See the complete list of trends that we analyze.

1) The State of the Biotechnology Industry Today

Analysts at global accounting firm Ernst & Young estimate global biotech industry revenues for publicly-held companies at $79.1 billion for 2009, an 11.8% decrease from the previous year.  The firm also estimates that revenues of publicly-held biotech companies in the U.S. declined 13% to $56.6 billion.

Genetically-engineered drugs, or “biotech” drugs, represent about 9% of the total global prescription drugs market, and about 19% of the U.S. prescription market.  The U.S. Centers for Medicare & Medicaid Services (CMS) forecast called for prescription drug purchases in the U.S. to total about $260.1 billion during 2010, representing about $800 per capita.  That projected total is up from $246.3 billion in 2009 and a mere $40 billion in 1990.  Estimates of the size of this market vary by source.  Analysts at the widely respected firm IMS Health placed U.S. domestic prescription drug sales at $300 billion for 2009, representing 5.1% growth over the previous year.  By 2019, American drug purchases may reach $457 billion or more, thanks to a rapidly aging U.S. population, increased access to insurance and the continued introduction of expensive new drugs.

Analysts at the noted investment bank Burrill & Company estimate that global research and development (R&D) expenses at all pharmaceutical companies were $65.3 billion in 2009.  IMS Health estimates that global drug sales will top $1 trillion for the first time in 2014, a growth of nearly $300 billion over five years.  (See www.imshealth.com.)

As of early 2009, there were more than 2,900 medicines in development in the U.S.  Advanced generations of drugs developed through biotechnology continue to enter the marketplace.  The results may be very promising for patients, as a technology tipping point of medical care is approaching, where drugs that target specific genes and proteins may eventually become widespread.  However, it continues to become more difficult and more expensive to introduce a new drug in the U.S.  For example, during 2009, the FDA (Food and Drug Administration) approved only seven new biologics (new biotechnology-based drugs, based on living organisms, that have never been marketed in the U.S. in any form) along with 19 new molecular entities or “NMEs” (medications containing chemical compounds that have never before been approved for marketing in the U.S.).  This is up from the 18 approved in 2007, but down from the 22 in 2006 (there were 20 approved during 2005 and 36 in 2004).

These NMEs and biologics are novel new active substances that are categorized differently from “NDAs” or New Drug Applications.  NDAs may seek approval for drugs based on combinations of substances that have been approved in the past.  During 2009, 90 NDAs were approved by the FDA, (compared to 98 NDAs in 2008).

Developing a new drug is an excruciatingly slow and expensive endeavor.  According to PhRMA, the average time required for the drug discovery, development and clinical trials process is 16 years.  The good news is that the median FDA approval time for a “priority” NME is down to about six months, compared to 16.3 months in 2002.  As for “standard” NMEs, approval time is about one year, down from nearly two years in 2005.

The promising era of personalized medicine is slowly, slowly moving closer to fruition.  Dozens of exciting new drugs for the treatment of dire diseases such as cancer, AIDS, Parkinson’s and Alzheimer’s are either on the market or are very close to regulatory approval.  In a few instances, doctors are now beginning to make treatment decisions based on a patient’s genetic makeup.

In what is potentially one of the most important biotech legal decisions ever to emerge from the courts, a U.S. district judge in Manhattan, in early 2010, ruled as invalid parts of patents claimed by Myriad Genetics on two important breast cancer-related genes, BRCA1 and BRCA2.  If this ruling is upheld on appeals, it could lead to the conclusion that vast numbers of gene patents currently claimed by a large number of biotech companies could be invalid.  This could hurt the business models of several firms, while opening up the biotech sector in general to a new era of innovation and widespread use of genetic diagnostics, as knowledge of specific genes could be used freely on an industry-wide basis.

Stem cell research is moving ahead briskly on a global basis.  The Obama administration relaxed limitations on federal funding of stem cell research that were established by the preceeding administration.  In 2009, the National Institutes of Health set new guidelines for funding that will dramatically expand the number of stem cell lines that qualify for research funds from a previous 21 to as many as 700.  However, research into certain extremely controversial stem cells, such as those developed via cloning, will not be funded with federal dollars.

Stem cell breakthroughs are occurring rapidly.  There is truly exciting evidence of the potential for stem cells to treat many problems, from cardiovascular disease to neurological disorders.  Menlo Park, California-based Geron Corporation, for example, has published the results of its experiments that show that when certain cells (called OPCs) derived from stem cells were injected in rats that had spinal cord injuries, the rats quickly recovered.  According to the company, “Rats transplanted seven days after injury showed improved walking ability compared to animals receiving a control transplant.  The OPC-treated animals showed improved hind limb-forelimb coordination and weight bearing capacity, increased stride length, and better paw placement compared to control-treated animals.”

Despite exponential advances in biopharmaceutical knowledge and technology, biotech companies enduring the task of getting new drugs to market continue to face long timeframes, daunting costs and immense risks.  Although the number of NDAs submitted to the FDA has grown dramatically since 1996, the number of new drugs receiving final approval remains relatively small.  On average, of every 1,000 experimental drug compounds in some form of pre-clinical testing, only one actually makes it to clinical trials.  Then, only one in five of those drugs make it to market.  Of the drugs that get to market, only one in three bring in enough revenues to recover their costs.  Meanwhile, the patent expiration clock is ticking—soon enough, manufacturers of generic alternatives steal market share from the firms that invested all that time and money in the development of the original drug.

In fact, many major drugs have recently gone off patent, or will do so in the near future, which will be a significant boost to generic manufacturers that will quickly issue their own low-priced versions. Drug industry association PhRMA recently estimated that 72% of its members’ sales by volume are generic drugs.  IMS Health estimated that generic drug sales accounted for nearly two-thirds of all prescriptions sold in America in 2009, by volume, but prices are so low that they accounted for only one-tenth of revenues.

According to a study released in 2001 by the Tufts Center for the Study of Drug Development, the cost of developing a new drug and getting it to market averaged $802 million, up from about $500 million in 1996.  (Averaged into these figures are the costs of developing and testing drugs that never reach the market.)  Expanding on the study to include post-approval research (Phase IV clinical studies), Tufts increased the cost estimate to $897 million.  Tufts estimated the average cost to develop a new biotech drug at $1.2 billion in 2006.  Even more pessimistic is research released in 2003 by Bain & Co., a consulting firm, which states that the cost is more on the order of $1.7 billion, including such factors as marketing and advertising expenses.

The typical time elapsed from the synthesis of a new chemical drug compound to its introduction to the market remains 12 to 20 years.  Considering that the patent for a new compound only lasts about 20 years, a limited amount of time is available to reclaim the considerable investments in research, development, trials and marketing.  As a result of these costs and the lengthy time-to-market, young biotech companies encounter a harsh financial reality:  commercial profits take years and years to emerge from promising beginnings in the laboratory.

Since national governments pay for a significant part of prescription drug costs in major markets worldwide, the current need for many government agencies to control costs will have a dampening effect on total drug revenues in the U.K., U.S., Japan, France and elsewhere.

However, advances in systems biology (the use of a combination of state-of-the-art technologies, such as molecular diagnostics, advanced computers and extremely deep, efficient genetic databases) may eventually lead to more efficient, faster drug development at reduced costs.  Much of this advance will stem from the use of technology to efficiently target the genetic causes of, and develop novel cures for, niche diseases.

The FDA is attempting to help the drug industry bring the most vital drugs to market in shorter time with three programs:  Fast Track, Priority Review and Accelerated Approval.  The benefits of Fast Track include scheduled meetings to seek FDA input into development as well as the option of submitting a New Drug Application in sections rather than submitting all components at once.  The Fast Track designation is intended for drugs that address an unmet medical need, but is independent of Priority Review and Accelerated Approval.  Priority drugs are those considered by the FDA to offer improvements over existing drugs or to offer high therapeutic value.  The priority program, along with increased budget and staffing at the FDA, are having a positive effect on total approval times for new drugs.

For example, the FDA quickly approved Novartis’ new drug Gleevec (a revolutionary and highly effective treatment for patients suffering from chronic myeloid leukemia).  After priority review and Fast Track status, it required only two and one-half months in the approval process.  This rapid approval, which enabled the drug to promptly begin saving lives, was possible because of two factors aside from the FDA’s cooperation.  One, Novartis mounted a targeted approach to this niche disease.  Its research determined that a specific genetic malfunction causes the disease, and its drug specifically blocks the protein that causes the genetic malfunction.  Two, thanks to its use of advanced genetic research techniques, Novartis was so convinced of the effectiveness of this drug that it invested heavily and quickly in its development.

Generally, Fast Track approval is reserved for life-threatening diseases such as rare forms of cancer, but new policies are setting the stage for accelerated approval for less deadly but more pervasive conditions such as diabetes and obesity.  Approval is also being made easier by the use of genetic testing to determine a drug’s efficacy, as well as the practice of drug companies working closely with federal organizations.  Examples of these new policies are exemplified in the approval of Iressa, which helps fight certain types of cancer in only 10% of patients but is associated with a genetic marker that can help predict a patient’s receptivity; and VELCADE, a cancer drug that received initial approval in only four months because the company that makes it worked closely with the National Cancer Institute to review trials.

Small- to mid-size biotech firms continue to look to mature, global pharmaceutical companies for cash, marketing muscle, distribution channels and regulatory expertise. 

Personal genetic codes are becoming less expensive and more widely attainable.  Stanford University engineer Stephen R. Quake announced in mid 2009 that his new technology for decoding DNA enabled him to make an analysis of his own genome for less than $50,000 using a unique sequencer that is about the size of a household refrigerator.  The cost of decoding the most important sections of the human genome for an individual patient has dropped dramatically.

With progress comes setbacks, including a massive award for damages (more than $250 million) that occurred in a small-town Texas court in August 2005.  The award was made to the widow of a patient who allegedly had a fatal reaction to Merck & Co.’s Vioxx pain medication (which had previously been removed from the market due to safety concerns).  Texas laws capping medical case awards reduced the damages significantly.  Nonetheless, recent drug safety issues and a proliferation of lawsuits such as this may accelerate changes in the business models of drug development firms, discouraging them from risking funds on long-shot drugs intended to benefit the mass market.  Meanwhile, drug makers will continue to alter marketing methods and greatly reduce consumer advertising.  Virtually all drugs have significant side effect risks for certain types of patients.  While drug makers have long practiced a high level of disclosure, those risks will be more clearly communicated in the future.

Global trends are affecting the biotech industry in a big way.  Post 9/11, an emphasis was placed by government agencies on the prevention of bioterror risks, such as attacks by the spread of anthrax.  This factor, combined with global concern about the possible spread of flu, has been a significant boost to vaccine research and production.  At the same time, the rapid rise of offshoring and globalization is contributing to the movement of research, development and clinical trials away from the U.S., Japan and Europe into lower cost technology centers in India and elsewhere.  In fact, biotech firms are rising rapidly in India, China, Singapore and South Korea that will provide serious future competition to older companies in the West.

Likewise, retail drug markets have tremendous potential in emerging nations over the mid term.  For example, consultants at McKinsey estimated that the drug market in India will grow from $6.3 billion in 2005 to $20 billion in 2015.  China offers similar opportunities, while Russia, Brazil and Turkey are also likely to be significant growth markets.  This means that major international drug makers will be expanding their presence in these nations.  However, it also means that local drug manufacturers have tremendous incentive to expand their research, product lines and marketing within their own nations.

Some of the most exciting developments in the world of technology are occurring in the biotech sector today.  These include advances in agricultural biotechnology, the convergence of nanotechnology and information technology with biotech, and breakthroughs in synthetic biotechnology.

Global panic over quickly rising food prices in 2007 and part of 2008 finally gave the genetically modified (GM) seed industry the boost it needed.  Agribio (agricultural biotechnology) is spreading rapidly, with genetically modified seeds now planted in at least 25 nations worldwide.  This is biotechnology in one of its most productive arenas, the modification of the genetic makeup of seeds in order to make plants resistant to insects, capable of fighting off diseases, loaded with nutrients, able to grow with less water and/or much more productive per acre of planting.  This is a science that has evolved through the years to the point that, in a good year, a densely populated nation like India can be capable of growing enough grain to feed its hordes of people.  Partly because of rising incomes—leading to more demand for foodstuffs—and a growing global population, a forecast made by analysts at the UN’s Food and Agriculture Organization in February 2010 is that agricultural output worldwide needs to increase by 70% by the year 2050.  Consumer acceptance of GM food products will increase quickly, along with steady growth in the global population and an expanding global middle class.