Bioscience Companies Showing Signs of Strength and Making New Investments
Although the financial crisis has battered many bio firms, there are still signs of strength and new investments on the horizon to sustain this sector's vitality.
Lisa A. Bastian (Apr/May 09)
The unending jolts to the economies of the United States and other nations are affecting more than stock portfolios, mortgages, and the like. They're also putting in jeopardy the fast-tracked development of countless amazing medical breakthroughs for the biotech industry and related sectors. In other words, the health and well-being of billions of people may be compromised if our financial systems aren't corrected soon in a responsible fashion.  

Biotechs Are Sensitive to Financial Tsunami
"We're in one of the most financially challenging chapters in our history," reports Patrick Kelly, Vice President of State Government Relations for the Biotechnology Industry Organization (BIO). This Washington, D.C., group represents over 1,200 biotech companies and related organizations in the United States and abroad.

"By far, these are the most difficult circumstances we've found ourselves in since the inception of the industry in the early 1980s," he explains. "We are a very capital- and investment-intensive industry. [Unfortunately] the financial markets are essentially all but closed now - particularly to many new ventures - by the current economic climate due to risk factors associated with biosciences." 

Bernard Madoff is probably the ugliest poster-boy face of the biosciences funding problem. His infamous Ponzi scheme was responsible for the closure of the nation's 71st largest foundation, The Picower Foundation of Palm Beach. With nearly $1 billion in assets, this mammoth grant-maker funded numerous organizations engaged in "education and medical innovation," including MIT brain research and Harvard Medical School diabetes research.

While nascent bio firms weren't directly affected, they're still caught up in the mess nonetheless. The scheme has made many investors jittery about infusing cash into "too risky" start-ups - even those with much promise. In the fourth quarter of 2008, venture capitalists invested $5.6 billion in 790 deals, according to Genetic Engineering & Biotechnology News (3/15/09). That was down from the $8.1 billion invested in 850 deals in the fourth quarter of 2007.

When interviewed in mid-March, Kelly explained that many small bio companies "have less than six months of operating cash in their coffers." If there is not a significant change made in the financial markets soon, he predicts these firms will go out of business or potentially have to sell out to larger companies. To make matters worse, over half of the biotech companies in existence today "have less than a year's worth of operating capital remaining. And about a third of them have less than six months [of capital]." 

Compared to many smaller biotechs, "large pharma companies have a bit more cushion [in this financial environment] due to having more cash on hand," notes BIO's Kelly, pointing to merger action.  While that activity may create a few very successful, very big companies at the end of the day, he opines that ideally the industry is better served with more competition.

But again, market forces are making it extremely difficult for that to happen - especially for small biotechs who want to "live the dream," says Kelly. He believes every biotech CEO "wants to bring a drug product to market and successfully launch it to heal or treat people, or use non-healthcare biotechnology, like biofuels, to help people."

Who Is Producing Cellulosic Biofuel Today? Green icons indicate commercial-scale facilities. Blue icons indicate pilot or pre-commercial facilities. Red icons indicate facilities currently in operation. View Existing and Planned U.S. Cellulosic Biofuel Biorefineries in a larger map

Snapshot View of a Knowledge Industry
At a recent bioProcessUK meeting, Dr. David Parry, CEO of the South East Health Technologies Alliance in England, claimed that his nation's Greater South East region (which includes London and Brighton) is the world's largest health technology cluster. It pumps out $142.6 billion in revenues each year thanks to 4,700 pharma, biotech, medical device, and diagnostic firms. Not every community can grow a cluster that huge. But the drive is strong for regions worldwide to develop innovative, knowledge-drenched bio hubs with high-wage jobs. 

Where are these centers in the U.S. and Puerto Rico? The answer is in the study "Technology, Talent and Capital: State Bioscience Initiatives 2008" ( released last year by BIO (the Biotechnology Industry Organization) and Battelle. It provides data on national, state, and metro bioscience employment and growth trends from 2001 to 2006, and on performance metrics and state policies/programs designed to accelerate biosciences growth.
Key findings include:

• U.S. employment in biosciences in 2006 was 1.3 million.

• Average bioscience job wages in 2006 were $71,000.

• Each bioscience job generates an additional 5.8 jobs.

• Thirty-five states, the District of Columbia, and Puerto Rico have an employment specialization (20 percent or more concentrated than the nation) in at least one of four bioscience subsectors: drugs and pharmaceuticals; medical devices and equipment; research, testing, and medical laboratories; and agricultural feedstock and chemicals

• Twelve states - California, Illinois, Indiana, Iowa, Massachusetts, Minnesota, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, and Texas - have both a large (more than 5 percent of total U.S. employment) and specialized bioscience base in at least one of the bioscience subsectors.

• Academic bioscience R&D expenditures in 2006 were $29 billion.

• More than 82,000 bioscience-related patents were issued between 2002 to 2007.

More signs of growth are emerging in spite of the economy's woes. For example, in Ohio, plans are under way to create a global hub for biomedical research and commercialization. The engine is the BioInnovation Institute, which opened last November in Akron. It brings together Ohio's world-class organizations, researchers, and educators in the polymer industry and biomaterials/biomedical fields "to generate the next generation of life-enhancing innovation for the 21st century." Supporting partners secured $80 million, while the state added over $8 million through the Ohio Third Frontier Project - a 10-year, $1.6 billion initiative to help catalyze connections between companies and academia.
At a regional level "Military City USA" - San Antonio, Texas - is picking up steam with its substantial healthcare/bioscience assets comprising the city's biggest economic sector. About 4,500 of its 116,000 employees (14 percent of the work force) are in bioscience research, while 1,200 are employed in vaccine and pharma manufacturing. Over 700 Ph.D. bioscientists work in academic institutions. The sector's local economic impact? A whopping $16.3 billion.  

Currently the Department of Defense (DoD) is consolidating its enlisted military medical training here as a result of the Base Realignment and Closure process. This will expand what is already one of the nation's largest military healthcare/biomedical research complexes. The DoD will build or renovate a total of six million square feet in San Antonio, with $2.1 billion in construction planned.

Pharma Shuffles the Deck and Plays Consolidation Hand
Over in pharma land, jobs have been evaporating for a few years, most notably in the marketing area. In 2007 there were about 102,000 sales reps, says Reid Paul, editor of Pharmaceutical Representative magazine. Although "it's difficult to know the exact number," he believes that since then "a good 25 percent" have been laid off, and the sales rep work force could be as low as 70,000.
Regarding trends, layoffs will continue. Contributing factors vary - from the unpredictable recession and healthcare reforms, to the new mega-merger trend embraced by companies seeking to survive, even thrive, in this shifting-sand environment. Firms of all sizes are rocked by escalating drug developments costs, their patented drugs going generic, stingy credit markets, and/or government mandates seen as too intrusive.

Consider this year's merger trifecta: In January, industry king Pfizer said it would pay $68 billion to buy Wyeth, marketer of two of blockbuster drugs: Enbrel (treats arthritis) and Prevnar (a vaccine). The move gives Pfizer a large stake in vaccine and biologics technologies and allows it to maintain its top spot. In early March, Merck announced it would purchase Schering-Plough for $41.1 billion; their combined sales last year totaled $46.9 billion. Then on March 26, Swiss-based Roche completed its $46.8 billion acquisition of San Franciso's biotech giant, Genentech. The deal provides Roche with formidable cancer drugs Herceptin and Avastin, among other exciting drugs, and world-renowned research scientists.  
Paul says the consolidations will create fewer and bigger companies that will "increasingly focus on more targeted drugs that are less `blockbuster,' and instead focus on very narrow subsets of people." The trend of buying up smaller biotechs with innovative research to revitalize their drug pipelines should also continue.

In the past few years, pharma got slapped by overly worried legislators in about a dozen states (more states are considering the same). They imposed rules on how companies report and/or conduct their marketing activities in an attempt to lower healthcare costs and/or curb perceived influence peddling by sales reps. Such bans or laws will make it much harder for companies to get in front of physicians and educate them about important drug information they need to know to help them provide the best possible patient care. Nevertheless, in response, the industry voluntarily curtailed some of its sales activity to mitigate further regulatory activity.

U.S. Medical Device Forecast
An insightful market trend article - "A Look Into the Future of the U.S. Medical Device Market" - provides a comprehensive overview at an industry estimated to be worth more than $100 billion. Published January 2009 by Medical Device & Diagnostic Industry magazine, the article reveals the industry has consistently grown "at mid-to-high single-digit rates" for companies selling equipment (55 percent) and supplies.

The report also analyzes "forces currently at play that will continue in the same direction through 2015," and gives several scenarios on how they may affect cardiovascular, orthopedics, and neurological device segments, in particular. One conclusion, say the authors: "Cardiovascular and orthopedics are likely to continue to be the largest, most vibrant segments of this market, although both confront immediate challenges."

Promising Bioscience Areas to Watch
There are a multitude of exciting (and a few contentious) biosciences trends and activities under way destined to impact society in the not-too-distant future.

First, the push is on to intensify efforts to replace fossil fuels with combustible advanced biofuels made of renewable plant biomass or municipal wastes. A February 2009 study released by Bio Economic Research Associates states that a solid increase in biofuels production could create thousands of new jobs, stimulate the American economy, improve energy security, and create new investment opportunities. U.S. Economic Impact of Advanced Biofuels Production: Perspectives to 2030 states this green industry can create 190,000 direct jobs and 807,000 jobs overall (considering a multiplier effect) by 2022 and contribute $148.7 billion all told to American economic growth.

Additionally, according to BIO, over 30 existing and planned cellulosic biorefineries (see are ready to start advanced biofuels production within the next few years. However, biofuels are raising many legitimate social/environmental questions. Concerns abound about the impact of using land to grow "fuel," not food crops; the quantity (and type) of land cleared for cultivation; increased fertilizer usage (increases nitrous oxide, a heat-trapping gas); and water scarcity issues. The ideal is to find responsible methods of creating fossil fuel alternatives that yield significant amounts of increased energy, i.e., more than the energy used to produce them.

Then, on March 9, 2009, thunderbolts zapped on both sides of the "lightning rod" stem cell research issue. That's when President Obama signed an order that allows federal funding of embryonic stem cell research. (Under former President Bush, government funds could only be spent on researching 36 existing embryonic stem cells lines. The private sector continues to remain free to do embryonic research with its own monies.) Obama said this order rejects the "false choice" between science and morality. Two days later, however, he signed the Omnibus Bill, which includes the Dickey-Wicker amendment. It forbids the federal government from funding this research.

Although adult stem cell research already has already treated scores of medical conditions and diseases - e.g., spinal cord injury, heart tissue regeneration, corneal reconstruction, autoimmune disorders, Parkinson's disease, and some cancers - millions of Americans believe it's reprehensible to ask taxpayers to destroy human life, no matter how small or young (days old), to acquire the cells needed for futher research. This controversy will continue to play out.

Thus, despite the fact that some doom-and-gloom news for biosciences and related industries is a bit frightening - and more surprises could be in store - there are strong signs of hope, health, and vitality for this sector. Big plans, significant research, and major investments by governments/private funders are still going on and will continue to improve our quality of life.