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TITLE:  Better Future for Biotech? Drug Discovery and Development
SOURCE: Cahners Business Information, USA, by Ted Agres (Washington Times)
DATE:   Dec 23, 2002

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Better Future for Biotech?
Drug Discovery and Development

Many biotechnology and pharmaceutical companies that struggled through the 
industry's past year of depressed markets, product failures, and insider 
trading irregularities are hoping that 2003 will bring an upturn in drug 
discovery and financial fortunes. Although there will be significant 
obstacles, there are also solid grounds for optimism for the year ahead.

Let's do some numbers. More than 370 biotech medicines to treat 200 
diseases are in the development pipeline at 144 companies and at the 
National Cancer Institute, Bethesda, Md. All these medicines are in 
clinical trials or are awaiting approval from the US Food and Drug 
Administration (FDA).

Among them are 178 potential new treatments for cancer, 47 for infectious 
diseases, 26 for autoimmune diseases, 22 for neurological disorders, and 21 
for HIV/AIDS and related conditions, according to the Pharmaceutical 
Research and Manufacturers of America (PhRMA), an industry group in 
Washington, D.C. "These medicines are the result of extensive efforts to 
understand the human genome and penetrate the molecular basis for disease," 
says Alan Holmer, PhRMA president.

Significantly, more than 100 of these products are in or have completed 
phase III clinical trials, constituting the largest number of products 
being so close to FDA approval at one time. To get these products even this 
far along is a remarkable achievement: for every 5,000 compounds tested, 
only five make it to clinical trials. Of these five, only one eventually 
wins FDA approval, according to PhRMA.

With the average cost to bring a new drug to market now totaling $802 
million, "the single largest challenge facing drug developers, both 
pharmaceutical and biotechnology companies, is to contain R&D costs and 
reduce development times without compromising clinical test data," says 
Kenneth Kaitin, director of the Tufts Center for the Study of Drug 
Development in Boston.

The good news is that, when compounds do make it to phase III trials, 
approximately three out of four of them will win eventually FDA approval, 
the Tufts Center calculates. Although these odds are probably less welcome 
for biotechs than they are for drug developers, the overall high success 
rate presages a bumper crop of biotech drugs that should reach the market 
within three years. The challenge for these companies will be to sustain 
themselves financially in the meantime.

The challenge is greatest for midsize biotech companies lacking products, 
such as those that focus on discovery, informatics, or tool-making. These 
companies are finding it difficult to raise money for ongoing operations 
due to the downturn in the biotech stock market and a shift in focus of 
venture capital activity since the beginning of last year.

The market is still going through a significant correction, says Roger 
Wyse, a managing director of Burrill & Co., a life sciences investment bank 
in San Francisco. "A lot of tool-box companies are trading below cash. 
Obviously, that drives down valuations on the private equity side," he says.

But it's not just the tool-makers that are suffering. About 35% of publicly 
traded biotechs have less than one year's worth of cash remaining at 
current spending levels, according to a survey conducted by Merrill Lynch & 
Co. Even worse, about 16% of public biotechs are valued in the market at 
less than their actual cash on hand. Over the past year, a full quarter of 
biotech stocks have traded at less than $1 per share, according to Burrill 
& Co.

"Things are not rosy out there," says Nelson Campbell, senior vice 
president for biotech at Friedman Billings Ramsey, investment bankers in 
Arlington, Va. "Quite a few life science companies are finding problems in 
getting financing. It makes it harder to raise money for everybody. 
Consequently lots of companies are slowing down R&D spending."

Big pharmas have been more immune to this slowdown than have smaller 
biotechs. Third-quarter R&D spending at Bristol-Myers Squibb Co., New York, 
increased 9.3% over comparable spending in 2001, according to an analysis 
by Stephens Inc., investment bankers in Little Rock, Ark. Overall, R&D 
spending by eight big pharmas increased an average of 6.8% over the 
previous year to a total of $4.84 billion for the third quarter.

Despite this, "drug companies seem to us to be under increasing pressure to 
meet financial goals placed upon them by investors," says John Sullivan, 
author of the Stephens report. Although he finds it encouraging that 
pharmaceutical companies continue to invest in R&D in the midst of a 
difficult environment, "in the long term, the drug industry needs its own 
revenue growth in order to continue its commitment to R&D spending."

Despite the economic and development slowdown, the venture capital 
community still looks favorably to segments of biotech. "There is still a 
fair amount of money in the venture capital community," Wyse says. "The 
amount raised is down but historically there is an abundant amount of money 
available to be invested."

Whereas the biotech industry as a whole garnered a healthy $1.8 billion in 
venture capital during the first half of 2001--more than a third of all 
such investment--most of these deals went to companies already possessing 
several drug candidates in later stage clinical trials, rather than to 
riskier startups and those focusing on discovery. This contributed to a 
spate of layoffs last year, both in biotechnology and pharmaceutical 
companies. Yet, the job-cutting pressure was more in marketing and general 
administrative areas than in research.

The number of candidates in phase III trials is cause for optimism, but 
there is also concern that FDA will continue to slow approvals and that 
major companies will announce product failures, as happened last year. 
Industry giant Genentech Inc., South San Francisco, Calif., in September 
announced the failure of its experimental breast cancer drug, Avastin 
(however, the drug is still in phase III trials for colorectal cancer).

Yet, opportunities also emerge from adversities. Companies would like to 
increase the efficiencies of the clinical trials process and make decisions 
earlier to avoid high-cost, late-stage failures, says Wyse. This will lead 
to stronger efforts at convergence--integrating data management and moving 
toward systems biology and pharmacogenomics, he says. "In the future, 
companies will be looking for people with skills in computer sciences, data 
management, applied mathematics, and molecular biology," says Wyse. Drug 
Discovery and Development provides the pharmaceutical and biotech research 
community with the latest developments in the technology, tools and 
services used in drug discovery research and development.


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