A section of The Report on life sciences focusing on the biotechnology sector.
Oh, just a reminder: the material posted about life science is a draft. More editing will occur before it’s in final form. I welcome your input.
The second category in the life sciences field with which most people are familiar is “biotechnology.” If Big Pharma is the foundation of medicinal product development, biotech is the new kid on the block. It is primarily the product of techniques developed in the past 25 years from greater understanding of genetics and methods of manipulating complex molecules related to basic biologic functions: DNA, RNA, and proteins. To declare a class of biotechnology companies separate from Big Pharma is not to say that pharmaceutical companies are not trying to make biotech techniques work for them; they’re spending billions on biologic techniques. But biotechs tend to be smaller, more specialized, and more focused on a particular biological technique to produce drugs and other biologic products.
BIO, the Biotechnology Industry Organization, defines biotechnology as: “…a collection of technologies that capitalize on the attributes of cells, such as their manufacturing capabilities, and put biological molecules, such as DNA and proteins, to work for us.” A somewhat broader definition is given in the US Department of Commerce’s 2002 industry survey: “…biotechnology includes a diverse collection of technologies that manipulate cellular, sub-cellular, or molecular components in living things to make products, discover new knowledge about the molecular and genetic basis of life, or modify plants, animals and microorganisms to carry desired traits.”
The nice thing about this second definition is that it reminds us that biotech has a large role in supplying tools for the infrastructure of scientific research and that it has a big agricultural component.
The boundary between pharmaceutical companies and biotechnology companies is fuzzy at best. The term, “biotech,” is frequently used as shorthand to refer to nearly all the players in life science, including pharmaceuticals. Statistics and data about the life science industry often lumps the bigger and smaller companies together. That’s pardonable; the labels are just convenient shorthand and have no “official” significance.
One of the best sources for factoids about biotechnology is a October 2003 survey by the US Department of Commerce entitled “A Survey of the Use of Biotechnology in US Business.”
· Although 90% (917 firms) of survey respondents had 500 or fewer employees. Only 19 firms (2%) reported more than 15,000 employees, while 600 (58%) had fewer than 50.
· …in 2001 they (biotechs) had more than 1.1 million employees, total annual net sales of about $567 billion, operating income of $100.5 billion, capital expenditures of $29.5 billion, and R&D expenditures of $ 41.6 billion.
· In the last quarter of 2002, companies reported 33,131 pending (emphasis mine) applications for biotechnology products or processes, compared with 23,992 current portfolio patents.
· Seventy percent of respondents were headquartered in ten states, with 26% located in California. Massachusetts, Maryland, Pennsylvania, North Carolina, and New Jersey also had notable concentrations of biotechnology firms.
· Almost three-quarters of firms (72%) indicated that human health (HH) applications are their primary area of biotechnology-related activity.
· Relatively few firms active in human health currently have approved and marketed products or processes (emphasis mine). The most common commercial product/process was diagnostic tests, a category cited by 11% of HH companies.
· Fifty-six percent of respondents reported either no operating income or negative operating income in 2001(emphasis mine).
· Growth in the biotechnology-related workforce has been vigorous, averaging 12.3% annually for those companies that provided data for 2000–2002. Companies with 50 to 499 employees experienced the fastest growth, with an annual increase of 17.3%, while growth among larger responding firms was 6.2%. These figures compare to essentially no growth in U.S. non-farm payroll employment during this period.
· Firms reported that more than 66,000 employees could be classified as biotech-related technical workers. Scientists accounted for 55% of this total. Other occupations included science and clinical laboratory technicians (30%), engineers (8%), and R&D-focused computer specialists (6%).
· The fastest growing biotech-related technical occupation was R&D-focused computer specialists, a category that grew at an annual rate of 21.8% during 2000–2002, adding 1,236 workers (emphasis mine).
The data above point to some characteristics of the biotechnology area that I think bear noting to understand the peculiarities of this portion of the life sciences.
Biotechs tend to be quite small. This is in part because so many are new business entities. But it’s also because so many are start-ups by researchers out of academia or from other big companies who are pursuing a narrow, specific biological focus to bring a new medication, tool or technique out to market. Their smallness is an asset in the sense that it is now fairly accepted that large, highly-managed laboratories at the big pharmaceutical companies are not producing breakthrough work. Small research teams produce more new knowledge. On the other hand, small companies do not have the expertise or the resources to take their idea through regulation and out into the marketplace. The big companies do. So a symbiotic relationship between academia, biotechs and pharmaceuticals creates an ecosystem that evolves products toward the market.
Sherman and Ross put it this way:
At university laboratories, where serendipity is understood, creativity is valued, and researchers are not subject to corporate management. Moreover, these labs are more numerous than industrial labs, and remain the most productive source of genuinely new ideas. Small, single-minded biotechnology firms are best suited to the early development of NMES and biologics. As these firms become larger and more successful, they become turgid, less able to develop new ideas. And pharmaceutical companies are the organizations that can most effectively validate new research, shepherd novel drugs through the later stages of development, manage their regulation, and commercialize and market new therapeutics. To that end— and in the hope of a lucky break in discovery—it is reasonable for them to invest in large staffs of researchers.
Many biotechs have no licensed products and no revenue. Yikes! They are flying by the seat of their pants. They live on VC money, angel investors, and optimism. They are obsessed with the ins and outs of funding cycles and exit strategies. Many just want to survive long enough to sell their partially developed product or expertise in the form of intellectual property (IP) to bigger firms.
During the past two years I have interviewed people at a variety of start-ups and small biotech firms. During the recession many of them were hanging by a thread financially, and they expressed hope the American Cancer Society would be interested in investing. Though I explained we don’t work that way, I thought it was unfortunate that some small companies with really cutting-edge ideas in cancer products were near closing down. I came to realize that, dirung a bad economy or when the VC “window” of investment in biotech is closed, cancer R&D suffers.
Even though many biotechnology firms and start-ups are not on solid financial basis, they are a source of specialized employment that has a greater growth rate than nearly any other sector of the economy. No wonder nearly every state and community in the US has a local biotech industry promotion group. I’m not so sure, however, that the promoters understand what it’s going to take to put those jobs on solid ground.
The fastest growing job category in the biotech industry is “R&D-focused computer specialists.” That statement points to the next section of this report and is an indicator that the biotech industry itself is undergoing a revolution of its own. Life science is information science and the parts of the industry focusing that way are emerging quickly.
Next: The New, new biology