Biologics Biopharmaceuticals and Protein Therapeutics Part I: The state of the Sector

Before moving on to the next series of articles, I'd like to invest some effort into researching and demystifying the convoluted topic of protein based therapeutics. Indicative of this sector is the somewhat interchangeable nomenclature. Protein therapeutics (e.g. antibodies, insulin, erythropoiten) can also be referred to as biopharmaceuticals, (which can also include nucleic acids). Biopharmaceuticals in turn are often described as biologics, a term which encompasses any medicinal product derived or constructed from living tissues or cells.

Anyone interested in the biotechnology or the pharmaceutical sector is sure to understand the ongoing hype surrounding biologics. Bristol Meyers Squibb's recent purchase of Adnexus for $430 million is the most recent example. Last month Pfizer announced that it is breaking ground on a $50 million biologics facility and simultaneously paid out $30 million to use Xoma's (XOMA) bacterial cell expression technology, aiming to have 20 per cent of its pipeline product portfolio in this sector by 2009. Merck shelled out $400 million for Glycofi last year, in attempt to catch up with the big pharma early adopters of biologics (eg. Roche, J&J, GSK, Astrazenca). Needless to say that examples of vigorous froth in the biologic arena are easy to come by.

For an in depth understanding of the state of the pharmaceutical corporations, I highly recommend the recent report published by Price Waterhouse Coopers: Pharma 2020: The vision. In short, R&D expenditures have risen steadily while the amount of new molecular entities (NMEs) approved have slumped. Only a minority of Pharma companies earn a substantial income from new products, and a majority of the leading firms stand to lose anywhere up to 40% of total revenue due to patent expiries. Contrasted with the fact that there are in fact growing national and global opportunities for the healthcare and medicine industries, the bottom line amounts to big pharma shifting into crisis mode.

The above scenario, currently playing out in slow motion, serves as a kind of vindication for the biotechnology field, which since its beginnings in the early 80s has generally employed comparatively more nimble, scientifically driven approach to medicine. The business model of innovating biomolecule therapeutics and treating smaller markets of unmet medical needs was originally dismissed by big pharma in favor of a small molecule blockbuster approach. In the past few years however, as niche market drug discovery has become increasingly necessary, unmet disease therapeutics have proven valuable both monetarily and strategically. In addition, biomolecules have become blockbusters themselves, accounting for nearly one quarter of this year's total pharmaceutical market sales growth. This apparent role reversal, and the stong market projections for protein therapeutics are no doubt the reason behind the recent biotechnology wave of mergers and acquisitions.

Unfortunately, the biotechnology drugmakers will have little time to rest on their laurels. Until now, these companies have not had to worry about competition from generic manufacturers for a number of reasons. Simply put, proteins are larger and more complex by orders of magnitude, and producing these biotherapeutics requires living organisms and detailed purification protocols. Likewise, proving that two biological macromolecules are identical in structure and efficacy without performing the actual clinical trials is no small feat. Ultimately the Hatch-Waxman Act, which regulates generic pharmaceuticals, breaks down. In a few months however, its all about to change, the new regulatory legislation is currently in congress and generics firms are eagerly anticipating the go-ahead for biologic follow-ons in the US market.

Ok that pretty much brings us up to speed with the state of things. In part II, I'd like use this background knowledge of the protein therapeutics industry to evaluate opportunities of technology and in the market.