The University Record, February 18, 2002

Big Pharmacy relies on small biotech firms to succeed

By Karl Leif Bates
Life Sciences Institute

The future of big pharmaceutical companies lies in small biotechnology, according to industry experts who spoke at a Feb. 8 forum at the Michigan League.

While “big pharma” has never been bigger, the research and development end of its drug pipeline is drying up, said panelists convened to discuss “Life Sciences: An Industry in Transition.”

Pharmaceuticals are the product of sophisticated chemical research, explained Alison Taunton-Rigby, president of Forester Biotech, a Massachusetts business consulting firm. But they are relatively blunt instruments when it comes to controlling the function of a living cell. Many of the easier drug targets have been addressed, and developing a new drug can cost $800 million and take up to 15 years.

“The golden era of drug discovery is over,” said Erling Refsum, an equity analyst at Nomura International in London. “The low-hanging fruit is gone.”

Biotechnology, on the other hand, promises medicines based on nature’s own molecules, “biologics” as they’re known in the trade, can be tailored to a specific cell receptor or even a specific patient’s genetic makeup, Taunton-Rigby said. “Just about every part of cells is being used as potential drugs.”

While a large multinational company like Pfizer needs a billion-dollar blockbuster in every drug it brings to market, the smaller firms can thrive by picking smaller disease niches and developing biologic drugs that have a large effect, Refsum said. What this means is that academic life sciences research and small biotech start-up firms that are using the latest techniques in genomics, proteomics and biotechnology have a tremendous opportunity to grow right now, the panelists said.

The crucial problem for universities will be technology transfer—getting the ideas out in the marketplace, said Elaine Brock, associate director in the Division of Research Development and Administration (DRDA). And the trick for the small firms will be finding enough capital to support their research and development (R&D) until their ideas begin making money, said Lyle Hohnke, a principal of the venture capital firm Tullis-Dickerson & Co.

For the small biotech firm, good science by itself won’t be enough to succeed, cautioned Stephen Bent, a partner with the Washington, D.C., law firm Foley & Lardner. Startups need to pick niches where there is little competition and then manage the business shrewdly so that expenses stay in control before the big payday of a licensed product arrives. Partnership with larger companies that have manufacturing and marketing expertise seems almost inevitable, but small firms should be careful how and when they enter into partnership agreements, panelists said.

As for Michigan’s future in this emerging economy, David Canter, senior vice president at Pfizer’s Global Research and Development facility in Northeast Ann Arbor, said his company’s R&D will go wherever it can find good workers and a thriving local biotech industry. While Ann Arbor hasn’t yet reached that “critical mass,” he said, Pfizer will be investing more than $600 million to expand its local facilities over the next several years.

“We want this life sciences industry to blossom so that we can keep these talented graduates here instead of going to the coasts,” said Roger Newton, president and CEO of Esperion Therapeutics, an Ann Arbor biotech startup.

The half-day symposium was sponsored by the Zell Lurie Institute for Entrepreneurial Studies, the Office of Tech Transfer, the Life Sciences Institute and the Michigan Economic Development Corp.