Biotech companies - facing up to realities
Biotechnology and biotech companies have been the subject of grandiose claims for 20 years, but the sector is now being hit by a new realism. Investors, stakeholders and the public at large are increasingly asking when biotechnology firms will finally start to deliver.
The bulk of biotech companies are firmly rooted towards the foot of the ladder of corporate evolution, says John Morris, head of European pharmaceuticals at business advisory firm KPMG. Few can realistically claim to be at the top end of the evolutionary scale with full r&d capabilities, global reach and a strong presence in key disease classes. After 20 years, only Amgen might claim to have made it into the ranks of the top global pharmaceutical companies - although even at US$4bn (€3.7bn) its turnover is dwarfed by that of Pfizer at US$32bn (€30bn).
Despite current talk of 'bio-bio' aggregation, gaining financial critical mass alone is insufficient, as the resultant larger biotech companies still require new capabilities to be developed - in sales force capabilities and global reach. Morris describes three potential future scenarios for the biotech sector:
Scenario 1: biotech 'big winners' hit the market - relatively cheap, curative biotech products start to appear in key, high value pharma segments such as cancer treatment. These bio-derived products revolutionise therapy by moving from disease containment to genuine cures, wiping out the franchises of big pharma's life-extending treatments. Big pharma companies would weaken and seek mergers with biotech companies on terms favourable to the biotechs - trading market capabilities for access to new technologies. The sector would revert to a strong technology-driven base and profligate pharma marketing spends become a thing of the past.
But this looks an unlikely future, he says. The technological and commercial leaps of faith appear too great for bio-aggregates to effectively displace big pharma.
Scenario 2: the industry bipolar model - big pharma companies fail to keep innovative pace in scientific terms. The consolidated 'super-bio' companies increasingly hold all the best patents and demand exorbitant fees for licences. These super-bios would divide and conquer by selectively licensing to only the best pharmaceutical marketing companies in each key market. This would lead to a bipolar model with two types of company: on one side would be the consolidated biotech r&d companies, taking products through approval, aided by outsourcing; and on the other would be the pharmaceutical marketing companies, having slowly been driven out of r&d activities.
'I believe it is unrealistic to assume that big pharma could become so weak and small bio become so strong that the bipolar model could become the industry reality,' states Morris. 'However, a limited geographical version of the model looks likely. With the drift of the technology base to the US from Europe - in particular in terms of biotech strength - there is a big risk that over time many European companies will become consolidated down to regional marketing companies.'
Scenario 3: big pharma oligopoly gets all the marbles - the pool of major pharmaceutical companies concentrates down to 6-10 global players with revenue market shares of 8-10% each.
If the bio revolution continues at its current slow pace, big pharmaceutical companies will have plenty of time, and the financial muscle, to absorb all the best biotechnology. Even worse for some biotech companies is that, because the transition from basic bioscience invention to saleable products takes so long, a lot of early patent property will have expired before serious exploitation lifts off.
The safe money goes on this super big pharmaceutical company scenario, says Morris. The best pharmaceutical company players will almost certainly continue to grow their market shares and global market power and this will give them tremendous leverage to acquire, rapidly develop and commercialise the best technology regardless of its origin.
'My vision of the biotech future is one where biotech companies continue to be providers to the big pharmaceutical companies,' he concludes. 'In the US in particular, there may be the possibility of a few more like Amgen - but even there, most will be swallowed up en route.'