Beer is Biotech Part 4
The recent debacle related to tainted pharmaceutical ingredients notwithstanding, China has the potential to become a major power in biotechnology and I predict that it will, barring some political-economic upheaval. It possesses the economic resources, the will and – recently - the brainpower and talent to make this come to fruition. Last May, the NY Times columnist, Thomas Friedman, lamented the exodus of high tech graduates returning to China after training in top American universities. He quipped that someone from the US Immigration and Naturalization Service should attend graduation ceremonies and staple green cards to the diplomas of these newly minted Ph.D.’s. I would advise angel investors to stand alongside the INS officials so they can present their business cards and contact information with instructions to “call me in a few years when you want to start your own company.” Along with scientists, Asians graduating from US business schools are also returning to their homeland, taking with them the know-how to start and run companies. I witnessed this firsthand while obtaining my MBA at Clark University several years ago. Most of the Asian MBA students were heading home following graduation. Two important factors need to improve dramatically before China can become a major worldwide biotech player and attract US investment: 1), intellectual property laws; and 2) more cooperative and transparent equivalents of the US FDA and SEC.
An article stated recently : “Faced with weak pipelines, poor R&D productivity, expiring patents, and public and regulatory pressure over safety, major pharmaceutical companies are turning to the biotech industry for innovation.” Is this true?
Absolutely! But it’s a situation that serves both parties well - a real symbiosis. M&A and in-licensing have surpassed IPO’s as the major exit strategy and funding mechanism for biotech companies. Medium and large pharma companies are turning to biotech [companies] to fill their dwindling pipelines and maintain profits. Big pharma is simply spreading its risk. Instead of expanding their own in-house R&D, they are letting their smaller brethren slog it out on their own, and suffer the same uncertainties and expense associated with the arduous drug discovery and development process.
The innovation accompanying these products is, for the most part, incidental. If the product acquired/licensed is sufficiently innovative to gain patent protection, then it’s innovative enough for the acquirer.
M&A or marketing relationships are not always a match made in heaven, though. Take, for instance, the stormy marriage between Amgen and Johnson & Johnson, and their co-marketing arrangement for EPO. Disparate corporate cultures, along with disagreements over the contentious distinction between the two indications which determined whose marketed form of EPO was prescribed, contributed to this animus. This is not a rare event. Genentech and Schering-Plough also quarreled in court over interferon, which was originally developed and out-licensed by the former.