Transcript Key Driver of the Biotechnology Sector

Producers of the innovative
products in the healthcare
industry
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Pharmaceutical
Biotechnology
Genomics/proteomics
Medical device
Information technology
Pharmaceutical Sector
Pharmaceutical Sector
• a high risk, long time lines for development and investment on
returns.
• pharmaceutical therapy yields a tremendous productivity
improvements and tremendous care gains.
• producers need to find ways of being more efficient to control the
prescription costs – high.
• newer drugs have fewer side effects, less interactions with other
drugs, and better efficacy and time duration than older drugs.
Pharmaceutical Sector
• newer drug technology treat a disease
that previous medications did not.
• as we age, our prescription bill goes
up - # of prescriptions, newer and more
expensive drugs and therapies.
• anticipated population growth and
GDP are the criteria determining the
trend.
Pharmaceutical Sector
Pharmaceutical Pricing:
• the level of capability of drugs.
• pre-existing agents treating the disease.
• contributing to patient’s health & well-being.
• a lower bias if the medicine is useful mostly for
elderly patients.
• an upward bias if the drug is a biotechnology
drug due to higher risk funding and
manufacturing complexity.
Pharmaceutical Sector
Strategy:
• value for the investment.
• technological feasibility.
• competitive advantage and
success.
Pharmaceutical Sector
Problem/Challenge:
• pharmaceutical discovery,
development, manufacturing, and
marketing are no more efficient today
than they were twenty-five years
ago.
• discovery researcher’s tools have
increased as well as the overall cost
of deploying them.
• lack of biological understanding
results in low productivity and high
variability in pharmaceutical research
and development.
• more dependent on the
biotechnology industry as its engine
of innovation for new drugs.
Pharmaceutical Sector
Problem/Challenge:
• clinical trials are becoming more complex
and data intensive.
• success rates decline and total drug
development time increases.
• a tremendous cost savings for
pharmaceutical discovery, if research
hypothesis can be tested earlier in the
discovery phase.
• building an organizational culture that is
flexible, quick to adapt, able to succeed at
risk taking is the key to organizational
advantage in pharmaceutical business.
Pharmaceutical Sector
Manufacturing:
• accounts for 1/3 of the human resources.
• consumes more expenses than R&D.
• FDA imposes Good Manufacturing Practices
compliance.
• misjudgment of capacity requirements resulted in
product shortages.
• approximately 5,000 days or more for any drug to launch
globally from conception stage.
Pharmaceutical Sector
Value Chain within Manufacturing:
For Making the medicine.
bulk manufacturing is to increase yield,
maximize asset utilization, and minimize
adverse health, safety, and environment
impacts.
• F/F/F (Form/Fill/Finishing) sites are
typically not outsourced as they control
the product’s appearance and
packaging, and also pricing discussions
for new pharmaceuticals.
Pharmaceutical Sector
Value Chain within
Manufacturing:
For Supplying the medicine.
• pharmaceutical companies see
little benefit in vertical integration
due to low profit margin associated
with the drug distribution business.
• Manufacturing performance,
system integration, and customerfocused culture are the three key
factors influencing customer service
responsiveness.
Pharmaceutical Sector
Manufacturing Excellence:
• Forecast accuracy – influences both short term
and long term supply of
medicine; drives appropriate
capacity planning.
• Compound potency – influences manufacturing
operation and economics.
• Process robustness.
Pharmaceutical Sector
Commercialization:
• one-to-one sales representatives – with physicians is the
primary driver of sales growth.
• multi-channel access to customers – websites and call
centers for commonly asked questions concerning a
company’s drugs.
• customer relationship management – analysis of
customers information by behaviors and beliefs to find the
best targeted communications.
• E-detailing, telephone detailing, and video detailing –
physicians participate at a time and place of his or her
convenience and preference.
Biotechnology Sector
Biotechnology Sector
• a scientific discovery in genetic engineering
to improve healthcare. For example, cloning of
specific sequences of DNA.
• biotechnology drug development’s product
life cycle spans about fifteen years from
discovery through commercialization.
• Drugs made from monoclonal antibodies and
other natural proteins, tissue plasminogen
activator and erythropoietin, could be produced
with the new genetic engineering techniques.
Biotechnology Sector
• US Supreme Court grants patent on genetically
engineered cell under Section 101.
• Genentech is the founder of the biotechnology
industry along with Amgen, Biogen, Genetics
Institute, Cetus, Chiron, Repligen, and Centocor.
• at least 196 biotechnology drugs on the market
since 1982 and more than 370 new products in
clinical development.
•US biotechnology company revenues reached
$46.2 billion in 2003. However many drugs are
licensed to pharmaceutical companies prior to
launch causing difficulty to know the exact
revenue generated by drugs.
Biotechnology Sector
Impact on Healthcare:
• pharmaceutical sector
• physicians
• patients
• pharmacies
• employment
• academic research and technology transfer
Biotechnology Sector
Key Driver of the
Biotechnology Sector:
• the invention of new
technologies applicable to
drug discovery and
development.
• monoclonal antibodies – the
basis of many approved
biotechnology drugs.
• genomics - change drug
discovery, shorten
pharmaceutical product.
• proteomics – study of
proteins’ structure and
function. To discover ways
proteins may be useful in drug
discovery.
Biotechnology Sector
Business Models:
• FIPCO – the model that many of the
first wave of biotechnology companies
pursued.
• Technology Platform Model – wide
variety of types of technology.
• RIPCO – license their initial products
to a large pharmaceutical company in
exchange for a royalty on sales.
• NRDO – pharmaceutical companies
that are developing small moleculebased drugs.
Biotechnology Sector
Financing and the Capital Markets:
• over $85 billion in private capital has been
invested in the biotechnology sector in the last six
years (1998-2003).
• allies with pharmaceutical companies play a
major role.
• continue to have access to capital from a variety
of sources.
• public debt and PIPEs, private investment in
public equity, have played an important role in
funding young companies.
Biotechnology Sector
Biotechnology-pharmaceutical
company alliance:
• pharmaceutical company is a large,
multinational, fully integrated, multi-layered, wellresourced, public company that has been in
business for many years.
• biotechnology company is a much smaller,
resource-limited private company, highly
influenced by its investors, with a limited
management structure and core technology or
product base and with a fast-paced,
entrepreneurial culture and few processes.
Biotechnology Sector
Biotechnology-pharmaceutical company
alliance:
Biotechnology advantage:
1) Are able to access capital in order to fund
research. In 2003 in the US, biotechnology raised
almost $10 billion from pharmaceutical alliances.
2) Gain validation of their products or technology
by the more experienced large pharmaceutical
partner.
3) Are able to access capabilities - manufacturing,
development, regulatory, and marketing and sales
– that they do not have in order to complete the
development and commercialization of their own
products.
Biotechnology Sector
Biotechnology-pharmaceutical
company alliance:
Pharmaceutical advantage:
1) Gain access to product opportunities to fill their
pipelines.
2) Can acquire or access innovative technologies
that can support drug discovery and development
at lower risk than the cost of building them from
scratch.
3) Can access some of the culture of scientific
innovation that big companies often struggle to
replicate within the context of their complex
management structures.
Biotechnology Sector
Managing a biotechnology firm:
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Effective management
Access to capital
High quality science
Entrepreneurial culture
Flexibility to change and adjust strategy
Recruiting for top management positions
Biotechnology Sector
Global Structure of Biotechnology firms:
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Extensive resource and time of building infrastructure
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Gaining marketing approval from the local regulatory
authorities and
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Marketing of pharmaceutical products is prohibitive.
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Individual national markets are not large enough to
support cost.
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Cultural and regulatory differences
Mergers & Acquisitions in
Pharmaceutical Sector
Mergers & Acquisitions in
Pharmaceutical Sector
Mergers & Acquisitions:
• Mergers – when a company being
acquired by a similar size company.
• Acquisitions – when a company
being acquired by a larger size
company. Gain a particular
technology or product with positive
risk of opportunity.
Mergers & Acquisitions in
Pharmaceutical Sector
• increasing trend in mergers and
acquisitions in pharmaceutical companies.
• several good reasons for M&A.
• Economies of scale are seldom realized,
except for sales and marketing.
• M&A tends to report little financial impact.
• utilized to sustain growth rates in
increasing large firms.
• satisfies the demand for earnings growth.
Medical Device Sector
Medical Device Sector
• one of the most attractive and profitable among all businesses.
It accounts for approximately $165 billion in worldwide revenues
per year.
• range from the simplest surgical staples/sutures to the
complex electronic implantable devices.
• three characteristics – sustainable growth, high profitability,
and rapid change.
• sustainable growth due to demographics, unmet clinical
needs, procedure penetration, and price.
• reduction in the number of medical technology initial public
offering of a company’s stock (IPOs) during the last ten years.
• The three necessary requirements for the development of
medical device companies – financial and intellectual capital,
technological know-how, and a supportive regulatory
environment.
Medical Device Sector
• medical technology demand and supply is exceedingly
“inelastic”. That is, demand does not depend on price.
• larger companies have capabilities to influence the market for
new innovative products.
• expenditures on medical devices are buried in the hospital
costs and expenditures.
• procedures and medical personnel are extraordinary
expensive.
• an important role in the value chain
and cost continuum of care.
• trend toward drug-device combinations
products.
The Healthcare Information technology
Sector
The Healthcare Information
technology Sector
Healthcare IT spending in the US
is only 2.5 percent of overall
health expenditures. Expecting
to grow at a near double digit
rate worldwide for the next
decade.
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Increase healthcare quality and efficiency
Prevent medical errors
Reduce healthcare costs
Decrease paperwork and administrative works
Improve tracking of chronic disease management
The Healthcare Information
technology Sector
• increase investment in healthcare clinical information
technology – to improve clinical performance and efficiency.
• increase regulatory to assure interoperability and
compliance.
• IT will help healthcare professionals
• consumers will find easier access to medical knowledge
and to care provision.
The Healthcare Information technology
Sector
• information technology can connect patient diagnostics to
remote providers.
• converging in technologies
• IT will lower barriers to access to medical knowledge and
consultation both regionally and worldwide.
The Healthcare Information
technology Sector
Problems/challenges for
Healthcare organization
in information technology:
• The complexity of healthcare
organizations creates difficulty
in adapting modern IT.
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The inability to extract and organize data retrieved from data
repository in a format that enables clinicians to use it.
Infrastructure, hardware, middleware, GUI, database management
utilities, computer memory, disk storage capacity, systems
integration, and cost of clinical informatics software.
The Healthcare Information
technology Sector
Healthcare IT Applications:
• EMR and CPOE
• diagnostic radiology picture archiving & communication systems (PACS)
• remote clinical management systems – hospital and ambulatory
patients.
• customized-directed health insurance plans and real-time claims
management and payment systems.
• clinical decision support systems.
Conclusion & Recommendation
• each
healthcare sectors must possess greater understanding of the
others in order to collectively add value to the healthcare provider
and consumer.
• Focus on strategic alliances that allow them to achieve economies
of scale and integration.
• Pharmaceutical and biotechnology firms are now relying on
genomic and proteomic foundations for drug discovery. More
interdependent on innovation and adoption.
• Biotechnology firms have spent more of their revenues on R&D
than what pharmaceutical sector is spending at 15 – 20 percent.
•Among all the five sectors, medical device firms are the best dealing
with innovation and commercialization.
• Mergers and Acquisitions (M&A) creates another common business
model in an effort to leapfrog the competition, facilitate convergence
of complementary technologies, increase attractiveness, and achieve
economies of scale.
Conclusion & Recommendation
• Keys to be competitive advantage are based on combinations of
“resources” and “routines” that are unique to a firm.
• financial, scale, and sales channels are important resources.
• organizational routines and capabilities that are critical to success
are ability to manage knowledge, integrative mechanisms, portfolio
management and optimization, management of strategic alliances
and collaboration, and managing the balancing act. Affordable
innovation is the most important capability in the future.
• Is there a market?... Can the firm deliver?