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How Bad is the Biotech Climate? Think 4 on a Scale of 10

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firms couldn’t do more outsourcing to U.S. firms. Panel members emphasized that while lower costs, coupled to rising quality abroad, made foreign contractors ever-more compelling, there was more to the story. It is often harder to recruit patients for trials in the U.S., for instance, and there are typically more barriers to overcome before trials can take place.

—Well, outsource to a point. Bitterman told how Sirtris was undecided early on, with some executives advocating holding down costs by staying highly virtual and outsourcing more, and others advocating for building chemistry infrastructure internally. In the end, the board chose the middle ground, which resulted in Sirtris having substantial assets when GlaxoSmithKline came courting. Glaxo would not have paid three quarters of a billion dollars for the company if Sirtris didn’t have substantial in-house assets and capabilities, Bitterman said.

—Focus, focus, focus. Jaggi foresaw more specialization among biotechs and more networking alliances. Edwards recommended that early-stage companies concentrate on developing one core technology rather than trying to attract venture funding with multiple novel technologies. Venture firms seek diversity from the breadth of their portfolios, not inside each firm, he said.

—Venture capitalists and others will increasingly look overseas for investments. PureTech, which already does deals in Israel, is “agnostic about geography” and is now looking to Europe and elsewhere, Elenko said. Kessel said his private equity firm was doing the same and noted also that “investment banks and others in Europe have been increasingly approaching us about doing investments with their clients.” Polaris, meanwhile, is already active in Europe. “There’s huge opportunity in Europe right now because there is no early-stage capital,” Bitterman said.

—Biotech’s innovative culture will be increasingly valued by Big Pharma. Large drugmakers will focus more on preserving culture when a biotech company is acquired, as witnessed by Adnexus, Millenium, and Sirtris being left largely on their own rather than being assimilated into their new parents (Bristol-Myers Squibb, Takeda Pharmaceuticals, and Glaxo, respectively) “They aren’t just acquiring pipeline, they’re trying to acquire culture,” said one panelist, whose name I failed to note.

—Bitterman went a bit against the grain of common thought by forecasting that Big Pharma and biotech—which many have observed are increasingly moving into each other’s turfs—would retreat to focus on their areas of specialty as both sides more fully realize they aren’t that good at the other’s niche. This would mean fewer small molecule drugs coming out of biotechs and fewer large molecule drugs emerging inside the big drugmakers. But, Bitterman said, this also means pharma companies will focus on their “expertise in the ‘D’ and biotech’s innovation and efficiency on the ‘R’ half of R&D.”

Edwards and Elenko also stressed this point, predicting that the trend will likely mean that large drugmakers will cut back more on internal research. “Entering into multiple early-stage licensing deals as well as acquiring smaller companies could be more cost effective than reliance on internal research programs,” Elenko said.

Such a trend, of course, is another reason for Big Pharma’s leaving its biotech acquisitions more on their own. “I do believe this is why acquirers are trying to keep biotech acquisitions as independent operating entities,” said Bitterman.

—Think carefully about your initial target market. One strategy that might gain in favor in today’s ultra cost-conscious climate is for biotechs to initially target drug approvals in small markets, and then focus on moving into bigger markets—as opposed to going after the big market from the start. Explained Elenko, “For instance, if a therapeutic has use for both an orphan indication and a larger indication, it may pay to first gain approval for the orphan indication, which requires a less burdensome trial.” However, he cautioned, the appropriate strategy should be determined on a case-by-case basis.

Kessel added, “getting a product into an orphan indication may be a huge validation for proof of mechanism so that investors will be more confident that other indications using the same drug are likely to get into the clinic. Another example is to get an approval for an indication in a smaller market with a better regulatory pathway, [which] might be a better value proposition than going into, say, the FDA with a less clear pathway, which can take longer and be riskier.”

All of the discussion seemed to relate to another question I asked: could another Biogen or Genzyme be created in this climate, or would a biotech just sell out to Big Pharma at the first good opportunity? After all, I wondered, to the degree that big drugmakers and biotechs stay out of each other’s turf, it would seem to at least increase the odds for another big biotech being created. But I have to tell you, this question pretty much went unanswered.

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