want it to have a date: next March, or next September. That's me looking back as a layperson, in an industry in which things happen in decades, not in months.
"We need to bridge the gap, from a layperson's perspective, and understand the time it takes to actually develop safe and effective drugs.
"I believe we're at the point in biotech where we, as an industry, need to ensure that the expectations don't get too far ahead of what is realistic. At the same time, we need to keep moving the ball forward so we keep setting higher and higher targets for ourselves and for our customers."
Mitigating risk
The third panelist, Hugh Reinhoff Jr., MD, founder, chairman, and CEO of DNA Sciences, said he looks at the biotech business from the point of view of mitigating risk. He outlined five risks in the industry: the technology risk; the scientific risk; the financial risk; the execution risk; and what he called "the public freedom to operate."
DNA Sciences, said Reinhoff, was founded on a faster, better device. "But after about a year, I realized there are fifteen other technologies that probably were just as good as this technology. Since I didn't want this technology to go into the marketplace, I wanted to use it. I said, I think what I'll do is buy state-of-the-market technology and not bet the company on state-of-the-art technology.
"That was an important decision we made about a year ago. So we have these two parallel processes going on inside the company. One, we're still developing state-of-the-art that might hit the market because of the appropriate manufacturing partner. And then we're actually doing our science with state-of-the-market technology much in the same way that other genomic companies bought the gizmos and put them in place, wrapped the technology around them, and created assets that way."
"I have my eye on the tech horizon all the time. But these technologies actually don't deliver, at least they don't deliver on the time scales that the entrepreneurs guarantee that they will. You're crazy to bet your company on it if there are some other goals."
Scientifically, said Reinhoff, the risk comes from sorting through many possibilities to find something commercially useful. "That's a risk you can only mitigate by having really, really good scientists, because good scientists will figure it out. If there is a way to get to the endgame in our case the genetic determinants of common disease good scientists will figure out how to do it."
Financial risk is a perennial problem with biotech, said Reinhoff, because of the huge capital requirements of ongoing research.
"I don't really lament the fact that, at various times, some of these companies are overvalued, as they may be today," he said. "Historically, they have been undervalued.
During these times when money is available, these companies need to take advantage of that. Because the greatest risk for all of these companies is not getting to the marketplace, and that is usually driven by the finance.
"The private equity market has relatively short horizons, notwithstanding what the venture people say about investing in the future. And the public markets, particularly those that invest in this sector, are getting increasingly shorter investment horizons, and that's a real problem because the product development cycle, as Mara mentioned, is on the order of decades."
The execution risk arises, said Reinhoff, because biotech companies are typically undermanaged. "They typically have two or three people at the top, which is really not enough to take advantage or survey the landscape, the technology landscape, the scientific progress, staying on top of the financial markets, etc.
"The way I mitigate that risk is by getting a management team that's actually fairly large for a company our size. That reflects two things: One is my concern about execution, but [another is] the fact that I don't have a lot of operating experience, and I wanted to hire professionals who could manage each part of the business."
The fifth risk, said Reinhoff, is the public freedom to operate, which means securing public support when pushing the envelope in hot-button areas. "The public can shut you down if they really want to," he said.
"We're involved in five or six different hot buttons health on the Net, genetic privacy, deterministic nature of genetics and discrimination, etc. etc. So before we launched DNA.com in August, we actually did a tour of all the powers that be in Washington, including the NGOs, people in the administration, the NIH, and also people on the Hill, both sides of the aisle to try to really understand and be as sensitive as we could to all these issues and solicit suggestions as to how we should present the site.
"I think the public freedom to operate issue is going to become a bigger issue, rather than a smaller issue. And I think biotechnology is going to face some of the same issues that the pharmaceutical industry is facing with respect to price pressure, and the only way to deal with that is to get the public behind us."
Eye on Washington
The dean of the biotech executives on the panel, Amgen chairman Gordon Binder, focused on the role of government and its impact on the industry.
"I can make more money for Amgen spending an hour in Washington, D.C., than I can spending an hour in my office," said Binder (HBS MBA '62). "I wish it weren't true, but it's really true." (For more on Gordon Binder, see his profile in the HBS Working Knowledge Special Report "Alumni Achievement Awards 2000.")
The biggest impact on biotech in the next year, said Binder, will come from the character of a new Medicare drug benefit passed by Congress. In the early days of the industry, he said, there wasn't any real need for a drug benefit.
"There were a lot of pills. They didn't do much. They didn't cost much. Capitalism worked. The price and the value were sort of the same. There wasn't any reason for insurance plans to have a drug benefit. Private insurance plans didn't even have a drug benefit. The paperwork would have cost more than the product.
"Well, the products got better, starting with penicillin," he continued. "There was a pharmaceutical that actually cured something, for the first time, really. They've gotten better and better, and the prices have reflected the increased value. The hope has to be that the improvement will continue."
But, he warned, "If a Medicare drug benefit comes with government price controls, it's a whole new ball game, and it's not a pretty one. And an awful lot of R&D is not going to get done."
There will be a Democratic Congress in 2003, said Binder, and the Democrats, he added, no matter what they say, have price controls in their plan. "If we don't get the right kind of Medicare drug benefit [put] in place with this next Republican Congress, that Democratic Congress is going to put [in place] a bad Medicare drug benefit that will lead to price controls. We don't have a lot of time."
"We're not going to take it lying down," he said. "If people in government are out to destroy your industry, you can fight back."
Binder also pointed to a new opportunity in the industry, one he plans to spend his post-Amgen career working on.
"The technology and research are moving very fast. There's a lot of new stuff that's very powerful, but it's moving very rapidly. It's very difficult for big pharmaceutical outfits to do all this stuff themselves.
"Yet, you've got this very expensive process that takes a very long time. It used to be, when the pioneer came out with the drug, the next one would be five years later and there'd end up [being] about five of them.
"Today, the first one is probably within a year of the pioneer. If you could speed that up even a little bit, it would have enormous impact. If you could make it a little cheaper, five percent cheaper is a lot of money.
"I think there is a market for the small biotech companies to service the big pharmaceutical companies. There'll be lots more of this. I'm going to bet some of my money, and most of my time, that this is right. And I hope it's true."
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