Adapt or Die, Biotechies: Steve Burrill on the Transformation of the Health Care Business
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that cost hundreds of millions of dollars, is especially reliant on the whims of investors who allocate capital. The IPO market has shown—with Cambridge, MA-based Ironwood Pharmaceuticals and Hayward, CA-based Anthera Pharmaceuticals as a couple recent examples—that even though the broader market indexes have improved, the appetite for biotech speculation hasn’t returned.
Why? Only about 20 of the 105 IPOs of the past six years are trading above their initial share price, Burrill said. What’s worse is that only 56 out of about 10,000 life sciences companies (that sounds like an awfully big denominator) are worth more than $1 billion in market cap. That means that 95 percent of the industry is considered microcap, and completely off the radar of big institutional investors, and investment banks like Goldman Sachs and JP Morgan.
“We have been marginalized by the investment community,” Burrill said.
Hard as it may be for biotechs to raise money, things are even worse for Big Pharma. Those giants have resorted to merging among themselves to prop up their short-term earnings. And biotech has made a lot of people rich. He noted that Genentech was valued at $100 billion when it was fully acquired by Roche a year ago, at the same time as Pfizer, the largest pharma company, was worth $90 billion. Amgen is now worth more than Bristol-Myers Squibb, and Gilead Sciences is worth more than Eli Lilly and Bayer, he added.
“We have created extraordinary value, and we need to remember that and tell people that,” Burrill said.
—Regulatory uncertainty. Ah, this isn’t an industry where you can throw a Version 1.0 product out on the market with lots of bugs and still make a ton of money. You need approval from regulators like the FDA and European Union to certify it’s been demonstrated as safe and effective.
Even though Burrill said he’s known FDA commissioner Peggy Hamburg for a long time and respects her, he sees the political climate at the FDA working against biotech companies. The FDA will continue to be under pressure to take drugs off the market rather than put new drugs on the market, he said.
“We can wish away the complexity of the regulatory world, but it will be tougher over time, not easier,” Burrill said.
—Personalized medicine. The traditional biotech model said that drugs were high value, high profit margin products, while diagnostics have been low value commodities with low profit margins. That’s going to reverse over time as payers see much greater value in diagnostics that can predict which patients are likely to benefit from a drug, or those that can reduce other healthcare costs over time like hospitalizations.
Redwood City, CA-based Genomic Health has been an early leader in this trend, by proving it can sell a $3,200 test that predicts whether women have a form of breast cancer that’s likely to relapse after a tumor is surgically removed.
“When Genomic Health came out with a $3,200 test, people said there’s no way in hell you’re going to get $3,200 for a diagnostic test that usually costs a few hundred bucks,” Burrill said. “We’re in the middle of a massive value shift from the Rx (prescription drugs) to the Dx (diagnostics) side.”
Burrill also flipped up some quick slides about how all sorts of medical tools will be able to plug and play with handheld devices, from blood pressure monitors to microscopes to ultrasound tools. Remote readouts on our personal health data can be taken, sent at electron speed, and stored somewhere in a computing cloud where our doctor can ultimately monitor our wellness.
Plenty of people object to this vision, saying that people won’t be willing to share this stuff because of privacy objections. Fat chance, Burrill said.
“If you look at social networking, 350 million people are out there, spilling our guts to people we don’t even know,” Burrill said. “There’s a massive business in managing health online.”