BioTech Industry - A Global, Economic and Financing Overview - B. Bergeron, P. Chan (Wiley, 2004) WW

375 Pages·2004·16.47 MB·English

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Biotech

Industry

A Global, Economic,
and Financing Overview

BRYAN BERGERON

PAUL CHAN

John Wiley & Sons, Inc.

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This book is printed on acid-free paper. ∞

Copyright © 2004 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
All figures created by Bryan Bergeron.

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Library of Congress Cataloging-in-Publication Data:
Bergeron, Bryan P.
Biotech industry : a global, economic, and financing overview / Bryan
Bergeron

p. cm.
Includes bibliographical references and index.

ISBN 0–471–46561–5 (CLOTH)

1. Biotechnology industries. I. Title.

HD9999.B442B47 2004

338.4'76606—dc22
2003017976

Printed in the United States of America
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To Miriam Goodman

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About the Authors

Bryan Bergeron teaches in the Health Sciences and Technology Division of
Harvard Medical School and MIT and is the author of several books on
biotechnology, business, and technology. He is president of Archetype
Technologies, Inc., a technology consulting firm, and speaks internationally
to business leaders on a variety of technology and business issues.

Paul Chan has 15 years of experience in capital markets. He began his ca­
reer as a central banker, before progressing to become a top-rated equities
analyst covering Asian markets. He has advised some of Asia’s largest pen­
sion funds and many international institutional investors. He is the Re­
gional Director in Asia for JCF Group, a leading European global equities
and economics analytics firm. Paul has an honor’s degree in accounting and
corporate finance from University of New South Wales, Australia, and a
Master of Science from the London School of Economics.

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Contents

Preface
xi

Acknowledgments
xvii

CHAPTER 1

Overview
1

CHAPTER 2

Pharmaceuticals
43

CHAPTER 3

Medicine and Agriculture
77

CHAPTER 4

Computing, Biomaterials, and the Military
105

CHAPTER 5

Infrastructure
142

CHAPTER 6

Financing
175

CHAPTER 7

Regional Analysis
217

CHAPTER 8

Outlook
295

Appendix
319

Glossary
329

Sources and Further Reading
337

Index
347

ix

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Preface

H

umanity’s intentional manipulation of the gene pool dates back to the se­
lective breeding of dogs in an attempt to domesticate them over 14,000
years ago. At the end of the last ice age, about 10,000 years ago, we ex­
tended our control over other life forms to include the domestication of an­
imals. Societies in various parts of Asia, Africa, Europe, and the Americas
transformed themselves from nomadic tribes of hunters and gatherers to
communities based on fixed agriculture. What’s more, long before civiliza­
tion began in China or the ancient Sumerians settled in Mesopotamia, our
ancestors were experienced at fermenting grains and fruits to create alco­
holic beverages. This “domestication” of microorganisms, like that of ani­
mals and plants, was based on trial and error and what was directly
perceivable through taste, smell, and vision, and not on any understanding
of the underlying genetic mechanisms for selective breeding.

Fast forward to the twenty-first century. We are in the midst of biotech­
nology revolution that is profoundly transforming medicine, agriculture,
material science, the military, and even our sense of self. For many, public
awareness of biotechnology is marked by the sequencing of the human
genome at the start of this millennium, by the introduction of the ill-fated
FlavrSavr® transgenic tomato in 1995, by the creation of Dolly the sheep in
1996, and the discovery of structure of DNA by the Nobel laureates James
Watson and Francis Crick in 1953. Aldous Huxley’s 1932 novel Brave New
World made the world conscious of a harsh use of genetic determinism. Re­
gardless of when the public became aware of it, awareness of the biotech
miracle is inescapable today. The news is full of reports of human clones,
new, more powerful medicines, and cheaper synthesis of traditional medi­
cines. There are new biological materials grown instead of manufactured,
high-yield, high-nutrition agricultural crops, artificial organs and tissues for
transplant surgery, and a stream of discoveries of genes for particular dis­
eases. In the business arena, patents for new gene sequences are filed daily,
computer companies are designing and selling high-end computer systems
capable of manipulating and storing the terabytes of data that the industry
is generating, and pharmaceutical companies are positioning themselves to
benefit from the flood of genomic data either by developing competence in­
house, or by acquiring established biotech companies. The ethics of geneti­
cally modified crops, human clones, and embryonic stem cell research are

xi

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xii
PREFACE

hotly debated by legislators, religious leaders, and the lay public. Stock
markets worldwide anxiously track the successes and failures of biotech
companies for signs that might signal another boom like the dot-com
boom of the 1990s.

Although analysts may argue over the short- or long-term valuation
of a particular biotech stock or sector, there is no debating that biotech is
a global business phenomenon. Its reach extends from the isolated
African village that is an unknowing test bed for genetically modified
(GM) foods developed and “donated” by the West, to the computer as­
sembly plant in Malaysia that develops the motherboard for the worksta­
tion that the molecular biologist in Boston uses to visualize an anthrax
spore. In addition to these front-line users of the technology, there are the
thousands of local and multinational companies that provide everything
from the high-tech reagents and raw biological materials, to the stainless
steel tanks for fermentation, and other equipment required to synthesize
and transport biologicals.

This book is designed to provide CEOs and other upper-level man­
agers with a comprehensive, critical analysis of the biotechnology business
from a uniquely global perspective. It looks beyond the hype of the get-
rich-quick investment schemes and focuses instead on the technological,
sociopolitical, and financial-infrastructure-building activities occurring
worldwide. Private and government-sponsored laboratories worldwide are
developing many of the core technologies that are driving the biotechnol­
ogy business.

Because the biotechnology field crosses so many traditional bound­
aries, successful CEOs and other senior-level corporate executives in the in­
dustry have a good grasp not only of business principles, but also of the
biology, physics, and information system technologies related to their com-
pany’s products and services. Furthermore, given that there are often so­
cial, political, and even religious concerns surrounding biotechnology
research, successful executives are skilled in public relations and managing
the press. Computer hardware and software companies are scrambling to
provide the tools and platforms that will enable researchers to extract in­
formation from the inconceivably large amount of genomics data gener­
ated daily worldwide.

Biotechnology is a diverse field dealing with the application of bio­
logical discoveries to industry, agriculture, and medicine. From an invest­
ment perspective, it has fallen victim to the same hype that plagued
artificial intelligence (AI), real estate, junk bonds, and, most recently, dot­
coms. Much of this hype can be attributed directly to overzealous promo­
tion of the potential of biotechnology companies to cure diseases,
develop new drugs, and feed the world’s hungry through genetically engi­
neered foods.

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Preface
xiii

In addition, the press has naturally gravitated to the more sensational
aspects of biotechnology, from the race to sequence the human genome to
the wild speculation over the value of newly discovered genes for curing
medical maladies from obesity to cancer. In the resulting confusion over
what is real and what is fanciful speculation, biotechnology is variably por­
trayed as either the next dot-com ride for those with excess capital to in­
vest or as simply not worth following as an investment vehicle. The public
outcry over cloning, over the use of embryonic stem cells, and over the po­
tential threat to the environment from genetically modified foods has also
heightened the uncertainty of the short-term performance of investments in
biotechnology.

To ignore the field as an investment vehicle because of less than triple-
digit returns on investment is myopic at best. In many firms and academic
centers, scientists, engineers, and entrepreneurs are diligently engaged in
successful research and development of the core technologies that are re­
sulting in practical applications and products. As a result, few dispute the
belief that biotechnology is the seed of an inevitable revolution of busi-
ness—and life on this planet—that will have a much larger social, environ­
mental, religious, ethical, and business impact than the industrial or
technology revolutions. The issues revolve around timing, the sequence in
which specific sectors of the biotechnology industry will blossom, and the
risk associated with some of the more technically challenging or politically
charged biotechnologies.

The ongoing biotechnology revolution invites comparison and con­
trast with the information technology revolution of the previous century.
For example, there are global pockets of technical expertise, capital, and
demand for high-technology goods and services, and these areas don’t nec­
essarily overlap geographically. For example, a labor force of predomi­
nantly Asian heritage is fueling many advances in the biotechnology field.
Several hundred thousand researchers from Asia are studying and working
in the biotechnology industry in the United States and Europe. Further­
more, in the increasingly shrinking global economy, many of these re­
searchers rotate between centers of excellence in Asia and the West. Instead
of value chains built around RAM, motherboards, and computer subsys­
tems, the commodities of the biotechnology arena are sequencing ma­
chines, gene chips, and the myriad data that these and similar devices
produce. The data, are massaged, transported, analyzed, and stored on the
computers and with the software made readily available by enabling infor­
mation technologies.

Investment in biotechnology varies considerably from one country to
the next by virtue of corporate and government funding, variations in
public acceptance of biotechnology products, and the country’s political
environment. Since all of these factors are rarely favorable in any one

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PREFACE

place, a mosaic of interdependencies results that serves to drive interna­
tional cooperation on a variety of levels. For example, the bright spots of
government and corporate funding of biotechnology research and devel­
opment are in the United States and Europe, but research and develop­
ment there, in several key areas, is less than optimal. Much of Europe
restricts or tightly controls genetically modified agricultural products,
and, with the exception of California, the United States is an unfriendly
environment for companies doing stem cell research and certain forms of
cloning and genetic engineering. In contrast, the sociopolitical environ­
ments in Asia, Australia, and New Zealand are not only receptive to
biotechnology research in excelling in stem cell research and other U.S.-
sensitive areas, but they actively support research activity. Genetically
modified foods are consumed by unknowing—or uncaring—consumers in
the United States and China, while Mexico and many countries in Africa
are beginning to prohibit the importation of genetically modified foods
because of health concerns and to protect the local ecology from possible
contamination by a genetically modified crop. Japan is a major driver for
the pharmaceutical industry because it ranks third worldwide in its con­
sumption of pharmaceuticals.

READER ROI

The successful investors and business executives in the biotechnology space
understand and capitalize on the global interdependencies in the industry.
To this end, this book provides readers with the information they need to
develop an understanding of the global interdependencies that are pivotal
to the success of biotechnology commercialization worldwide. It details
where the major research and development projects are being conducted,
major applications for each technology, and countries where money and
intellectual capital are flowing. It also provides readers with an overview of
the technological underpinnings of the biotechnology field, including de­
pendencies between fields for development of products, For example, ge­
netic profiling and DNA analysis are discussed in terms of their ability to
accelerate the development of bioforensics, clinical screening, and drug re­
search.

Readers of this book will gain an appreciation for the unique political
and socioeconomic landscape within which academic and entrepreneurial
biotechnology laboratories operate, and an understanding of the sociopo­
litical, technical, and labor infrastructures necessary for a successful
biotechnology industry. Most importantly, readers will have a clear vision
of the global biotech market through 2010, including which regions and
corporations are best positioned to dominate the market.

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Preface
xv

ORGANIZATION

This book is organized into eight chapters, with an Appendix, Glossary, and
Bibliography. The first five chapters provide an overview of the field of
biotechnology, including the economics of biotechnology, infrastructure re­
quirements, global financing, and the way corporations and regions are posi­
tioning themselves for leadership positions in the industry. Chapter 7,
“Regional Analysis,” explores the status of biotechnology in each of the
global markets. The last chapter, “Outlook,” provides the global outlook for
the biotechnology industry by industry. An overview of the chapters follows.

Chapter 1 Overview. This chapter provides an overview of the scope
and focus of the biotechnology industry, in the context of the six interde­
pendent areas most likely to dominate the field in the next decade: pharma­
ceuticals, medicine, agriculture, biomaterials, military applications, and
computing. It reviews the social, political, and economic potential of the
industry, from developing higher-performance fabrics for the military to
developing cures for inborn diseases, to developing techniques, such as
cloning, that enable research and development. The chapter also provides a
glimpse of the best-case scenarios for the industry, as well as the significant
hurdles that must be overcome for these hopes to become a reality.

Chapter 2 Pharmaceuticals. This chapter explores the economics of the
biotech pharmaceutical industry. Starting with a discussion of established
markets, such as bulk enzymes, the specifics of the pharmaceutical market
are described. Investment issues, including the rationale for investing in
new biotech methods are outlined. The role of intellectual property protec­
tion, mergers, and modifying existing drugs in maintaining growth of large
pharmaceutical firms is also considered.

Chapter 3 Medicine and Agriculture. This chapter continues with the
exploration of the economics of the biotech industry, but with a focus on
medicines, gene therapies, improved agricultural output, and the ability to
grow organs and tissues for transplantation. These technologies are dis­
cussed in terms of the challenges they face in the marketplace, as well as
the potential they hold as vehicles for the next economic upswing.

Chapter 4 Computing, Biomaterials, and Military. This chapter con­
tinues the discussion of the secondary biotech markets, with a focus on the
contribution of the computing, biomaterials, and military biotech indus­
tries.

Chapter 5 Infrastructure. This chapter explores the geopolitical, regu­
latory, social, technical, and labor infrastructures that are enabling activity
in the biotechnology industry. It examines issues such as patent protection
for pharmaceuticals, the migration of expertise from educational centers to
potentially more lucrative areas in developing economies, and the effect of
often conflicting regional and national regulations on innovation.