Trends in BioPharma – 2006-2007

A comparison of some highlights for the major BioPharma industries for the year 2006 is provided below.

Biotech

Pharma

Med Devices/ Diagnostics

Nutrition/ Agriculturea

Industrial Productsa

Revenues

$73.5 billion

$603 billion

$220 billion

$610 billion

$180 billion

R&D

$27.7 billion

$55.2 billion

$15 billion

$34 billion

$9 billion

# employees

190,500

450,000

500,000

NA

NA

# companies

4,215

220

15,000

NA

NA

a- Estimates are for biotech-impacted products only.

World-wide in 2006, the tools of biotech are impacting product sales totaling almost $1.7 trillion and impacting the R&D of these industries to the tune of $132 billion. Some major updates for these industries are provided below.

Nutrition/Agriculture

  • The biggest trend for the nutritional and agriculture industries is the continued expansion of the use of biotech crops. In 2006, a total of 10.3 million farmers in 22 countries planted over 250 million acres of biotech crop. This is roughly a 12% increase over 2005. The major reasons for this trend are the substantial and consistent improvements in productivity (~17%), and the accumulated reduction in the use of pesticides (~15%).
  • Compliance costs for full regulatory approval of a biotech crop were estimated to be between $7 million and $15 million for insect-resistant or herbicide-tolerant maize.

Industrial Products

  • The biggest single trend for industrial products is a direct off-shoot of biotech crops. It is the focus on alternative energy; particularly biofuels.
  • Biofuels-directed venture capital investment increased by 750% in 2006 compared to 2005 (totaling $275 million). This investment reflects the realization that additional innovation and investment is needed to make biofuels truly commercially viable.
  • In additional to the obvious impact of petroleum-based fuel prices, three other issues must be addressed; 1) stable sources of feedstocks (and perhaps novel feedstocks), 2) conversion technologies, and 3) more certain government regulations.
  • McKinsey has authored a model that can be used to estimate the potential impact of the global biofuels industry. This model suggests that there is sufficient land to cultivate almost 4 billion tons of feedstocks per year – in theory, enough to provide more than 50% of world’s transportation fuels by 2020.

Biotech/Pharma/Medical Devices/Diagnostics

  • A fourth hurdle has been added for drug regulation in addition to safety, efficacy and quality, and that is cost. For example, the UK’s National Institute for Health Clinical Excellence rejected the use of Velcade, Avastin and Erbitux based on cost effectiveness even though there are no alternative treatments.
  • Pressure to decrease cost will get worse; in the US someone turns 60 every 7 sec and the costs of healthcare are skewed toward to older individuals.
  • The specter of price controls is being raised in the US; these controls exist in many countries outside the US. This would change the business strategy of the healthcare industry tremendously: lower earnings, and reduce R&D, investments and innovation. Eventually (and hopefully) this will lead to a fair and consistent pricing system that provides companies and investors with adequate returns.
  • Healthcare companies must do a better job of educating patients (e.g. drugs account for only 1% of total annual healthcare expenditures). Companies are not helping in this cause, because of the perception (somewhat real) that they are focused on lifestyle and me-too therapies, instead of truly novel products.
  • In 2006, the FDA approved 23 novel drugs compared to 15 in 2005. There were a total of 28 approvals, but many were for add-on approaches or multiple indications for the same drug.
  • In 2006, the FDA approved 36 new medical devices.
  • Average cost to develop a biologic drug was $1.2 billion, and for a small molecule drug was $800 million to $1.7 billion.
  • The number of deals between biotech and pharma companies doubled to 23, and the funds raised increased 69% to $23 billion (compared to 2005).
  • Compared to 2005, the number of IPOs increased by 50% to 20 raising $944 million; but the average pre-money value of these companies dropped to $155 million; yielding low returns to investors.
  • M&A activity was excellent with 18 deals consummated at a total value of $18 billion.
  • Legislative agenda for 2007: product safety issues through FDA, reauthorizing PDUFA, negotiating the regulation of biosimilars, opening up funding for stem cells, changes to SBIR grant eligibility, new guidelines for Sarbanes-Oxley, and Biodefense funding.