Panel Discussion: The Blurring Lines between Pharma and Biotech

Panel Moderator: Rick Edmunds, Partner, Booz & Co.

Panelists:
Kumar Srinivasan, Vice President, Business Development, Licensing, Wyeth
Hui Liu, Senior Director, Worldwide Business Development, Pfizer
Henry Rath, Director, Licensing & Acquisitions, Amgen
Alan Hartman, Head of Americas M&A, Bank of America Merrill Lynch Securities
Nancy Chang, Chairman & Managing Director, Asia, OrbiMed

From in-licensing to partnerships to outright acquisitions, the historical divide between pharmaceutical and biotech companies is increasingly closing. The appropriate intersection of small and large molecule businesses, however, is a subject of debate within the industry. This panel addressed the growing convergence of pharmaceutical and biotech companies, and pondered the value of the increasingly “blurry line.”

Drivers behind the increase in Biotech acquisitions and in-licensing by Pharma
The increase in acquisitions and in-licensing has been driven from both sides – i.e. both Pharma and Biotech are looking to make these deals happen.

For Pharma, the loss of patents in the near future coupled with low R&D productivity will result in significant loss of revenues. Some effort to find synergies and consolidate within the industry may help by reducing costs, but acquisitions are also required to fill the gap in profits. The Pharma industry’s R&D problem has resulted, in part, from having focused on making the most of the small molecules they had. However, they have now had to switch to new areas with genuine unmet need, such as cancer and Alzheimer’s, which have high revenue potential and which tend to be associated with higher FDA approval rates (because they are first in class). However, these therapeutic areas are much harder to understand and treat, and having not invested in the R&D in these areas, it is now easier for Pharma to acquire new companies than to build up knowledge on their own.

On the Biotech side, many of the smaller companies will soon run out of funding. They are therefore actively looking for further funding partners or to be acquired outright. The financial crisis has accentuated this situation. Biotechs are also keen to work with Pharma because their products benefit from Pharma’s expertise with sophisticated clinical trials. Perhaps counter-intuitively, Biotech products do not necessarily benefit from higher sales. This is because they are specialty products.

Impact of blurring line on current commercial and drug development models
The days of blockbusters are over. As a result there has been a dramatic change in investment thinking within Pharma, and therapies in development with potential values of under $500m are no longer being shelved. This means that the risk of small Biotech products being lost in Pharma pipelines is now much lower.

Pharma is also actively looking at how best to integrate people from small Biotechs. Biotech people are typically entrepreneurial, and integration into a large company environment can result in the crucial entrepreneurial spirit being lost. Pharma is therefore trying to maintain an entrepreneurial, creative environment where ever possible, with their new mantra being “get larger, think smaller”.

As for Biotechs, the blurring of the line does not necessarily mean that none of them will eventually grow into large standalone firms, just as Genentech and Amgen did. However, such growth is unlikely to occur in the near future given the current global financial situation.

Other possible future developments within integrated Biopharma
Globalization will continue to be a key trend within the industry.  This is already being seen in a major way in China and India, where demand for health care is rising rapidly. Biopharma will also increasingly look to generics as a source of revenue. Adding generics to their portfolios will allow them to offer a range of products (generic through to branded) to a widening range of global customers, each with different needs. Biopharma may also need to look at commoditizing their skills and becoming experts in certain areas, rather like the transformation the semi-conductor industry has undergone. Finally, as mentioned earlier, investment will be increasingly made in smaller revenue products. This will drive the further development of personalized medicine, culminating in a shift of focus to the individual. Developments around biomarkers will be key and represent an opportunity for Biopharma through complimentary products.

© Copyright 2009 Wharton Health Care Business Conference