www.pwc.com/pharma
Biotech
What’s next for
the business of big
molecules?
A special report for
attendees of the 2012 BIO
International Convention
Contents
Page
Introduction
04
Where are we now
04
Fluke or first signs of spring?
04
How many millions did you say?
06
Venture funding falls short
06
Big Pharma can’t bridge the gap
08
Asia smartens up its act…
09
…but the acid test’s innovation
09
Special report: Massachusetts’ biotechs beat the industry blues
11
Joined-up thinking
17
Playing nicely
17
Patient money
18
Back to school
18
United front
18
Collaborating competitors
19
Swapping notes with the big spenders
19
Package deals
20
Pulling together
20
References
21
Contacts
23
28
Introduction
The biotech industry is a barometer of the world’s health in several respects.
The products it develops are a measure of the progress mankind’s making in
the war on disease; the investment it attracts is a measure of wider economic
conditions; and the way it operates is a measure of the extent to which the
traditional business paradigm is shifting. So we wanted to look at how the
industry’s faring, as the 2012 BIO International Convention unfolds.
PwC’s updated the analysis we completed
two years ago, when we published
“Biotech reinvented”— an assessment of
the industry’s achievements in the 30
years since its birth.1 We’ve also included
a special section on Massachusetts’
biotechs, in recognition of the major role
they play.
Where are we now?
In mid-2010, when we first reviewed the
state of the biotech sector, we concluded
it hadn’t fulfilled its early promise. It
seemed to us that there were three
particular problems:
• The industry hadn’t delivered a
significant increase in productivity,
measured in terms of new medicines
reaching the market
• The business model on which it relied
was under great strain; and
• The US was in danger of losing its lead,
as the biomedical research base moved
east.
Meanwhile, pharma was also struggling
to translate the discoveries of the past
decade into safe, effective, new
medicines. Mapping the human genome
was one thing; applying the insights the
molecular sciences provided, quite
another. So what was the solution? One
way forward, we suggested, was closer
collaboration. If the biotech and pharma
sectors joined forces, they might be able
to develop new medicines more
effectively and capitalize together on the
opportunities arising from the push
towards personalized healthcare.
4 Biotech What’s next for the business of big molecules?
Two years on, there’s bad news and good:
productivity’s still low, and money scarce,
but the biotech and pharma industries are
no longer trying to “go it alone.” A growing
number of biotech and pharma companies
are collaborating—with patient advocacy
groups and medical charities, with
academia, and with each other. And these
are real, long-term collaborations, not just
one-off licensing deals.
Fluke or first signs of spring?
Let’s start by looking at productivity. In
2010, we noted that the annual number of
medicines approved by the Food and
Drug Administration (FDA) had remained
broadly constant since 1990, when the
impact of the biotech industry first began
to show. It typically takes a decade to
develop a new medicine, and the earliest
biotech companies originated in the ’80s.
So, if they’d succeeded in improving
productivity, there should have been
some sign of it by this point.
Today, the evidence is more encouraging.
In 2011, the FDA’s Center for Drug
Evaluation and Research (CDER)
approved 30 new medicines—a higher
number than at any time since 2004 (see
Figure 1). Twelve of them were first-inclass therapies.2 And nine are expected to
generate peak sales of more than $1
billion a year.3
Big Pharma was responsible for more than
a third of these new products, but several
biotech companies also had noteworthy
successes. Massachusetts-based Vertex
Pharmaceuticals was behind Incivek, one
of two medicines that could transform the
treatment of hepatitis C—the other being
Merck & Co.’s Victrelis. Human Genome
Sciences co-developed Benlysta, the first
new therapy for systemic lupus
erythematosus in 50 years, with
GlaxoSmithKline (GSK). And Incyte crept
under the wire at the end of 2011 with
Jakafi, the first approved treatment for
myelofibrosis.4
Figure 1: The number of new medicines reaching the market has picked up
Number of products approved
35
30
25
20
15
10
23
20
5
0
27 2
24 5
17 7
23 6
31 5
2000
2001
2002
2003
2004
16 2
18
18
2005
43
35
New molecular entities
18 4
16 2
21 3
19 6
15 6
24 6
2006
2007
2008
2009
2010
2011
Biologics license applications
28
20
74
Source: US Food and Drug Administration
Note: New molecular entities and biologics licence applications approved by CDER 75
40
38
26 too. A recent study
There are other issues,
17
of 4,275 medicines moving
through
clinical trials to FDA approval suggests
that the failure rate is actually increasing.
Between 2003 and 2010, only one in 10
treatments reached the market, compared
with a previous rate of one in five or six.5
But a few buds don’t necessarily mean the
backyard’s flourishing, and a closer look
at the figures shows that the number of
biologics approved by the FDA has stayed
the same for the past three years. In fact,
it’s still slightly lower than in 2002, when
seven new biologics were approved. Seen
from a historical perspective, then, the
picture isn’t quite so positive.
The global pipeline is also becoming more
concentrated. Nearly 31% of the
molecules currently in research and
development (R&D) cover cancer and
autoimmune diseases (see Figure 2).
23
Figure 2: The global pipeline’s getting very narrow
Oncology & immunomodulators
Systemic anti-infectives
Central nervous system
Cardiovascular
Musculoskeletal
Endocrine
Gastro-intestinal
Respiratory
Other
Dermatology
Sensory organs
Genito-urinary
Blood
0
1,000
Research
2,000
Pre-clinical
3,000
Phase I
4,000
Phase II
5,000
Phase III
6,000
Filed
Source: EvaluatePharma
Biotech What’s next for the business of big molecules? 5 How many millions did you say?
And developing a new medicine is still an
expensive business, although just how
expensive is the subject of fierce debate. In
2006, the Tufts Center for the Study of
Drug Development pegged the average
cost at $1.24 billion for a large molecule
and $1.32 billion for a small molecule
(based on an estimate of $802 million in
2000 dollars, uplifted by 64% to reflect
rising costs).6
But, in early 2011, two academics
challenged these figures. They argued
that Tufts had committed some serious
methodological “errors” and used too
small a sample to represent the industry
as a whole. The real cost of developing a
new treatment, they claimed, was more
like $59 million in 2006 dollars—the
equivalent of $75 million today.7
Various other commentators have now
joined the battle. In February 2012, for
example, a couple of journalists at Forbes
added up the amount invested in R&D by
each of the 12 Big Pharma companies for
the past 15 years, adjusted it for inflation,
and then divided it by the number of
approvals each company secured over the
same period. The result? Amgen was a
model of efficiency; it spent “just” $3.7
billion on each of the molecules it
launched. AstraZeneca, by contrast, spent
nearly three times as much.8
So where does the truth lie? Harvard
economist Frederic Scherer suggests that
it lies somewhere in the middle. Scherer
finds fault with certain aspects of Tufts’
analysis. But it’s clear “by any reckoning,”
he says, that average costs per approved
molecule “have risen greatly over recent
decades to levels measured in the
hundreds of millions of dollars.” 9
EvaluatePharma predicts that, by 2016,
there’ll be seven such best-sellers (see
Table 1).10 But Humira—the product that
will probably head the league—is forecast
to generate only 80% of the revenues
Lipitor earned in its heyday.
Venture funding falls short
If the biotech industry’s contribution to
productivity is still questionable, what
about the business model on which it’s
historically relied? We argued two years
ago that this model—based as it is on
external investment, typically venture
capital—was under pressure. Again, the
news is mixed.
On the upside, US venture capitalists are
back on the scene; venture funding in the
domestic biotech sector topped $4.7
billion in 2011, 22% more than in 2010.
On the downside, the total number of
deals dipped again, after perking up in
2010 (see Figure 3)11. And first-round
financings fell by 19%; only 98 of the
deals struck in 2011 involved start-ups.12
What’s more, only 13% of the venture
capitalists the US National Venture Capital
Association (NVCA) recently polled said
they plan to increase the amount they
invest in the sector.13 And, to judge from
events in the first quarter of 2012, they
meant what they said. There were just 99
deals with a combined value of $780
million in the three months ending March
2012. That’s little better than in 2009,
when there were 94 deals collectively
worth $705 million.14
It’s harder still to get venture capital in
Europe and Asia. In 2011, venture funding
in the European biotech industry dropped
to $1.2 billion—down from $1.4 billion
the previous year—as the Eurozone’s
problems cast a shadow over the entire
region.15 And, in Asia, venture backing
plays a much smaller role. In the first half
of 2011, Asian biotechs raised only $81
million, a fraction of the venture funding
raised in the US and Europe.16
Table 1: Top of the pops
Top 10 drugs in 2009 (global sales in $bn)
Top 10 drugs in 2016 (global sales in $bn)
Lipitor
12.0
Humira
9.7
Plavix
9.1
Avastin
7.6
Seretide/Advair
8.1
Rituxan
7.7
Enbrel
7.3
Crestor
7.5
Humira
6.7
Enbrel
7.2
Remicade
6.5
Seretide/Advair
7.0
Avastin
6.2
Januvia/Janumet
6.8
Diovan
6.1
Herceptin
6.5
Rituxan
6.1
Remicade
6.1
Crestor
6.1
Prevnar 13 (conj. vaccine)
5.8
Source: EvaluatePharma
In other words, the biotech industry hasn’t
driven development costs down greatly.
Yet neither—currently, at any rate—is it
bringing in the sort of income the old
blockbusters produced. In 2009, five of the
10 top-selling medicines were biologics.
And market research firm
6 Biotech What’s next for the business of big molecules?
Figure 3: US venture funding is still scarce for first-timers
1,400
1,200
$m
1,000
800
600
400
200
0
103
94
2
Q1
2009
124
119
17
Q2
2009
Q3
2009
112
153
112
18
23 6
Q4
2009
111
Q1
2010
Q2
2010
Q3
2010
122
108
4
Q4
2010
Amount invested
16
105
21
Q1
2011
Q2
2011
111
99
6
Q3
2011
6
Q4
2011
24
Q1
2012
Number of deals
Source: PwC/National Venture Capital Association MoneyTree™
Things may still pick up: 36% of the US
venture capitalists the NVCA surveyed
hope to invest more heavily in European
biotechs, while 44% have their eyes on
Asia. But even if they do spread their
wings, it’s obvious the industry won’t be
awash with cash. The same NVCA survey
shows that 39% of US venture capitalists
intend to cut the amount they invest in life
sciences firms over the next three years—
some of them by as23much as a third.17
Why? Primarily because there are better
opportunities elsewhere. As Table 2
shows, the biotech sector delivers much
lower returns than those that can be
obtained from many other sectors.
Indeed, in the past five years, it’s typically
delivered a pooled gross internal rate of
return that’s less than a third of the
return from investing in information
technology.18
Realizing a return has also, of course,
become much harder. In 2011, there were
only eight initial public offerings (IPOs)
in the US biotech sector, and they raised
only $517 million—compared with the 19
IPOs that fetched more than $1.2 billion
in 2007.19 In short, venture capitalists
aren’t likely to pile back into the industry
while the economic outlook remains so
uncertain.
Table 2: The biotech sector offers lower returns than many other sectors
2006
2007
2008
2009
2010
Average
Information Tech.
19.53
22.45
46.22
59.92
82.97
92.44
Hardware/Systems
-0.31
48.74
16.44
70.51
53.13
75.40
Software/Services
9.85
12.83
25.78
44.52
47.14
56.05
Manufacturing
22.02
5.39
22.01
34.17
50.63
53.69
Media/Comms
-2.34
4.43
17.41
47.15
56.01
49.06
Chemicals/Materials
-4.98
37.21
4.61
1.49
64.73
41.22
Consumer/Retail
-0.32
-5.35
10.25
41.19
18.59
25.87
3.74
7.76
12.01
11.72
27.31
25.02
Industrial
13.73
-16.94
58.53
N/A
N/A
18.44
Financial Services
21.25
-8.05
3.00
14.66
11.73
17.04
Healthcare/Biotech
Energy
2.18
18.86
6.79
9.24
5.22
16.92
Electronics
-5.76
2.31
5.13
14.59
17.52
13.52
Other/Fund of Funds
-7.41
12.41
-2.98
16.82
11.48
12.13
-67.81
4.69
0.05
-1.10
24.25
-15.97
Environmental
Source: Cambridge Associates
Note: The pooled gross internal rate of return (%) delivered by companies receiving an initial investment in the
years 2006 to 2010
Biotech What’s next for the business of big molecules? 7 Figure 4: Big Pharma’s trimming its R&D expenditure
70
70
60
60
47.90
$bn
50
50
40
40
30
30
26.03
29.77
31.01
2001
2001
2002
2002
34.45
37.02
39.86
42.97
47.38
46.44
2008
2008
2009
2009
50.71
49.48
2010
2010
2011
2011
20
20
10
10
0
2000
2000
2003
2003
2004
2004
Total R&D expenditure
2005
2005
2006
2006
2007
2007
Projected expenditure if rate of increase were constant
Source: Pharmaceutical Research and Manufacturers of America (PhRMA)
Note: Between 2000 and 2007, R&D expenditure rose at a compound annual growth rate of 9.1%. If this trend had continued, PhRMA’s members would now spend
nearly $68 billion a year on R&D
Big Pharma can’t bridge the gap
Some of the largest biopharma companies
are now trying to fill the gap. In 2011,
they collectively contributed $694
million—nearly 15% of the total venture
capital invested in the US biotech sector
that year.20 Three firms have also topped
up the pot with new funds. In September
2011, Merck & 23
Co. launched the Global
Health Innovation Fund and Merck
Research Venture Fund, with $250
million each to invest.21 Then, in March
2012, GSK and Johnson & Johnson
teamed up with Index Ventures to create
a $200 million fund for backing earlystage biotech companies.22
It’s too early to evaluate the success of this
last fund. But Merck & Co. has already put
$37 million into a digital pharma
marketing company and two diagnostics
providers, via the first of the two funds it
set up.23 It’s also made four fund-to-fund
investments through its Research Venture
Fund and tied up with Flagship Ventures
to find suitable biotech candidates.24
Yet Big Pharma’s in no position to pick up
all the slack. Most of the leading players
are under pressure themselves, as their
earnings from aging medicines tumble
over the “patent cliff.” Witness the fact
that the members of trade body
Pharmaceutical Research and
Manufacturers of America (PhRMA) cut
their R&D expenditure by 2.4% in 2011
(see Figure 4).25 That’s the third such
drop in the past five years, and the
equivalent of an 8.5% fall in real terms
since 2007.26
At least one biopharma firm has now
pulled out of the venture game altogether.
Executives at Biogen Idec, which began
life as a biotech start-up itself, believe
there are better ways of supporting
innovation, such as sponsoring university
research. And they say the usual
argument for becoming a corporate
venture capitalist—that you get
preferential treatment when it’s time to
buy a new technology—is essentially a
myth, or should be, because the backers
owe it to their shareholders to strike the
best deal for all concerned.27
These trends imply that the business
model on which the biotech industry has
relied is indeed very vulnerable. The
“ivy-league” candidates will still be able
to attract venture funding, but there
won’t be enough cash to sustain the entire
sector.
8 Biotech What’s next for the business of big molecules?
Figure 5: The US still attracts the bulk of all foreign direct biopharma investment
73.3
70
70
60
60
$bn
50
50
40
40
36.7
29.8
30
30
20
20
19.7
27.5
17.7
16.8
12.2
10
10
0
China
Singapore
India
Inward investment (2003-2006)
Inward investment (2007-2010)
0.7 2.9
2.0 2.8
South Korea
Malaysia
United States
Share of investment flows going into
R&D (2007-2010)
Source: Jones Lang LaSalle
bioinformatics center and several interinstitutional centers for translational
China
Singapore
India
South Korea
What, then, about our next hypothesis:
research.31 Meanwhile, the South Korean
that the research base is moving east and
government has put about $5 billion into
the US is losing its lead in biomedical
two biotech clusters in Osong and Daegu,
research? Some of the patterns we
and is now actively promoting the
identified in 2010 have continued. The
development of a domestic biosimilars
number of students completing doctorates industry.32
in the physical and biological sciences is
Singapore—which already has a thriving
still soaring in China, for example.28
biotech base—has pledged to invest
23
The returnee trend seems to be
another $2.8 billion (in US dollars) on
accelerating, too. Unfortunately, there’s
biomedical R&D by 2016.33 Malaysia
no hard data on reverse migration. But
aims to sink nearly $3 billion of public
the Chinese Ministry of Education
and private funds in the sector during the
estimates that, in 2010, 134,800 overseas
second phase of its national
Chinese students went back after getting
biotechnology plan.34 And China dwarfs
a foreign education. That’s more than
them all; in mid-2011, Beijing announced
double the number who returned in
that it intends to spend more than $300
2008.29 And recruitment consultancy
billion on science and technology in the
Kelly Services predicts that as many as
next five years, with biotech one of seven
300,000 Indian professionals working
top priorities.35
30
abroad could go home by 2015.
These efforts are bearing fruit. Between
The emerging Asian economies are also
2004 and 2009, the number of listed
still ramping up their investment in
biopharma companies in Asia climbed
biotech R&D. The Indian government
from 276 to 370, and their combined
plans to spend $297 million in the coming revenues nearly tripled from $27.4 billion
financial year alone. Much of that money
to $73 billion.36 At least two Indian and
will go on setting up a new national
five Chinese biopharma firms have now
Asia smartens up its act…
joined the “billion-dollar club,” with
several Malaysian firms close behind.37
Malaysia
United States
Many of the big multinationals have also
been setting up Asian R&D hubs. In fact,
R&D accounted for 31% of the 653
cross-border biotech and pharma
investments that fDi Markets recorded in
Asia from 2004-2011.38 China,
Singapore, and India attracted most of
this money, although the US still gets the
biggest share of all foreign direct
biopharma investment (see Figure 5).39
… but the acid test’s innovation
Even so, between 2007 and 2010, Asia’s
top five biopharma players collectively
brought in $70 billion. Yet they continue
to lag way behind the leading developed
economies in terms of innovation. The
number of biotech patent applications
originating in the US is far higher than in
any other country (see Figure 6).40 But
it’s not just the number of applications
that counts, it’s also their quality—and
here, too, the US reigns supreme.
Biotech What’s next for the business of big molecules? 9 Internationally recognized patents are
Figure 6: US scientists apply for more biotech patents than scientists in any other
generally a better test of innovation than
country (thousands)
those that are only recognized in the
inventor’s country of origin. In 2010, 42%
3 3
United States
4
of all US inventors and 37% of all
5
Japan
Japanese inventors who applied for
5
China
3
patents in any field of technology filed
7
abroad. So did 40% of those based in
Germany
India, although the number of
52%
Korean Republic
59
11
applications was much smaller. But more
50%
United Kingdom
than 95% of the applications Chinese
France
inventors submitted were filed
41%
Switzerland
7
16
domestically.41
That’s not all. One researcher—reasoning
that most of the medicines developed
worldwide are marketed in the US, and
that FDA approval is therefore31%
a good
global benchmark—looked at the location
26% of a
of every listed inventor
pharmaceutical patent in the FDA Orange
Book between 2000 and 2009. Sixty
percent of them were based in the US,
and 31.5% in just seven other countries.
Only one inventor lived in India, and only
two in China (see Figure 7).42
Of course, this doesn’t mean the US—or
any other developed country with a
strong record of biotech R&D—can afford
44%
Netherlands
42%
Canada
21
34%
Source: World Intellectual Property Organization
31%
Note: The top 10 countries generating biotech patent applications between 2005 and 2009
to be complacent. By the end of 2010,
there were 187 novel investigational
drugs undergoing clinical trials in China,
and 39 of them are covered by US or
European patents, suggesting they have
global potential.43 China’s standing as a
source of innovation could soon improve,
then, but the US looks likely to stay in
pole position for some time to come.
21%
Figure 7: Most biopharma invention still originates in the US
90
North America
Europe
East & South Asia
Middle East
Australasia
South America
80
No. of patents (%)
70
60
50
40
30
20
10
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Yali Friedman, “Location of pharmaceutical innovation: 2000–2009”
Notes: (1). Data for 2000 only cover January to June; (2). Where inventors from more than one country co-developed a patent, each country was assigned a proportionate
share of the credit.
10 Biotech What’s next for the business of big molecules?
Special Report
Massachusetts’ biotechs
beat the industry blues
Medicines in the pipeline
Biotech companies
900
500
Testing the local temperature – we’ve assessed the overall state of
the industry in the rest of our report, but what’s happening here in
Massachusetts? More than 500 biotech companies have set up home in the
state—and they’ve already developed more than 50 biologics, with another
900-odd medicines in the pipeline.1 In short, Massachusetts’ biotechs play a
major role in the global biotech industry. So how are they are coping, as the
business of big molecules evolves?
“The Massachusetts life sciences industry
employs more than 50,000 people”
Capital achievements
The first thing to note is the success
biotechs in Massachusetts—and New
England in general—have enjoyed in
attracting venture funding. Between
January 2009 and March 2012, venture
capitalists invested $13.1 billion in the US
biotech sector. Nearly 25% of the money
went to companies based in New
England.2
The region’s youngest biotechs have done
especially well. Over the past three years,
they’ve brought in $2.4 billion by way of
seed and early-stage capital—more than
biotechs in any other part of the country,
including Silicon Valley (see Figure 1).3
400
New England
350
Silicon Valley
San Diego
300
US $m
Special Report
Figure 1: New England’s biotechs attract the biggest share of early-stage venture capital
250
200
150
100
50
0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
2009
2009
2009
2009
2010
2010
2010
2010
2011
2011
2011
2011
2012
Source: PwC/National Venture Capital Association MoneyTree™
Note: Figures include seed and early-stage venture capital
So Massachusetts’ biotechs seem to be
bucking one of the strongest trends we’ve
noticed in recent years: the decline in
venture backing for scientific start-ups.
Venture capital has played a key part in
financing new biotech firms for the past 30
years, but the global evidence suggests
that it’s getting more and more difficult to
attract such funds.
Of course, venture capital alone isn’t
responsible for the relatively good health
in which the region’s biotechs find
themselves. Massachusetts also brings in a
disproportionate share of federal research
dollars. In 2011, it received $2.5 billion in
funding from the National Institutes of
Health—more than 11% of the total
amount awarded.4
And the state itself has been very
supportive. In June 2008, the
Massachusetts Legislature passed the Life
Sciences Act—a 10-year, $1-billion
initiative proposed by Governor Deval
Patrick to promote the local life sciences
industry.5
Figure 2: The state is actively supporting the biotech sector
3.5
1.2
2.7
Capital projects
Company grants and loans
37
Academic research grants
Tax incentives
Funding of interns for workforce development
131
23
Equipment and supply grants for schools
Other grants
19
Source: Jones Lang LaSalle
Note: Millions of dollars disbursed between June 2008 and June 2011 (figures rounded)
By June 2011, the Massachusetts Life
Sciences Center, which manages the
program, had disbursed more than $217
million in research grants, loans,
workforce development schemes, and the
like (see Figure 2).6
12 PwC | Massachusetts’ biotechs beat the industry blues
Indeed, Massachusetts boasts a higher
concentration of top-flight scientists and
engineers than any other US state. At last
count, there were some 35,000 employees
with engineering and sciences doctorates
working in the region. While that’s less in
absolute terms than in several other
states, when you factor differences in the
size of the population into the equation,
Massachusetts is way ahead of the crowd
(see Table 1).
A biomedical “super cluster”
This biomedical “super cluster” has
produced a clutch of remarkably
innovative companies collectively
employing more than 50,000 people (see
Table 2). Some of the largest firms are
now in Big Pharma’s hands. In July 2010,
for example, Merck KGaA bought
Millipore for $7 billion.7 And, in February
2011, Sanofi snapped up Genzyme for just
over $20 billion, with further payments
contingent on how well Genzyme’s
products perform.8
But Biogen Idec, which started life in 1978
and ranks among the foremost companies
in the region, is still independent. It’s
developed a number of breakthrough
medicines, including multiple sclerosis
treatments Avonex and Tysabri, and
cancer and autoimmune disease therapy
Rituxan. It also has a strong pipeline, with
some very promising products in Phase III
trials, including treatments for hemophilia
and amyotrophic lateral sclerosis.9
Table 1: Massachusetts has the country’s highest concentration of people with
scientific and engineering PhDs
State
No. of employees with
PhDs in sciences &
engineering, 2008
Population
(thousands)
No. of employees with PhDs
in sciences & engineering
per 100,000 people
Massachusetts
35,000
6,594
531
California
95,700
36,962
259
New York
49,000
19,541
251
Pennsylvania
30,000
12,605
238
Texas
39,900
24,782
161
Special Report
The private and public cash that’s gone
into the region has helped build a strong
biomedical research hub. Massachusetts’
biotechs can call on some of the country’s
leading scientists, both at universities like
Harvard and MIT, and at research
organizations like the Joslin Diabetes
Center, Whitehead Institute, and Broad
Institute. The area also contains several
world-class hospitals, including
Massachusetts General, Brigham and
Women’s, and the Dana-Farber Cancer
Institute.
Source: National Sciences Foundation, Science and Engineering State Profiles
Table 2: More than 50,000 people work in Massachusetts’ life sciences industry
Sector
2007
2008
2009
2010
Biotechnology R&D
24,565
26,439
26,759
26,812
Medical equipment and supplies
manufacturing
11,315
10,963
10,527
10,759
Pharmaceutical and medicine
manufacturing
9,139
9,581
9,706
9,500
Medical and diagnostic laboratories
4,682
4,830
4,976
4,930
Source: National Sciences Foundation, Science and Engineering State Profiles
Plenty of smaller firms are making their
mark on the sector as well. Take Vertex
Pharmaceuticals, which developed
hepatitis C protease inhibitor Incivek.10
The product was approved in May 2011
and generated sales of $456.8 million by
December 2011, making it one of the most
successful launches in recent history.11
Vertex has now pulled off another coup,
with FDA approval of cystic fibrosis drug
Kalydeco in January 2012. Even though
Kalydeco is only approved for a small
subset of cystic fibrosis sufferers—those
who have the G551D genetic mutation—
analysts expect it to generate peak sales
of $1 billion, rising to as much as $3
billion if it proves effective in the larger
cystic fibrosis population.12
PwC | Massachusetts’ biotechs beat the industry blues 13 Special Report
Table 3: Top 10 US regions measured by biotech patent applications, 2008-2009
No. of
applications
Share of US total
(%)
Boston-Worcester-Manchester
1,061.9
5.54
San Jose-San Francisco-Oakland
1,029.3
5.37
New York-Newark-Bridgeport
670.5
3.50
Washington-Baltimore-Northern Virginia
552.3
2.88
San Diego-Carlsbad-San Marcos
544.1
2.84
Philadelphia-Camden-Vineland
394.8
2.06
Los Angeles-Long Beach-Riverside
390.5
2.04
Raleigh-Durham-Carey
253.7
1.32
Seattle-Tacoma-Olympia
175.3
0.91
Chicago-Naperville-Michigan City
174.4
0.91
Source: OECD patents database
New Haven’s Trovis Pharmaceuticals (a
subsidiary of Clinical Data) also scored a
hit in early 2011, when it won approval
for Viibryd, an oral medication for serious
depressive disorders.13 Meanwhile,
Cubist Pharmaceuticals is in the final
stage of testing a new treatment for
Gram-negative bacterial infections, which
analysts predict could generate revenues
of $2 billion. The company already has a
successful product for Gram-positive
infections under its belt.14 And Momenta
Pharmaceuticals, a Cambridge-based
biotech specializing in the
characterization and engineering of
complex medicines, has just earned top
place in the latest Globe 100 list of the
state’s best-performing public companies.
Thanks to its generic version of antiblood-clotting drug Lovenox, Momenta
nearly quadrupled its profits last year.15
This pattern of innovation looks set to
continue. In August 2011, Massachusetts’
biotechs had 567 candidates in clinical
trials—76 of them in Phase III—as well as
14 products pending approval.16 And, if
the latest figures on US patent
applications are any guide, there’s more
in the pipeline. In 2008 and 2009,
scientists in the Boston-WorcesterManchester corridor applied for more
biotech patents than scientists in any
other area of the country (see Table 3).17
In other words, Massachusetts’ biotechs
don’t seem to be suffering from the
productivity crisis that’s dogged the
biopharmaceutical industry as a whole for
the past decade. On the contrary, they
appear to be at the top of their game.
Brain buddies
Such success has inevitably attracted Big
Pharma’s attention. Most of the major
European and Asian pharma firms now
have a substantial presence in
Massachusetts, and some of them have
recently been expanding. In October
2010, for example, Novartis announced
plans to spend another $600 million on its
Cambridge research campus.18 Sanofi has
been building a $65-million oncology
research center in the city.19 Pfizer has
just moved into Shire Pharmaceuticals’ old
Cambridge premises, while it completes a
new office-lab. And Shire itself has moved
to a new 96-acre site in Lexington, which
it purchased for $165 million in 2010.20
A number of large pharma companies
have also bought local biotechs, as we’ve
already remarked. What’s arguably more
noteworthy, though, is the trend toward
collaboration rather than acquisition. Two
years ago, when we published “Biotech
reinvented,” we suggested that the biotech
and pharma sectors should cooperate—
both with each other and with other
parties—to develop new medicines more
effectively and capitalize on the growing
demand for personalized healthcare.21
That now seems to be happening to a
much greater extent.
In the academic arena, for example, Pfizer
has teamed up with eight Boston-based
research institutions to hunt for candidate
drugs.22 And Gilead Sciences has joined
forces with Yale School of Medicine to
focus on new molecular mechanisms
for cancer.23
14 PwC | Massachusetts’ biotechs beat the industry blues
Several significant biotech-pharma
partnerships have also been announced.
In February 2011, Aveo Pharmaceuticals
signed a deal with Astellas Pharma under
which the two companies will jointly
develop and commercialize Aveo’s lead
product for renal cancer.24 Then, in
October 2011, Biogen Idec teamed up
with San Francisco’s Portola
Pharmaceuticals to co-develop an oral
Syk-inhibitor for the treatment of various
autoimmune diseases.25
A month later, Aileron Therapeutics and
Roche agreed to expand an existing
alliance to develop new medicines using
Aileron’s “stapled peptide” platform. The
collaboration could see Aileron earn more
than $1.1 billion.26 And, in January 2012,
Forma Therapeutics joined forces with
Boehringer Ingelheim and Janssen
Biotech—a mere seven months after
negotiating a groundbreaking pact with
Genentech, which we’ve discussed in
more detail on p.17 of our report.27
Special Report
Chill winds
That’s not to say Massachusetts’ biotechs
have been completely immune to the
problems currently facing the sector.
Government funding for basic research
remains a perennial worry, especially
while the US economy continues to
languish in the aftermath of the worst
recession since the 1930s. And though
some of the region’s biotechs have
secured mouth-watering deals, many
others are still struggling to raise the cash
they need.
Lackluster demand for new biotech stocks
has also taken its toll on two highly
regarded local firms that floated earlier
this year. When Merrimack
Pharmaceuticals went public in March
2012, its share price fell 14% on the first
day of trading. But, by mid-April, it was
back in positive territory, where it’s
managed to remain.28 Meanwhile,
stem-cell manufacturer Verastem has
seen its stock hover around the offering
price of $10 per share since its debut in
February 2012.29
Yet institutional investors aren’t turning
their backs on all biotechs, as another
local firm has proved. Rare disease
specialist Synageva BioPharma completed
a reverse merger last November and a
follow-on offering in January 2012. It
planned to raise $60 million but ended up
netting $84 million, after selling nearly
3.6 million shares, including an overallotment of 466,209 shares.30 And, by
mid-May, its stock was trading at 52%
more than the opening price.31
Leading light
In all, then, Massachusetts’ biotechs have
fared much better than many of their
rivals in other parts of the US—and,
indeed, the world. The region has also
been steadily cementing its lead as the
country’s top cluster for early-stage
innovation in the life sciences. Times may
be tough but there are good grounds for
hope. Massachusetts’ biotechs, it seems,
are beating the industry blues.
PwC | Massachusetts’ biotechs beat the industry blues 15 Special Report
References
1. Massachusetts Biotechnology Council,
“Massachusetts By the Numbers,” http://www.
massbio.org/economic_development/the_
massachusetts_supercluster/massachusetts_by_
the_numbers
15. Robert Weisman, “Momenta: The perfect
Massachusetts success story,” The Boston Globe (May
20, 2012), http://articles.boston.com/2012-05-20/
globe-100/31699141_1_momenta-chief-executivemomenta-pharmaceuticals-brand-name-drug
27. John Carroll, “Forma scores another Big
Pharma deal in $700M J&J cancer pact,”
FierceBiotech (January 10, 2012), http://www.
fiercebiotech.com/story/forma-scores-another-bigpharma-deal-700m-jj-cancer-pact/2012-01-10
2. MoneyTreeTM PwC and the National Venture
Capital Association (NVCA), based on data provided
by Thomson Reuters. The biotech sector covers
developers of technologies promoting drug
development, disease treatment, and a deeper
understanding of living organisms. It includes
human, animal, and industrial biotechnology
products, and services; biosensors; biotechnology
equipment; and pharmaceuticals. It excludes
medical devices and equipment.
16. Massachusetts Biotechnology Council,
“Biotechnology Industry Snapshot 2011” (2011).
28. Merrimack’s opening price was $7 per share.
The closing price on May 14, 2012, was $7.41 per
share. Details taken from NASDAQ, “Merrimack
Pharmaceuticals Stock Chart,” http://www.nasdaq.
com/symbol/mack/stock-chart
3. Ibid.
4. Massachusetts Biotechnology Council, op. cit.
5. Massachusetts Life Sciences Center,
“Translating Good Science into Good Business,” p. 3.
6. Massachusetts Life Sciences Center, “FY 2011
Annual Report: Delivering on the Promise,” p. 6.
7. Merck Group press release, “Merck KGaA
Completes Millipore Acquisition and Launches New
Merck Millipore Division” (July 15, 2010), http://
www.merckgroup.com/en/media/extNewsDetail.h
tml?newsId=BFC4CF612120F249C12577600051A
CAA&newsType=1
8. Nina Sovich & Noelle Mennella, “Sanofi to buy
Genzyme for more than $20 billion,” Reuters
(February 16, 2011), http://www.reuters.com/
article/2011/02/16/us-genzyme-sanofiidUSTRE71E4XI20110216
9. “Biogen Idec (BIIB) PT Lifted To $148 By UBS
Securities On Pipeline Optionality, ‘Buy’
Maintained,” iStockAnalyst (May 9, 2012), http://
www.istockanalyst.com/finance/story/5831705/
biogen-idec-biib-pt-lifted-to-148-by-ubs-securitieson-pipeline-optionality-buy-maintained#
10. Asher Mullard, “2011 FDA drug approvals,”
Nature Reviews Drug Discovery, Vol. 11 (February
2012), pp. 91-94.
11. “Vertex posts 4Q profit on growing Incivek
sales,” Associated Press (February 2, 2012), http://
finance.yahoo.com/news/Vertex-posts-4Q-profitapf-1137554779.html
12. Andrew McConaghie, “Kalydeco to be landmark
in cystic fibrosis treatment,” InPharm (January 2,
2012), http://www.inpharm.com/news/171406/
kalydeco-be-landmark-cystic-fibrosis-treatment
13. Liz Jones Hollis & Jennifer Levin, “FDA
approvals of 2011,” FierceBiotech (February 1,
2012), http://www.fiercebiotech.com/
node/293810/print
17. Organization for Economic Co-operation and
Development, “OECD Biotechnology Statistics,
2009,” (2009), p. 71.
18. Curt Nickisch, “Novartis Plans $600 Million
Expansion In Cambridge,” wbur (October 27, 2010),
http://www.wbur.org/2010/10/27/novartisexpands-in-cambridge#comments
19. Todd Wallack, “Another drug giant bringing
jobs to Mass.,” The Boston Globe (July 8, 2010),
http://www.boston.com/business/healthcare/
articles/2010/07/08/another_drug_giant_
bringing_jobs_to_mass/
20. Alex Philippidis, “Massachusetts Sees $2B
Construction Boom from the Biopharma Industry,”
Genetic Engineering & Biotechnology News (April 6,
2012), http://www.genengnews.com/
keywordsandtools/print/3/26733/
21. PwC, “Biotech reinvented: Where do you go
from here?” (2010), http://www.pwc.com/gx/en/
pharma-life-sciences/publications/biotechreinvented.jhtml
22. Heidi Ledford, “Drug buddies,” Nature, Issue
474 (June 22, 2011), pp.433-434.
23. Gilead Sciences press release, “Yale and Gilead
Sciences Announce Cancer Research Collaboration”
(March 30, 2011), http://www.gilead.com/
pr_1544168
24. Ryan McBride, “Aveo Pharma Lands $1.4B Deal
with Astellas, A Few Months Ahead of Cancer Trial
Result,” Xconomy (February 16, 2011), http://www.
xconomy.com/boston/2011/02/16/aveo-pharmalands-1-4b-deal-with-astellas-a-few-months-aheadof-cancer-trial-result/
25. Luke Timmerman, “Portola Grabs $45M
Upfront From Biogen Idec to Develop Autoimmune
Drugs,” Xconomy (October 27, 2011), http://www.
xconomy.com/san-francisco/2011/10/27/
portola-clinches-45m-upfront-from-biogen-idec-todevelop-autoimmune-drugs/
26. Aileron Therapeutics news release, “Roche and
Aileron Therapeutics Expand Collaboration for
Stapled Peptide Drugs” (November 16, 2011), www.
aileronrx.com
14. Megg Tirrell, “Drugmaker-Neglected Bacteria
Gives Cubist $2 Billion Market,” Bloomberg
Businessweek (September 15, 2011), http://www.
businessweek.com/news/2011-09-15/drugmakerneglected-bacteria-gives-cubist-2-billion-market.html
16 PwC | Massachusetts’ biotechs beat the industry blues
29. Verastem’s closing price on May 14, 2012, was
$9.53. Details taken from NASDAQ, “Verastem Stock
Chart,” http://www.nasdaq.com/symbol/vstm/
stock-chart
30. Synageva BioPharma press release, “Synageva
BioPharma Announces $60 Million Proposed Public
Offering of Common Stock” (January 4, 2012),
http://ir.synageva.com/phoenix.
zhtml?c=96240&p=irol-pressArticle&ID=1644729
&highlight=; and Synageva BioPharma press
release, “Synageva BioPharma Announces Closing
of Public Offering and Exercise of Over-Allotment
Option” (January 10, 2012), http://ir.synageva.
com/phoenix.zhtml?c=96240&p=irol-pressArticle
&ID=1646544&highlight=
31. Synageva BioPharma’s stock closed at $38.29
per share on May 14, 2012, compared with an
opening price of $25.18 on January 10, 2012. Details
taken from NASDAQ, “Synageva Biopharma Stock
Chart,” http://www.nasdaq.com/symbol/geva/
stock-chart
Figure 8: The number of biotech-pharma alliances is creeping up again
80
450
70
400
Number of deals
300
50
250
40
200
30
150
20
100
10
50
0
2006
2006
2007
2007
2008
2008
Number of deals
2009
2009
2010
2010
2011
2011
Average deal value ($m)
350
60
A
0
Average deal value
Sources: Burrill & Co., Windhover
Note: All deals between biotech and pharma companies exceeding $20 million. Data for 2011 are projected from the figures for the nine months to 30 September 2011
Joined-up thinking
Playing nicely
So two of the three concerns we
expressed in 2010 still look valid. But,
fortunately, there’ve been other major
developments in the intervening two
years as well. The “biotech-ification” of
Big Pharma has continued, just as we
predicted. The trend towards
collaboration has been even more
23
pronounced. In 2010, we identified three
particular forms of collaboration:
Take the way biotech and pharma
companies are starting to come together.
In 2011, there were an estimated 65
alliances worth more than $20 million.
That’s still lower than before (see Figure
8).44 But some of these partnerships have
been structured much more creatively.
• Pre-competitive discovery
federations—where public and private
institutions pool their resources to
overcome bottlenecks in early-stage
biomedical research
• Competitive development consortia—
where rival biopharma companies form
syndicates to develop the most
promising molecules in their combined
portfolios; and
• Service-provision alliances—where
biopharma companies and service
providers join forces to offer healthcare
packages for patients with specific
diseases.
We cited a few instances but remarked
that they were rare. Today, there are
many more collaborations—and some of
them hint at the emergence of new
business models.
The deal Forma Therapeutics struck with
Roche subsidiary Genentech is a good
example. In June 2011, Forma handed
over worldwide rights to one of its earlystage cancer medication programs. In
return, Genentech paid an upfront lump
sum and will make additional milestone
payments, if Forma meets certain scientific
and commercial criteria.45
There’s nothing novel about such terms.
What sets the deal apart is the fact that
Genentech also bought an option to
acquire any resulting compound outright,
rather than licensing it in and paying
royalties. So, if Forma succeeds, it will be
able to sell the compound and deliver a
return to its investors without going
public or getting acquired. That means its
venture backers can keep growing the
company and benefit fully from any
subsequent sale.46
Forma isn’t the only biotech exploring
new ways of realizing value without
turning to the capital markets or a trade
buyer. Antibody specialist Adimab has
built a business based on selling access to
its high-tech platform for discovering new
human antibodies, instead of getting into
drug development itself. Nimbus
Discovery has adopted the same
approach.47
Quanticel Pharmaceuticals has taken a
slightly different tack. It’s sold Celgene an
exclusive three-and-a-half year license to
its platform for analyzing genetic
variations in individual patients’ tumors.
But the $45-million package includes a
stake in the company and an exclusive
option to buy Quanticel at a later date. So
Quanticel has effectively given its venture
backers an immediate return on their
money, as well as making sure it’s got
capital to grow.48
Meanwhile, Warp Drive Bio, which aims
to discover new products by analyzing the
genomes of plants, animals and wild
organisms, has given Sanofi—one of its
three venture backers—a non-exclusive
option to buy the company. But the deal
cuts both ways. Warp Drive Bio will retain
the rights to many of the assets it develops
Biotech What’s next for the business of big molecules? 17 unless Sanofi exercises the option. And, if
it reaches certain milestones, it can force
Sanofi to buy it at a predetermined price.49
So, even if the stock markets are still
depressed and trade buyers are sparse,
the biotech industry’s actively pursuing
new business models—although the
pressure’s on to deliver. As FierceBiotech
reporter John Carroll recently noted,
“Big Pharma’s trigger finger is getting
increasingly itchy when it comes to killing
unwanted or unsuccessful collaboration
pacts.”50
Patient money
Some biotech and pharma companies are
also looking for new allies, and several
have turned to patient advocacy groups as
a source of funding. Vertex got $75
million from the Cystic Fibrosis
Foundation when it was developing
Kalydeco, for example. It repaid that trust
in January 2012, when it won FDA
approval for the first medicine to target
the mutated gene that causes cystic
fibrosis. It will also pay the foundation a
share of the proceeds from all sales.51
Similarly, Amylin Pharmaceuticals has
joined forces with the Juvenile Diabetes
Research Foundation to fund a series of
clinical trials on the effectiveness of a
combination therapy for Type 1
diabetes.52 And, in April 2012, the
Michael J. Fox Foundation agreed to pay
for further testing of a therapy developed
by Sanofi that might treat the mental
symptoms of Parkinson’s disease.53
The “venture philanthropist” model, as
it’s been called, is now spreading outside
the US. In March 2012, Britain’s
Wellcome Trust launched a $310-million
fund to invest directly in healthcare and
life sciences companies.54 Cancer
Research UK has also teamed up with a
European venture capital firm to create a
nearly $78-million fund for boosting the
development of new cancer treatments.55
Back to school
United front
There’s been a significant rise in the
number of alliances with academic
institutions, too, although this is largely a
Big Pharma trend. Pfizer’s gone “back to
school” in a big way. In May 2010, it
linked up with Washington University
School of Medicine in St Louis to identify
new uses for existing compounds.56 Then,
in November 2010, it started building a
translational research network that now
includes 20 US universities and academic
medical centers.57
Several new precompetitive federations
for grappling with “big data” have
simultaneously emerged. The Pistoia
Alliance is one such instance; it draws on
the “crowd” wisdom of pharma and
informatics experts from a wide range of
organizations to devise and document
best practice in R&D.60 And Sage
Bionetworks is an open-source forum
where computational biologists can pool
their data and brainpower to crack
particularly difficult problems.61
Other industry giants have also been
dusting off their textbooks (see Table 3).
Between January and September 2011,
there were 30 new biopharma alliances
with academic bodies, nearly double the
total for 2010.58 And the pace shows no
sign of slowing. In early 2012, for
example, Eli Lilly signed Cambridge
University up to its “Open Innovation
Drug Discovery Platform,” bringing the
number of participating European
institutions to more than 60.59
The National Institutes of Health (NIH)
has also just embraced “crowd-sourcing”
in an effort to “teach old drugs new
tricks,” as Health and Human Services
Secretary Kathleen Sebelius put it. The
NIH’s National Center for Advancing
Translational Sciences and its industry
partners Pfizer, AstraZeneca, and Lilly are
tapping the nation’s “brightest minds” to
test various compounds that have been
studied in humans but shelved, to see
whether new uses can be found for them.62
Table 3: Big Pharma’s calling on the profs
Academic institution
Therapeutic focus
AstraZeneca & GSK
Manchester University
Inflammatory diseases
Bayer
University of California San
Francisco
Translational research
Gilead Sciences
Yale School of Medicine
Novel molecular mechanisms for
cancer
Johnson & Johnson
10 academic “superstars”
Multiple
Merck & Co.
Sanford-Burnham Institute
Alzheimer’s disease & major
psychiatric disorders
University of Southern California
Health science
University of North Carolina
HIV
University of California San
Francisco
HIV
Novo Nordisk
Oxford University
Rheumatoid arthritis & other
autoimmune inflammatory
diseases
Roche
University of California Los
Angeles
Genomics
University of Geneva & Institute
of Bioinformatics
Translational research
University of California San
Francisco
Oncology, aging, diabetes &
inflammation
Columbia University
Diabetes
Stanford University
Early-stage research
Weill Cornell Medical College
Tuberculosis
University of California San Diego
Acne
Sanofi
These moves mark a profound shift.
Medical charities and patient
organizations have long supported basic
research, but they’re now moving down
the pipeline—and the biotech industry’s
ready to play with them.
Source: PwC
Note: Key biopharma alliances with academic institutions in 2011
18 Biotech What’s next for the business of big molecules?
It’s not just non-competitive or precompetitive partnerships that are flavor
of the month, though. Co-development
pacts between rival companies have
become equally popular, especially in the
oncology arena. AstraZeneca and Merck
& Co. kicked off in 2009, when they
agreed to share the cost of testing a
combination therapy based on two
compounds they’d developed separately.
Today, there are at least four more such
arrangements. Novartis and Amgen are
jointly investigating a therapy for breast
cancer. Novartis has also hooked up with
GSK to co-develop a treatment for
advanced solid tumors. Bristol-Myers
Squibb and Roche are collaborating on a
melanoma product. And Sanofi’s working
with Merck KGaA on a combination
therapy for multiple forms of cancer.63
This new spirit of cooperation is now
spilling over into other therapeutic areas.
In May 2011, Roche and Merck struck a
deal to co-promote Victrelis, Merck’s new
treatment for chronic hepatitis C. More
unusually, the two companies also agreed
to pool resources and study “novel
combinations of marketed and
investigational medicines [for hepatitis C]
from both organizations.” 64
23
There’s been a similar surge in the
number of alliances with diagnostics
providers, both to satisfy public demand
for personalized medicine and to address
the concerns of healthcare payers
reluctant to reimburse costly new
therapies that can’t be directed at known
“responders.” Last year’s crop of
approvals included two cancer products
with companion diagnostics: Pfizer’s
Xalkori for the treatment of patients with
advanced non-small cell lung cancer
that’s ALK-positive; and Roche’s Zelboraf,
for people with BRAF-positive metastatic
melanoma.65
This trend’s obviously set to continue. In
2011, the biopharma industry formed 34
new partnerships to develop companion
diagnostics—up from 19 in 2009 (see
Figure 9). The FDA’s refusal to approve
leukemia treatment Omapro without a
diagnostic to identify the target patient
population probably acted as a spur.66 But
diagnostic biomarkers have other benefits
as well. They can save a lot of time and
Figure 9: Twinning with diagnostic providers is on the rise
40
34
35
No. of deals
Collaborating competitors
30
25
25
19
20
14
15
10
7
6
5
0
2006
2007
2008
2009
2010
2011
Source: PwC analysis, using data from Windhover, IDV Technology and company press releases
money during clinical trials by narrowing
down the subset of patients on whom a
molecule should be tested and exposing
defects more rapidly.
Swapping notes with the big
spenders
The financial pressure from cashstrapped healthcare payers has also led to
much more collaboration between
biopharma companies and their
customers. GSK pioneered this policy; its
executives now consult health officials
and insurers at least five years before a
product is due to leave its labs. But GSK’s
certainly not alone in talking to the
people who hold the purse strings.67
In 2011, Pfizer paired up with US health
insurer Humana to research the health
problems of the elderly. AstraZeneca and
HealthCore agreed to work together on a
study of how to treat disease more
cost-effectively. Sanofi brought in Medco
Health Solutions to stress-test its entire
Phase I development program. And
several smaller companies are starting to
follow suit.68
Of course, it’s one thing to talk, another
to listen—especially when the feedback’s
not favorable. But some companies are
clearly acting on what they’re told. GSK is
a case in point; the firm pulled a diabetes
product mid-way through development
because healthcare payers weren’t
sufficiently convinced of its value.69
Biotech What’s next for the business of big molecules? 19 To
Package deals
Pulling together
The number of biotech and pharma
companies collaborating with other
organizations to tap into demand for
personalized healthcare and create new
ways of adding value is also on the rise. In
May 2010, for example, Pathway
Genomics entered into a marketing pact
with Walgreens to supply direct-toconsumer genetic testing kits. The FDA
called a halt to the deal, but it’s indicative
of the direction in which things are
moving.70
But perhaps the clearest sign of this new
willingness to collaborate is GSK’s
compact with McLaren, the high-tech
engineering firm behind Formula 1
racing. The biopharma industry has
traditionally taken the view that it’s
“different” from other industries—and so
there’s little it can learn from them. In
September 2011, GSK put old prejudices
aside when it embarked on a five-year
partnership to enhance its
manufacturing, R&D, and consumer
healthcare businesses with McLaren’s
engineering and technological
expertise.74
Other, more successful ventures have
since been launched. In January 2012,
Proteus Biomedical signed a contract with
British pharmacy group Lloydspharmacy
to sell pills containing edible microchips
that communicate with a disposable
monitoring patch worn on the shoulder.
The service will cost patients about $78 a
month and the two companies will split
any profits.71
Meanwhile, GSK has linked up with
specialist technology provider MedTrust
Online to launch an iPhone app that lets
oncologists search for clinical trials by
cancer type and automatically identifies
the trial centers nearest their patients.72
And Pfizer has started offering an
automated vascular health check service
in British pharmacies.73
In general, then, the last two years have
provided fresh grounds for hope. The
biotech sector’s productivity is still open
to question, the business model it’s
traditionally relied on is shaky, and
there’s been an undeniable geographic
shift in the biomedical research base. But
US scientists are as inventive as ever;
some biotech companies aren’t just
tightening their belts, they’re finding new
ways to get funding and add value; and
the biopharma community as a whole is
trying to pull together.
20 Biotech What’s next for the business of big molecules?
References
1. PwC, “Biotech reinvented: Where do you go from
here?” (2010), http://www.pwc.com/gx/en/
pharma-life-sciences/publications/biotechreinvented.jhtml
2. Chris Morrison, “Biopharma In 2011: A Year of
Transition,” IN VIVO (January 2012), Vol. 30, No. 1,
p. 9.
3. Consensus forecasts provided by
EvaluatePharma.
4. Asher Mullard, “2011 FDA drug approvals,”
Nature Reviews Drug Discovery, Vol. 11 (February
2012), pp. 91-94.
5. Michael Hay, Jesse Rosenthal et al., “Trial and
Error: Breaking Down Clinical Trial Success Rates,”
13th Annual Bio CEO Investor Conference (New
York City, United States: February 15, 2011).
6. Joseph A. DiMasi, “Costs and Returns for New
Drug Development,” FTC Roundtable on the
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States: October 20, 2006), http://www.ftc.gov/be/
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A. DiMasi & Henry G. Grabowski, “The Cost of
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pp. 469-479.
7. Light and Warburton claim the sample used by
Tufts is too small and too slewed towards Big
Pharma to be representative of the situation in the
industry as a whole. They also argue that Tufts’
methodology is at fault in four key respects: 1) that
it includes “opportunity” costs as well as out-of
pocket costs, and the former should be excluded; 2)
that the cost of capital used to determine those
opportunity costs is much too high; 3) that the
calculations exclude the impact of tax credits on
R&D outlays; and 4) that they overstate failure rates
in late-stage development, where the highest costs
are incurred. For further details, see Donald W.
Light & Rebecca Warburton, “Demythologizing the
high costs of pharmaceutical research,” BioSocieties,
Vol. 6 (February 7, 2011), pp. 34-35
8. The journalists concerned recognized that
investments made in one year don’t translate into
approved medicines for many more years, but they
argued that using 15-years’ worth of data stopped
their estimates being skewed by short-term periods
when R&D budgets or drug approvals varied
dramatically. For further details, see Matthew
Herper, “The Truly Staggering Cost Of Inventing
New Drugs,” Forbes (February 10, 2012), http://
www.forbes.com/sites/
matthewherper/2012/02/10/the-truly-staggeringcost-of-inventing-new-drugs
9. F.M. Scherer, “R&D Costs and Productivity in
Biopharmaceuticals,” Harvard Kennedy School
Faculty Research Working Paper Series (December
2011), RWP11-046.
10.EvaluatePharma, “World Preview 2016” (June
2011).
11.MoneyTreeTM Report from PwC and the
National Venture Capital Association, based on data
provided by Thomson Reuters. The biotech sector
covers developers of technologies promoting drug
development, disease treatment and a deeper
understanding of living organisms. It includes
human, animal, and industrial biotechnology
products and services; biosensors; biotechnology
equipment; and pharmaceuticals. It excludes
medical devices and equipment.
12.David Thomas, “Venture Capital increases in
2011, but . . . ,” BioTechNow (January 24, 2012),
http://www.biotech-now.org/?s=venture+capital+
increases%2C+but
13.US National Venture Capital Association, “Vital
Signs: The Threat to Investment in U.S. Medical
Innovation and the Imperative of FDA Reform”
(October 2011).
14.MoneyTreeTM Report, op. cit.
15.Dealogic, Capital IQ and Dow Jones
VentureSource.
16.Walter Yang, “Biotech plummets in 3Q11,”
Nature Biotechnology, Vol. 29 (November 8, 2011),
p. 962, http://www.nature.com/nbt/journal/v29/
n11/full/nbt.2036.html
17. Ibid.
18.Cambridge Associates, “U.S. Venture Capital
Index And Selected Benchmark Statistics: Private
Investments, September 30, 2011” (2012), p. 16.
19.MoneyTreeTM Report, op. cit.
20.“Corporate Venture Capital Activity On
Three-Year Upward Trend,” NVCA Today (April
2012), http://nvcatoday.nvca.org/index.php/
corporate-venture-capital-activity-on-three-yearupward-trend.html
21.Chris Morrison, “Merck’s $500 Million Venture
Bet – Industry’s Latest and Largest Attempt to Get
Closer to VCs,” IN VIVO (September 15, 2011),
http://invivoblog.blogspot.co.uk/2011/09/
mercks-500-million-venture-bet.html
22.“Johnson & Johnson, Glaxo plot $200 million
biotech venture capital fund,” Bloomberg News
(March 21, 2012), http://www.nj.com/business/
index.ssf/2012/03/johnson_johnson_glaxo_
plot_200.html
23.To date, Merck’s Global Health Innovation Fund
has invested $17 million in Physicians Interactive,
and $10 million apiece in diagnostics developers
Daktari Diagnostics and Aviir. For further
information, see CrunchBase, http://www.
crunchbase.com/financial-organization/merckglobal-health-innovation-fund
24.Arlene Weintraub, “Merck Teams With Flagship
to Bankroll Early Biotech Ventures,” Xconomy (April
10, 2012), http://www.xconomy.com/
boston/2012/04/10/merck-teams-with-flagship-tofund-early-biotech-ventures/
25.Pharmaceutical Research and Manufacturers of
America, “PhRMA Member Companies Invested
$49.5 Billion In Research and Development in 2011”
(April 12, 2012), http://www.phrma.org/media/
releases/phrma-member-companies-invested-49-5billion-research-development-2011
26.In 2007, Big Pharma’s total R&D expenditure
was $47.90 billion. This is the equivalent of $51.97
billion in 2011 dollars, based on the change in the
US Consumer Price Index between 2007 and 2011.
27.Luke Timmerman, “Why Biogen Idec Got Out of
the Corporate VC Business,” Xconomy (January 27,
2012), http://www.xconomy.com/
boston/2012/01/27/why-biogen-idec-got-out-ofthe-corporate-vc-business/
28.US National Science Foundation, “Science and
Engineering Indicators 2012” (2012), http://www.
nsf.gov/statistics/seind12/c0/c0i.htm
29.Vivek Wadhwa, Sinali Jain et al., “The Grass is
Indeed Greener in India and China for Returnee
Entrepreneurs” (April 2011), p. 3.
30.Kelly Services, “Reverse Migration of
Engineering Professionals into India” (November
2011).
31.Government of India, “Indian Expenditure
Budget Vol. I, 2012-2013,” Part III, pp. 35-36, http://
indiabudget.nic.in/ub2012-13/eb/po.pdf
32.Suzanne Elvidge & Maribel Rios, “Success
Stories from the Asia-Pacific,” BioProcess
International, Vol. 10, No. 2 (February 2012), pp.
20–31; and Michelle Hoffman, “Biosimilars or Bust:
Are biosimilars the next big thing or just the next big
bubble?” BioPharm International, Volume 24, Issue 7
(August 1, 2011), p. 8.
33.Agency for Science, Technology and Research
((A*STAR) Singapore, “Singapore’s biomedical
sciences R&D effort gets boost of S$3.7 billion ($2.8
billion)” (28 December 2010), http://www.
eurekalert.org/pub_releases/2010-12/afstsbs122810.php
34.“BiotechCorp aims for RM9bil investment,” The
Star (May 4, 2011), http://www.biomalaysia.com.
my/2011/index.php?option=com_content&view=a
rticle&id=103:biotechcorp-aims-for-rm9bilinvestment&catid=41:media-coverage&Itemid=120
35.Wang Yu & Li Xiang, “China placing priority on
biotechnology,” China Daily (June 28, 2011), www.
chinadaily.com.cn/bizchina/2011-06/28/
content_12790544.htm
36.Economist Intelligence Unit, “Asia Competition
Barometer: Pharmaceuticals” (2012).
37.“China dominates the billion-dollar club,”
BioSpectrum, Vol. 9, Issue 6 (June 2011), p. 18.
38.Economist Intelligence Unit, op. cit.
39.Jones Lang LaSalle, “Global Life Sciences Cluster
Report, 2011.”
40.World Intellectual Property Organisation,
“World Intellectual Property Indicators 2011”
(December 2011).
41.Ibid.
42.Yali Friedman, “Location of pharmaceutical
innovation: 2000–2009,” Nature Reviews Drug
Discovery 9 (November 2010), pp. 835-836.
43.Jingzong Qi, Qingli Wang, et al., “Innovative
drug R&D in China,” Nature Reviews Drug Discovery,
Vol. 10 (May 2011), pp. 333-334.
44.Ted Agres, “Partnering for Success...and
Survival,” Drug Discovery and Development
(6 December 2011), http://www.dddmag.com/
articles/2011/12/partnering-successand-survival
45.“2011 Alliance of the Year Nominee: Forma/
Genentech,” IN VIVO (November 28, 2011), http://
invivoblog.blogspot.co.uk/2011/11/2011-allianceof-year-nominee.html
46.Ibid.
47.“Partnering,” Nimbus Discovery website, http://
www.nimbusdiscovery.com/index.php?id=72
48.Luke Timmerman, “Celgene To Pump $45M into
Quanticel to Discover Cancer Drugs, Gets Option To
Acquire,” Xconomy (November 4, 2011), http://
www.xconomy.com/san-francisco/2011/11/04/
celgene-to-pump-45m-into-quanticel-to-discovercancer-drugs-gets-option-to-acquire/
49.Arlene Weintraub, “Warp Drive Bio Launches
With $125M from Third Rock, Greylock, Sanofi,”
Xconomy (January 10, 2012), http://www.xconomy.
com/boston/2012/01/10/warp-drive-bio-launcheswith-125m-from-third-rock-greylock-sanofi/
50.John Carroll, “Analysis: Big Pharma is backing
out of more biotech deals,” FierceBiotech (May 16,
2011), http://www.fiercebiotech.com/story/
analysis-big-pharma-backing-out-more-biotechdeals/2011-05-16
51.“All together now: Charities help Big Pharma,”
The Economist (April 21, 2012), http://www.
economist.com/node/21553027
52.Juvenile Diabetes Research Foundation press
release, “JDRF and Amylin Partner to Investigate
Co-Formulating Two Hormones for Treatment of
Biotech What’s next for the business of big molecules? 21 Type 1 Diabetes” (May 10, 2011), http://www.jdrf.
org/index.cfm?page_id=115726
53.“All together now,” op. cit.
54.“Wellcome Trust launches Venture Capital arm,”
European Biotechnology News (March 21, 2012),
http://www.eurobiotechnews.eu/news/news/201201/wellcome-trust-launches-venture-capital-arm.
html
55.Paul Jump, “Cancer Research UK to join forces
with venture capitalist,” The Times Higher Education
(March 31, 2012), http://www.
timeshighereducation.co.uk/story.asp?sectioncode
=26&storycode=419502&c=1
56.Washington University in St Louis press release,
“Washington University, Pfizer announce
groundbreaking research collaboration” (May 17,
2010), http://news.wustl.edu/news/Pages/20770.
aspx
57.Pfizer, “Centers for Therapeutic Innovation,”
http://www.pfizer.com/research/rd_works/
centers_for_therapeutic_innovation.jsp
58.Morrison, “Biopharma in 2011: A year of
transition,” op. cit.
59.Gianluigi Cuccureddu, “University of Cambridge
Joins Eli Lilly’s ‘Open Innovation Drug Discovery
Platform,’” Innovation Management ( January 13,
2012), http://www.innovationmanagement.
se/2012/01/13/university-of-cambridge-joins-elilillys-open-innovation-drug-discovery-platform/
60.Pistoia Alliance website, http://www.
pistoiaalliance.org/
61.Luke Timmerman, “Sage Bionetworks Moves
from Thinking Stage to Doing Stage,” Xconomy
(April 18, 2012), http://www.xconomy.com/
san-francisco/2012/04/18/sage-bionetworksmoves-from-thinking-stage-to-doing-stage/
62.Donna Young, “NIH-industry venture taps
‘crowdsourcing’ for teaching old drugs new tricks,”
SCRIP Intelligence (May 4, 2012), http://www.
scripintelligence.com/home/NIH-industry-venturetaps-crowdsourcing-for-teaching-old-drugs-newtricks-330136
63.Shannon Fisher, “Big Pharma + Big Pharma =
Collaborative Fight to Cancer,” PharmaShare (April
2012), http://www.pharma-share.com/big-pharmabig-pharma-collaborative-approach-fight-cancer
64. Merck press release, “Merck and Roche
Establish Strategic Agreements in Fight Against
Chronic Hepatitis C” (May 17, 2011), http://www.
merck.com/newsroom/news-release-archive/
corporate/2011_0517.html
65.Mullard, op. cit.
66.Andrew Pollack, “A Push to Tie New Drugs to
Testing,” The New York Times (December 26, 2011),
http://www.nytimes.com/2011/12/27/health/
pressure-to-link-drugs-and-companion-diagnostics.
html?pagewanted=all
67.Lewis Krauskopf, “Insight: Pharma asks the
money question earlier for new drugs,” Reuters
(December 20, 2011), http://www.reuters.com/
article/2011/12/20/us-payorsidUSTRE7BJ1QG20111220
68.Ibid.
69.Ibid.
70.Bruce Japsen & Sandra M. Jones, “Walgreens
postpones carrying Pathway Genomics genetic test
kit,” Los Angeles Times (May 13, 2010), http://
articles.latimes.com/2010/may/13/business/
la-fi-dna-kits-20100513
71.Andrew Jack, “Pharmacy to offer ‘intelligent
medicines,’” Financial Times (January 15, 2012),
http://www.ft.com/cms/s/0/ebe31fac-3e11-11e1ac9b-00144feabdc0.html#axzz1thkrCeXt
72.Peter Mansell, “GSK, MedTrust launch iPhone/
iPad app for cancer trials,” PharmaTimes (June 8,
2010), http://www.pharmatimes.com/Article/1006-08/GSK_MedTrust_launch_iPhone_iPad_app_
for_cancer_trials.aspx
73.Pfizer press release, “Pfizer Launches New
Pharmacy-Based
74.Vascular Health Check Service” (June 7, 2010),
http://www.vascularhealthcheck.com/z_aux/z_
assets/press/news/Pfizer-Vascular-Health-CheckPress-Release-7-june-2010.pdf
75.GlaxoSmithKline press release,
“GlaxoSmithKline (GSK) and McLaren Group
announce innovative strategic partnership”
(September 15, 2011), http://www.gsk.com/media/
pressreleases/2011/2011-pressrelease-625498.htm
22 Biotech What’s next for the business of big molecules?
Contacts
Global
Simon Friend
Partner, Global Pharmaceutical and Life
Sciences Industry Leader
PwC UK
[44] 20 7213 4875
[email protected]
Steve Arlington
Partner, Global Pharmaceutical and Life
Sciences Advisory Services Leader
PwC UK
[44] 20 7804 3997
[email protected]
Michael Swanick
Partner, Global Pharmaceutical and Life
Sciences Tax Services Leader
PwC US
[1] 267 330 6060
[email protected]
Doug Strang
Partner, US Pharmaceutical and Life
Sciences Advisory Services co-Leader
PwC US
[1] 267 330 3045
[email protected]
Mike Goff
Partner, US Pharmaceutical and Life
Sciences Advisory Services co-Leader
PwC US
[1] 203 219 7722
[email protected]
Jim Connolly
Partner, US Pharmaceutical and Life
Sciences Assurance Services Leader
PwC US
[1] 617 530 6213
[email protected]
Michael Papetti
Partner, US Pharmaceutical and Life
Sciences
PwC US
[1] 617 530 6327
[email protected]
Steve Demarco
Partner, US Pharmaceutical and Life
Sciences
PwC US
[1] 617 530 5519
[email protected]
Tracy Lefteroff
Partner, US Pharmaceutical and Life
Sciences
PwC US
[1] 408 817 4176
[email protected]
Jo Pisani
Partner, Pharmaceutical and Life
Sciences, Strategy
PwC UK
[44] 20 7804 3744
[email protected]
Sandy Johnston
Partner, European Pharmaceutical and
Life Sciences Advisory Services
PwC UK
[44] 20 7213 1952
[email protected]
Ingrid Maes
Director, Pharmaceutical and Life
Sciences Advisory Services
PwC Belgium
[32] 3 259 3305
[email protected]
Martin Schloh
Partner, Pharmaceutical and Life
Sciences Advisory Services
PwC Germany
[49] 89 5790 5102
[email protected]
Clive Bellingham
Partner, Pharmaceutical and Life
Sciences Advisory Services
PwC Swizerland
[41] 58 792 28 22
[email protected]
United States
Europe
Asia Pacific
Sujay Shetty
Director, Pharmaceutical and Life
Sciences Advisory Services
PwC India
[91] 22 6669 1305
[email protected]
Middle East
John Cannings
Partner, Australia Pharmaceutical and
Life Sciences Leader
PwC Australia
[61] 2 826 66410
[email protected]
Sally Jeffery
Partner, Healthcare Advisory Services,
Middle East
PwC United Arab Emirates
[971] 4 304 3154
[email protected]
Marketing
Attila Karacsony
Director, US Pharmaceutical and Life
Sciences Marketing
PwC US
[1] 973 236 5640
[email protected]
Marina Bello Valcarce
Global Pharmaceutical and Life Sciences
Marketing and Knowledge Management
PwC UK
[44] 20 7212 8642
[email protected]
Biotech What’s next for the business of big molecules? 23 www.pwc.com/pharma
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