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February 01, 2012 (Vol. 32, No. 3)

Taking a Close Look at Big Pharma’s Future

  • GEN: R&D activities are usually considered to be the wellsprings of innovation. With less money now spent on R&D, how do pharma and biotech companies plan to come up with new products?

    SB: I am not sure this is negative to the biotech industry. I think the move from kind of a big pharma-oriented R&D to a biotech-oriented R&D is probably good for the biotechs and reduces a lot of the inefficiency that we had in big pharma. It is a little bit like the rowboat and ocean liner comparison.

    It takes a lot to move an ocean liner in some direction. It does not take very much to move a rowboat. So the biotechs have been quicker at the discovery, quicker at the development, and faster at accessing innovation off the campuses around the world and converting that discovery into real product innovation. Again this will be good for biotech but it’s bad for the pharmaceutical R&D engine. But does not mean that innovation will be over.

    Also, we are seeing a massive upgrading of R&D in the BRICs and Korea. So there is a geographic shift where a lot of the technology that historically has been developed in the U.K., U.S., and Europe will move to where it can be done more efficiently in Asia.

    Finally, I think it is important to note that the U.S. and Europe continue to dominate the Ph.D. factories that are putting out tremendous numbers of high-quality scientists. However, many of those students are Indian, Chinese, non-native Europeans, and non-native Americans. They are being trained here by the best and brightest and then returning to their home country instead of going to work for the Lillys, Pfizers, and Mercks of the world as was the case in the past. Now they are going to work for companies like Wushi Pharma and others elsewhere in the world where they can ply their trade and really have tremendous opportunitues. They used to settle down, live here with their families, and be productive parts of the U.S. pharmaceutical R&D engine.

    GEN: The biotech/pharma landscape has really changed dramatically over the past decade. What advice would you give to those who are currently thinking about making significant investments in today’s global life science industry?

    SB: I do think the landscape has recently changed dramatically but it has actually been changing dramatically since it began. The hallmark of the biotech industry has been its creativity in both sourcing capital, developing technology, and getting a product or products to market and then building successful companies around those products.

    One of the things that is happening on a global basis is that we are not necessarily building companies around every idea. From a funding standpoint, we will finance a proof-of-concept trial or some particular hot risk project and then create the company later, rather than forming the company first. We’ll build virtual teams and companies, then at proof-of-concept, we’ll either sell or license the technology, or form the company.

    We are also going to see capital flow differently. Historically, there have been tremendous capital flows for innovative ideas and products into the U.S. and Europe. Increasingly, some of that capital flow is going in other directions, both outbound to parts of the world and extramurally from other parts of the globe. The U.S. will neither be the source nor the destination. For example, you may have Middle Eastern money financing ventures in Brazil or Asian investors fudning developments in Russia.

    Here’s another example. We are a large investor in China, Korea, and Taiwan with U.S. dollars supporting innovation. As a result, there will be additional flows of capital into some of those countries. This is a clear example of how much the capital markets have changed.

    The kind of multiple venture capital financing route to an IPO in the U.S. is less common today. The challenges at the FDA make it easier for companies to look at how they can take their technology to the market in Europe, Latin America, Asia, and elsewhere prior to coming to the FDA.

    I believe the FDA will move from being kind of the gold standard of the world to a second-tier position where products will make their way into patient trials based in other countries first and then come back to the U.S. after significant “marketplace reality” has happened.

    In essence, we are going to see changing landscapes on the financing side, development side, and clearly a dramatically changing landscape on the marketplace side.

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