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Technological Convergence in the Life Sciences Transforms the Global Pharmaceutical Industry

Today the pharmaceuticals, biotechnology, medical devices, and diagnostics form the backbone of a growing and rapidly integrating life science industry complex (LSIC) estimated to be worth a trillion dollars in global sales. Furthermore, the importance of this set of science-based industries will grow significantly in the future. Indeed, a number of prestigious reports estimate the emergence of a bioeconomy by 2020 or 2030. For example, a recent report by the Organization for Economic Cooperation and Development (OECD) predicts that the use of key biotechnologies likely to be commercialized by 2030 will contribute to 35% of chemical output, 80% of pharmaceutical and diagnostic output, and nearly 50% of agricultural output. According to this report, the use of biotechnology will be pervasive, and industrial and agricultural applications are expected to grow even more significantly than the biologics and biopharmaceutical applications that currently dominate biotechnology.17 The report also predicts that the increase in biotechnology's contribution to the economy will likely be even more significant in the emerging economies than within the OECD. It is not unreasonable to expect that the life science industrial complex may grow to contribute more than 10% of world GDP within a single generation.

The pharmaceutical industry, traditionally based on chemistry, is the largest of the life science-based industries. It developed well before the emergence of biotechnology. Today we see a convergence between the two industries, and the lines between big pharma and biotech continue to blur. Many powerful trends in business and within science itself drive the emergence of the globalized LSIC. Mergers and acquisitions among pharma, biotech, and medical device companies are frequent. In twenty-first-century science, systems biology is becoming a key paradigm driving advances in other fields. The complex understanding of biological systems (leading to synthetic biology) is enabled partly by large-scale computing and computational biology, and partly by nanotechnology, with its miniaturization engineering, directed molecular assembly, and novel materials.

The biosciences are becoming a driver of progress and "convergence" in such diverse fields as agriculture, security/defense, ICT/communications, healthcare (monitoring systems and remote diagnostics), and other fields, including even parts of the automotive industry.

As shown in Figure 1-6, the future world of healthcare will be based on a confluence of technologies, such as telemetry and communications (telemedicine), imaging and visualization, IT, genomics/proteomics and use of biomarkers, Electronic Health Records (HER), Evolutionary developmental Biology (Evo devo), and others. With the convergence of biology, chemistry, and semiconductors, for example, researchers have begun to develop biochips that can diagnose blood samples. New types of plastics from the chemical industry and the use of "biomimicry" to emulate the properties of human tissue in the knee and other joints may in the future support the use of synthetic materials in resurfacing bone joints.

Figure 1-6

Figure 1-6 Converging technologies of bioscience

Reproduced with permission from Paul J. H. Schoemaker and Joyce A. Schoemaker, Chips, Clones, and Living Beyond 100, Pearson Publishing, 2009. This chart appears as Figure 4.1 on page 58. The chart was originally developed by Scott A. Snyder, from Decision Strategies International Inc. (www.decisionstrat.com).

Rapid advances in science and its applications, together with changes in market conditions, are forcing a transformation of business models within the life science industries. New market conditions include the emergence of big new markets such as India and China, rapid growth of new R&D capabilities, and new industrial competitors and collaborators from emerging economies. Perhaps the most obvious change in business models is the gradual demise of the large fully integrated pharma company (FIPCO) and its gradual replacement with the virtually integrated one (VIPCO).

Most large Western pharma companies have been in a state of crisis for several years now: New drug approvals are not keeping pace with rising R&D spending, many blockbuster drugs have come off patent (or soon will), and the cost of new drug development keeps climbing. The market capitalization of the top ten large pharma companies has dropped more than $700 billion since 2001.18 However, the total market cap of biotech companies has increased by more than 50% during this period; even after the recent drops due to the financial crisis, this is close to $300 billion. Observers noted with glee when the worth of Genentech soared in excess of $90 billion just as Pfizer's fell below $90 billion.19 This symbolizes the emergence of the new biologic drugs, surpassing traditional medicines.

Reacting to those trends, pharma companies have been aggressively acquiring biotech companies. Since 2000, the number and value of biotech therapeutic acquisitions has grown to reach 32 in 2008 worth more than $75 billion.20 Frost and Sullivan estimate that more than 1,500 alliances between pharma and biotech were formed from 1997 to 2002 and that the contribution of licensed products to total sales is expected to increase from 20% in 2002 to 40% in 2010.21 These alliances and acquisitions are not just about new revenues from successful biologics drugs: The acquisitions and collaborative agreements also involve learning and mutual transformation. The "biotech-like" model of R&D is seen as a solution to the bureaucracy and lack of accountability in the traditional big pharma R&D strategy. Several big pharma companies, including Pfizer and GSK, have announced strategies of organizing R&D into small discovery units of 100–150 researchers, in an effort to marry the strength of the biotech spirit of entrepreneurship with the resources of big pharma.22

As we shall see in Chapter 7, "Company Strategies of Global R&D Collaborations," the new virtually integrated life science company is based on complex systems of partnerships, both with academia and scientific institutions and with contract research, manufacturing, and sales organizations (CRO, CMO, CSO). Until recently, these networks of partnerships have been mostly limited to Western institutions working within a single industry or closely related industries—for example, consider the agreement between Millennium Pharmaceuticals and Abbott Laboratories to develop new diagnostics for obesity and diabetes.23

After 2005, and increasingly in the future, partnering is being redirected in geographic scope to include not just partners from the West, but also partners from emerging economies, especially in Asia. This new partnering with emerging economy players goes beyond manufacturing, to include different stages of R&D, product codevelopment, design, marketing, and procurement. Partnering and collaboration will also increasingly span more than one industry as combination products become more pervasive—for example, new drugs that are delivered using innovative medical devices that also include diagnostic systems. This perspective has encouraged large traditional companies from outside the biosciences to establish life science business units and to invest in new life science technologies. Examples include 3M, Reliance Group, and Hitachi Chemical Research Center. In Britain, Toumaz Technology and Oracle have a joint venture with the Institute of Biomedical Engineering at Imperial College to develop a market for a pervasive monitoring system that would combine cellphone electrocardiography (EKG) data and medical assessment capabilities for at-risk heart patients. The combined application of new technologies (such as molecular diagnostics, fast computers, specialized software, and genetic databases) and bold research partnerships with emerging R&D centers in Asia may eventually lead to faster, more efficient, and lower-cost drug development.24 The dream expressed by Ernst and Young of reducing the cost of developing a new drug from a billion dollars to less than $300 million may turn out to be less of a fantasy than it sounds.25

Aggressive emerging economies such as South Korea and Taiwan that are eager to increase their participation in high-tech industries expressly base their national strategies of biotechnology development on the notion of co-joint development with related industries in which the countries have competitive advantages. The Korean policy points to specialized bioclusters in specific subareas of biotech, such as agro-biotech, but also designates certain bioregions as centers of multiple interrelated industries. Ganwon, for example, is designated the focus of all bioindustries related to environmental protection.

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