Industry Repor-Final Draft-March 19.docx

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Industry Analysis

SOM 498
-
007

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March 16, 2012











Daniel Albert

Bianca Fink

Jennifer Gerald

Marie Jones

Akua Okrah


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Introduction

The realm of biotechnology is a fast
-
growing, dynamic industry with a distinctive
competitive environment. A research paper written for the Amity
Institute

of Biotechnology in
India gives a c
oncise overview of the industry saying that

“Biotechnology is a l
ife science
-
based
technique…
globally recognized as a rapidly emergi
ng and far
-
reaching technology”
(Abhishek,
2007
). Most rudimentary, biotechnology manipulates basic organisms and tries to develop new
medicine for the greater good of all human being. Biot
echnology is a fast
-
past changing industry
and companies who want to compete in this market need to be alert and ready to adopt change
quickly.


Biotechnology encompasses a wide array of biological and technologically integrated
systems. Its function with
in the medical field has been critical in a number of advancements and
discoveries, especially among what has been termed the biopharmaceutical industry. The
biopharmaceutical industry produces revenues close to $900 billion globally, showing steady
growt
h rates that are anticipated to continue well into the future and into trillions
of dollars
(IMAP, Inc., 2010)
. Being such a large industry, it has become integral in continued economic
growth both locally and globally. In 2008, this sector contributed o
ver $100 billion to the GDP
up $25 billion from 2006 and provided approximately 655,025 jobs in the US alone
(Brouwers,
Garrison, & Ponce de Leon Barido, 2011)
. There are a number of industry trends and challenges
such as emerging markets, political pressures, industry consolidations,
research and development
(
R&D
)

decline and constraints, and regulatory restrictions that will require innovative solutions
to ac
hieve sustained succ
ess in the ever
-
changing
biotechnology industry
.

Industry Trends

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In recent years
the biotech industry has experienced a growing number of barriers and
individual firms try
ing

to
find new ways

to stay in business. First, there has

been a
n increasi
ng
number of financial pressure
; these pressures are
manifest

by ri
sing R&D costs, limited revenue
s

growth
, greater external pressures, and healthcare reform
s

(Accenture, 2006)
. The time and cost
it takes to bring a new drug to

the

market continues to climb
,

resulting in decreased and often
stagnant productivity.
Second
, the growing number of expiring drug patents has led to a steady
decline in firm revenues resulting from the increasing option of low
-
cost generic drug
replacemen
ts
.
Firms such as Genentech managed to overcome some of these challenges by
differentiating the products they market. Their development of “humanized monoclonal
antibodies” instead of the typical varied chemotherapies for cancer treatment has made them
indu
stry leaders
,

allowing for higher pricing to give them a profitability advantage

(IMAP, Inc.,
2010)
. Another means for overcoming rising costs is through industry consolidation; by
purchasing smaller firms
,

that are
already well into the development proce
ss

of a promising drug,

more established firms can avoid the often
-
large cost associated with creating a new drug. This
ideal has led to a fren
zy of mergers and acquisitions

in 2010
during which

548 transactions
took
place,
totaling a value of $51.5 billio
n globally

(IMAP, Inc., 2010)
. However, bypassing initial
costs is not the only advantage to be gained through industry consolidation, it also provides an
opportunity to reduce and/or recoup losses resulting from the competitive generic drug marke
t by
acq
uiring control over those

manufacturing plants. Differentiation and consolidation seem to be
the path to gaining, maintaining, and sustaining in the biopharmaceutical industry.


Being a globally expansive and highly profitable industry
gives rise to new op
portunities
and

significant growth
in the future
. Currently the US, Europe, a
nd Japan are market leaders who

account for 55 percent of global sales; however, phenomenal growth in China, Brazil, Russia,
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and India promises an opportunity for new markets to e
merge and potentially capture 20 percent
of sales

(Hussain, 2010)
. The expansion and stabilization of the economy in these emerging
markets has led to the creation of governments that want to invest in healthcare in order to
provide for increasing demands
and populations

(IMAP, Inc., 2010)
. One of the challenges
that
US companies may face when considering

industry expansion into these markets is
understanding that
those markets

are typically lower income environments
,

requiring

quality
healthcare that is bo
th affordable and accessible

(Hussain, 2010)
.
Obviously, the challenge is to
decrease development costs in those countries and to maintain high quality product development
at the same time.
Successful integration
dependents upon

the
ability
of US based fi
rm’s
to fuse
their
current business and manufacturing models with local companies in each of these countries.
Such assimilation will provide an opportunity for firms on both sides of the equation, larger
global firms will be able to further diversify them
selves and therefore appeal to

new
demographic
s
, while smaller local firms will gain access to a variety of monetary and otherwise
necessary resources
,

which will ultimately result in a greater chance of success. Movement into
these emerging markets is abs
olutely the key to future industry growth.


Ultima
tely the greatest challenge that any of these firms face, especially the global ones,
comes with knowing, understanding, and adhering to the often stringent and varied regulatory
restrictions imposed by eac
h country in which they operate. The food and drug administration
(FDA) is responsible for oversight and approval of new drugs within the US, the process to gain
approval and maintain approval is often a lengthy process, which involves continuously evolvi
ng
regulations

(Brouwers, Garrison, & Ponce de Leon Barido, 2011)
. The development of the
human papillomavirus (HPV) vaccine is a good illustration of how lengthy and enduring the
progr
ession of approval can be.

This drug

has only recently be
en

approved a
fter more than 30
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years of development

(Burns PhD, 2009)
. While this example is definitely one of the lengthier
cases, the overall process of development and approval typically takes an estimated 10 to 15
years

(Burns PhD, 2009)
. The increased desire and
implementation of streamlining in many of
the government oversight agencies will hopefully reduce or eliminate some of the grief of this
otherwise demanding proce
s
s

(IMAP, Inc., 2010)
.

Now, firms that operate in foreign countries
face additional challenges

related to understanding and obeying to local government agencies.
Thus, companies

that can become very skilled at understanding
the local FDA process, as well as
foreign requirements, can gain a significant advantage over other firms.

The FDA is

a
n esse
ntial external force that significantly affects and threatens

the
biotechnology
industry

through an irregular approval system
.

A
lthough firms invest into the
FDA’s review
system,
they still

miss deadlines due to inadequate funding and staffing.
A slight
in
crease in efficiency
in 2011

helped

increased its approvals

and reached

the highest
number
since 2004
.

In addition, the FDA

made progress of f
irst cycle drug approvals. All those are steps
to address and improve it
s inconsistent practices
. This movement is

important because

investor
s
often feel

uncertainty and label biotechnology companies to be

a risky investment
. Silver says
that

“the media has portrayed investing in the se
ctor as akin to casino gambling”

(2012).
Thus, t
o
restore and improve the confidence of investors, the FDA needs to continue enhancing its drug
approval methods.


Collaboration and financial support from outside parties have become attractive
trends, because of i
ncreasing R&D costs and decreasing produ
ctivity
.

Decreasing returns on
investments have popularized the concept of internal and external collaboration
.

Companies
started to team
-
up

with academia as a means of increasing innovation

and decreasing cost
.
According to CMR International,
this is an i
mportant concept for large, well
-
known companies
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because their drugs
have a 20% higher chance
to make it to the end user. (Taylor, 2011)
This
suggests a shift to alliances during early development. A few major pharmaceutical companies
that began collaborat
ion in 2011 are Glaxo
SmithKline plc, AstraZeneca (t
he parent company of
MedImmune), Pfizer Inc., and Roche Holding AG (Silver, 2011). Starting

in 2002, MedImmune

invested in emerging companies

and

e
stablished MedImmune Ventures
. They seek to increase
their

financial

returns by investing in private biopharmaceutical
s, medical technologies,

and
healthcare IT companies across therap
eutic and geographic areas (MedI
mmune). This branching
out and knowledge sharing creates new opportunities and approaches for
innovation
,

which

would be

unavailable for an independent, standalone firm.

In addition
,
because of increasing
development costs,
many biotech companies rely on outside help to be able to meet its financial
obligations. When biotech firms are unable to com
e up with sufficient amount of money for their
drug projects, they end up either going out of business or being acquired by another
biotechnology company. An example is Biogen Idec Inc’s plan to pay $78 million dollars
upfront and up to 487.5 million in th
e future acquired Stromedix Inc, a company that is focused
on developing treatment for damaging scar tissues in the lungs and other organs (Kamp, 2012).

While the industry provides great benefits for the welfare of the many, the benefits are
not unlimited
and indefinite. The industry is subject to trends spanning specific time periods,
often due to market activity and scientific technological breakthroughs. An article written in the
Genetic Engineering & B
iotechnology News journal discusses

Mario Elhers, M.
D., Ph.D., CMO
at Pacific Biometrics
understanding of
what is currently hot in the biotech industry
.

Elbers says
that


pharmacogenomics, biomarkers, companion diagnostics, blockbuster protein drugs,
theranostics, fully humanized mono
-
clonal antibodies, RNA
i, protein therapeutics,
and structure
-
guided drug” are current popular research items
.
On the other hand, Elbers says that


antisense,
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gene therapy, ex vivo cell therapies, cancer vaccines


have decreased in
research popularity

(DePalma, 2005
).

Thus, if a company is still focusing on antisense, it can expect only small
returns, while a breakthrough in research on blockbuster protein drug may trigger greater
revenues.

One major element

of the biotechnolog
y industry is scientific
-
based, but anoth
er

is

mostly ruled by the economics of business.
Therefore, companies main goal are high profits.
An
article
published

in the Journ
al for Business Chemistry states

that firms within the b
iotechnology
industry

can archive

high profits

(Picker)
. However,
thi
s goal is threatened by the field’s
complex
ity
, fast moving
trends, and high costs
.
This hold e
specially in the field of medical
applications

because of

many risks associated w
ith their development

(Picker
).

Thus, adapting
quickly to those changes will ensure profits.
In addition to the necessity of rapidly adapting to
new changes within the field, success is also dependent on healthy market circumstances.
According to Picker
,
companies have to separate scienc
e and business in order to be successful.
To complicate matter, both elements are fast moving and developing rapidly. A good illustration
provides the nutraceuticals. Those firms have to adjust to fast moving biotechnology trends and
the fast moving food m
arket
(Picker
).

More precisely, this means that even though a company
may be well equipped to develop new products, the market may decide that they prefer junk food
instead of healthy food, thus,
decreasing

the demand for nutraceuticals.

The biotech indus
try faces a strong threat of rivalry.
According to
Lexis
Nexis
Academics, Medimmune’s immediate competitors are 24 companies within North America
.
Those competitors are
GlaxoSmithKline, Novartis, Sanofi Pasteur, Alexion Pharmaceuticals,
Alnylam, Amgen, Bri
stol
-
Myers Squibb, Crucell, CSL, Dyax, Eli Lilly, Genentech, Genmab,
Hoffmann
-
La Roche, Janssen Biotece, Johnson & Johnson, Kirin Holdings Company, Merck,
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MorphoSys, PDL, BioPharma, Pfizer, UCB,Va
leant Pharmaceuticals, ViroPhara
. All
of those
companies off
er similar products and research. For instance, one of Medimmune’s main research
fields focuses on the field of Oncology. According to the Biotechnology Forum, Amgen, the US
leading biotechnology firm, also focuses heavily on the development of cancer dru
gs.
In
addition to all the direct competitors, companies also face threats from
companies that develop
generic drugs (yahoo finance).
However, despite those threats, the industry is still attractive to
new entrance.

In addition to the threat of rivalry,
the threat of new entrance is huge. L
arge potential
profits in t
he biotech industry

attract many

startup companies.
An article written by the Office
for Biotechnology at Iowa State University states
that there is an
increasing number of successful
startups competing in niche sectors of the field.
These

sector
s of biotechnology are

repre
sented
by very young companies with
often no more than eight or ten employees

(Jensen)
.
First, two
major barriers that start
-
up compan
ies often face are heavy

regulations and financial
problems
.
T
he extensive research and development phase creates a huge barrier. According to the
California Biomedical Research Association, it takes approximately 12 years for a drug to be
developed and te
sted. In addition, on average five thousand drugs start the research process, but
only one
passes all the regulations and
makes it to the final consumer. This process is very costly
and requires a huge startup capital.
A good example makes
AstraZeneca
, the

company

wrote off
$445 million dollars due to problems with trying to get an app
roval for the drug motavizumab, a
respiratory disea
se prevention drug for children,

in the U.S (Jones, 2010).
Secondly, the demand
for employees with special skills creates a
threat to new entrance. According to Business
Facilitates, an economic development magazine, says that biotechnology firms are in high
demand for highly educated people with a much defined skillset. However, according to the U.S.
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Census Bureau, only about
3% of the US population holds a doctorate or professional degree
(See Table 1 in Appendix). Thus, the limited
“expert”
labor supply creates a barrier for some
firms to enter the market.

Despite all the barriers, if firms can find ways to overcome these
problems, large profits can be earned. As a result, many small firms start operating in the
biotechnology industry but may

end up being acquired by a larger company.

An example
provides
MedImmune
who was purchased by

AstraZeneca
in 2007
.

Generally, the bio
technology industry offers great

employment
opportunities
for
individuals
. According to Jensen, the industry has changed and large companies do not offer
stable employment opportunities anymore. As a result,
more job seekers
flock towards
employment opport
unities with smaller start
-
up firms

(Jensen
).

In addition, according to a
n
article written by the Office for Biotechnology at Iowa State University states,
people who
experienced
layoffs from the mid
-
sized biotech companies
,

who have had probl
ems with
their
clinical results

or the downsizing pharmaceutical companies,
are interested in employment with
those new companies
(Jensen).

Thus, the new startup companies provide opportunities that mid
-
size to large companies cannot offer, making it attractive
to
potential high
-
qualified employees
.

Opportunities and Threats


Opportunities

Threats

External

The greatest opportunities are
relate to demographic trends.
An opportunity would be to
expand their cancer research.
Medimmune has had time to
experience a learning
-
curve
and may be able to reduce cost
while the demand keeps
rising.


Another opportunity
would be
to join with smaller companies
to expand and join resources.
The legal and political
environment poses the greatest
threat. As laws change, the
R&D of a product may need to
be adjusted. This can be both,
time consuming and costly.


The threat of rivalry and new
entrance i
s great.


The long research and
development phase faces
threats.

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The key would be to find a
small company that
specialized in cancer research,
but struggles to survive in this
heavily regulated and
expensive industry
.


Expansion into foreign
countries
, like Brazil
, offer
new opportunities.








Conclusion

The critical factors in the biotechnology industry are the improvement of FDA approval
processes, collaboration and pa
rtnering with external entities,
and
understanding the
gove
rnment
regulations well
.

All these factors depend on a learning curve and as companies become better at
their operations, they will develop more opportunities and minimize threats.

In addition,
a
lthough biotechnology is a mature industry with a
significant amount of risk and uncertainty,
there are many opportunities firms can take advantage of.

The overall future of this industry is promising; however, firms are going to have to
succumb and adjust to a number of external
pressures
. Limitations o
n revenue growth as the
result of these pressure
s

are ultimately going to lead the industry in a new direction in order to
capture higher sales.
An example can be seen at

Genentech
.

This company was able to adopt

a
cheaper

cancer treatment
research
method
, and

thus, was
able to differentiate themselves and
capture the greater profit. F
irms will increasingly have to
step out of their comfort zone and take
steps down an uncertain path. Only if a company can do this successfully, large profits can be
earned i
n the r
ewarding biotechnology industry.


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References

Abhishek, K. (2007, May 4). Indian Biotech Bazaar: A swot analysis.
Wiley Online Library
.
Retrieved March 15, 2012, from
http://onlinelibrary.wiley.com/doi/10.1002/biot.200700025/pdf

Accenture. (2006).
Co
nfronting the Future: Getting High Performance Back into the



Biopharmaceutic
al Industry.

Brouwers, Charles
-
Andre; Garrison, Amber; Ponce de Leon Barido, Paulina.

(2011).

Emerging

Biopharmaceutical Companies: Ensuring a Favorable Environment for Cont
inued

Innovation
.

Burns PhD, Lawton R.
(2009).
The Biopharmaceutical Sector’s Impact on the U.S.
Economy: Analysis at the National, State, and Local Levels
.

DePalma, A. (2005). Twenty
-
Five Years of Biotech Trends.
Genetic Engineering News
,
25
(14).

Retrieved March 15, 2012, from http://www.genengnews.com/gen
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articles/twenty
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five
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years
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of
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biotech
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trends/1005/

Fact Sheet New Drug Development Process. (n.d.).
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.
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biomed.org/pdf/m
edia
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kit/fact
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sheets/CBRADrugDevelop.pdf

Howden, L., & Meyer, J. (n.d.). Age and Sex Composition: 2010.
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03.pdf

Hussain, Abbas. Harvard Business Review, April 28,
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Retreived March 15, 2012 from
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.

IMAP, Inc. Pharmaceuticals & Biotech Industry Global Report, (2011
).


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Jensen, D. (n.d.). Employment Trends in Biotechnology.
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University
. Retrieved March 15, 2012, from
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Jones, Adam and Mishkin, Sarah. (2010, December 22).
Setback for AstraZeneca in US over
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amp, Jon. (2012, February 14). Biogen to Acquire Biotech Firm.
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Opportunities and Threats for
Developing Countries!?.
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ho
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px

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3.html