The end of the biotech model?

The recent 2009 BIO International Convention in Atlanta was a fairly gloomy affair with attendance significantly down and a clear absence of swag in the exhibition area.  Not only that, but during the meeting several industry pundits had the temerity to raise the question: “is the biotech model broken?”

Ernst & Young’s Glen Giovanetti (Global Biotechnology Leader) recently spoke with Burrill & Company to give his perspective on these troubling times.  Here are some of the main themes discussed:

There have been at least five major biotech sector downturns historically but the current one looks to be the most serious.

At present about 50% of public US biotech companies have less than a year’s cash remaining.  To compound this problem, the usual sources of funding (VCs, public markets and pharma) are also facing similar challenges which means that there will be an increase in buy-outs, M&A or even bankruptcies.

The established paradigm of initial VC investment building to an IPO with an eventual major pharma partnership or acquisition appears fanciful today.  Most VC funds are facing extreme pressures and are loathe to take on early stage life sciences investment risk at this time.  The public markets are effectively closed to life sciences companies (there has only been one biotech IPO since 2008).  Finally, pharma is preoccupied with acquisitions of successful already-approved products that will sustain them as their current product lines fall to generic competition.  Earlier stage products cannot save them.

[Note: Pharma companies have been quite active recently in building their discovery engines via partnerships with academic centres e.g. Pfizer’s stem cell deals in Cambridge MA and UK, GSK’s partnership with Harvard.]

One ray of hope is that the emergence of excellent generic drugs (today’s blockbusters) may free up funds to reward innovation.  First-in-class drugs with superior efficacy should be reimbursed, whereas “me too” drugs and “minor incremental benefit” drugs will struggle.

What would a new biotech model look like?  More proof-of-concept development in academic centres leading directly to pharma partnerships?  Patent pooling around drug targets?  Open source innovation (gasp)?

My prediction – more change.