Global pharmaceutical market

The global pharmaceuticals industry is estimated to grow at a brisk rate of 15% annually over 2005 and 2006, according to a study by Frost & Sullivan Chemicals Group, Oxford, United Kingdom. An even more optimistic projection, based on the regulatory approval for a clutch of critical drugs – Genentech, Inc.’s Avastin for colorectal cancer, Imclone/Bristol-Myers Squibb’s Erbitux – a monoclonal antibody against advanced colon cancer, Chiron Corp.’s Proleukin to treat AIDS/HIV – forecasts global revenue growth at over 25% per annum. In 2003 alone, 50 biopharmaceutical drugs from public biotechnology companies were in phase-3 clinical trials in Europe, out of which 10 to 15 were likely to reach consumer market by 2006-2007.

According to Ernst & Young, the total biopharmaceuticals market revenue reached $41.3 billion in 2002, out of a total $350 billion for the whole drug market. Assuming a growth rate at over 25% per year, the global revenue will reach approximately $95 billion by early 2007 (Adhikari, 2004).

In 2002, the leading biopharmaceutical in revenue terms was Procrit (recombinant Protein-EPO), which generated $4,269 million for OrthoBiotech / Johnson & Johnson. Other leading products were Amgen, Inc.’s Epogen, Neupogen and Enbrel, Centocor’s Remicade, Genentech, Inc.’s Rituxan, Biogen, Inc.’s Avonex, Eli Lilly & Co.’s Humulin and Humalog, G laxoSmithKline’s Combivir, and Berlex Laboratories’ Betaseron (Adhikari, 2004).

Genomics, and drug discovery and improvement

It is often stressed that many currently-used medicines have a relative efficiency. For instance, anti-depressants are not effective among 20% to 50% of the patients, betablockers fail in 15% to 35% of the persons treated, and one out of five or even three persons suffering from migraine cannot find a proper medicine to alleviate his/her pain (Mamou, 2004e).

It is therefore expected that a personalized medical care with drugs taking account of the genetic make-up of every individual will improve the situation. Thus in the first pages of the annual report published by Burrill & Company – a Californian Bank specialized in the funding of biotechnologies – Steven Burrill, its chief executive officer, predicted that 'the era of a personalized medicine will generate a market characterized by a small volume per each drug, but the range of products developed for each therapeutic target will be much wider than presently'. There is therefore a strong belief in the effectiveness of a forthcoming individualized medicine, that could even be regenerative (tissue or even organ replacement) or preventive (e.g. it would be possible to anticipate the occurrence of a cancer, rather than to have to try to cure it) [Mamou, 2004e]. While acknowledging some breakthroughs (e.g. the drug called Gleevec has shown its efficiency against chronic myeloid leukaemia, and Genentech, Inc.’s Avastin can starve

tumours by blocking the development of new blood vessels), analysts underline that the transition toward a new therapeutic era is quite slow. In the USA, the $250 billion

invested from the late 1960s to 2003 in biotechnologies had a rather low output: out of the 200 most-sold drugs worldwide, only 15% are derived from research and development in the life sciences. In 1996, out of 53 drugs approved for sale worldwide, 9 were derived from biotechnology; in 2000, the figures were 27 and 6; and in 2003, 21 and 14, according to the data provided by the US Food and Drug Administration. Most biotechnology companies continue to spend money in research that does not lead to marketable products. For instance, Vical, after 16 years of research on gene therapy and spending $100 million, has not found a marketable drug (Mamou, 2004e).

Therefore, the deciphering of the sequence of a gene and of the whole genome of an organism sounds like an attractive short cut, and genomics caught the attention of both the public and the stock markets during the last years of the 20th century. Many new genes have been discovered, with each implying the existence of at least one new protein that might have some therapeutic value.

Australia’s biotechnology and bio-industry

The consultant firm Ernst & Young has ranked Australia’s $12-billion biotechnology and bio-industry as the number one in the Asia and Pacific region and sixth worldwide in its 2003 global biotechnology census. Australia accounts for 67% of public biotechnology revenues for the Asia and Pacific region. The Australian government has provided a boost to bio-industry by providing close to A$1 billion in public biotechnology expenditure in 2002-2003. There were around 370

companies in Australia in 2002 – an increase from 190 in 2001 – whose core business was biotechnology. Human therapeutics made up 43%, agricultural biotechnology 16% and diagnostics companies 15%. Over 40 companies were listed biotechs and a study released by the Australian Graduate School of Management (Vitale and Sparling) reported that an investment of A$1,000 in each of the 24 biotechnology companies listed on the ASX between 1998 and 2002 would be worth more than A$61,000 in 2003 – an impressive 150% return. During the same period, shares in listed Australian biotechs significantly outperformed those of US biotechs, and the overall performance of listed Australian biotechnology companies was higher than that of the Australian stock market as a whole.

Over A$500 million was raised by Australian listed life-science companies in 2003. The ASX healthcare and biotechnology sector had a market capitalization of A$23.4 billion in 2003, up 18% on 2002. There has been a maturing of the Australian biotechnology sector with greater attention paid to sustainable business models, and identification of unique opportunities that are appealing to investors and partners. The industry is supported by its skilled personnel, with Australia considered to have a greater availability of scientists and engineers than the United Kingdom, Singapore and Germany.

Australia is ranked in the top five countries (with a population of 20 million or more) in terms of the availability of research-and-development (R&D) personnel. It outranks major OECD countries (including USA, Japan, Germany and the United Kingdom) for public expenditure on R&D as a percentage of GDP (Australian Bureau of Statistics 2003). For biomedical R&D, Australia is ranked the second most effective country – in front of the USA, the United Kingdom and Germany – particularly with respect to labour, salaries, utilities and income tax. Australia is ranked third for the cost competitiveness of conducting clinical trials after the Netherlands and Canada. Australian researchers indeed have a strong record of discovering and developing

therapeutics. Recent Australian world firsts include the discovery that Helicobacter pylori causes gastric ulcers, and the purification and cloning of three of the major regulators of blood-cell transformation – granulocyte colony stimulating factor (GCSF), granulocyte macrophage colony stimulating factor (GMCSF) and leukaemia inhibiting factor (LIF).

Japan’s biotechnology and bio-industry

Japan is well advanced in plant genetics, and has made breakthroughs in rice genomics. The country is, however, lagging behind the USA on human genetics. Its contribution to the sequencing of the human genome by teams of researchers belonging to the Physics and Chemistry Research Institute of the Agency of Science and Technology as well as to Keio University Medical Department, was about 7%. In order to catch up and to reduce the gap with the USA, the Japanese government has invested important funds in the Millenium Project, launched in April 2000. The project includes three areas: rice genome, human genome and regenerative medicine. The 2000 budget included 347 billion yens devoted to life sciences. Genomics budget was twice that of neurosciences and amounted to 64 billion yens. Within the framework of the Millenium Project, the Ministry of Health intended to promote the study of genes related to such diseases as cancer, dementia, diabetes and hypertension; results concerning each of these diseases were expected by 2004 (Pons, 2000).

The Ministry of International Trade and Industry (MITI) set up a Centre for Analysis of Information Relating to Biological Resources which had a very strong DNA- equencing capacity, e.g. equivalent to that of Washington University in the USA (sequencing of

over 30 million nucleotide pairs per annum), and which will analyze the genome of micro-organisms used in fermentations and provide the information to the industrial sector. In addition, following the project launched in 1999 by Hitachi Ltd, Takeda Chemical Industries and Jutendo Medical Faculty, and aimed at identifying the genetic polymorphisms associated with allergic diseases, a similar project devoted to singlenucleotide polymorphisms (SNPs) had been initiated in April 2000 under the aegis of Tokyo University and the Japanese Foundation for Science. The research work is being carried out in a DNA-sequencing centre where 16 private companies send researchers, with a view to contributing to the development of medicines tailored for an individual genetic make-up. This wok is similar to that undertaken by a US-European consortium (Pons, 2000).

On 30 October 2000, the pharmaceutical group Daiichi Pharmaceutical and the giant electronic company Fujitsu announced an alliance in genomics. Daiichi and Celestar Lexico Science – the biotechnology division of Fujitsu – were pooling their research efforts over the five-year period 2000-2005 to study the genes involved in cancer, ageing, infectious diseases and hypertension. Daiichi devoted about $100 million to this kind of research in 2001-2002, and about 60 scientists were involved in this work of functional genomics (Pons, 2000).

Europe’s biotechnology and bio-industry

The European bio-industry is less mature than its 25-year-old US counterpart. Actelion of Switzerland qualified as the world's fastest-growing drugs group in sales terms following the launch of its first drug, Tracleer, but it had just only achieved profitability in 2003. Similarly, barely a few European biotechnology companies earn money. Only Serono SA – the Swiss powerhouse of European biotechnology that grew out of a hormone extraction business with a 50-year record of profitability – has a market capitalization to rival US leaders (Firn, 2003). Serono SA, which is the world leader in the treatment of infertility and also well known in endocrinology and the treatment of multiple sclerosis, had made in 2002 a $333 million net profit from $1,546 million of sales, and devoted 23% of these sales to its research-and-development division where 1,200 people were working. The Spanish subsidiary of Serono SA in Madrid is now producing recombinant human growth hormone for the whole world, while the factories in the USA and Switzerland ceased to produce it. The Spanish subsidiary had to invest

€36 million in order to raise its production, as well as another 5 million to upgrade its installations to the production of other recombinant pharmaceuticals to be exported worldwide.

In spite of a wealth of world-class science, the picture in much of Europe is of an industry that lacks the scale to compete and faces financial crunch, which may force many too seek mergers with stronger rivals (Firn, 2003).

Germany has overtaken the United Kingdom and France, and is currently home to more biotechnology companies than any country except the USA. But far from pushing the boundaries of biomedical sciences, many companies are putting cutting-edge research on hold and selling valuable technology just to stay solvent. Until the mid- 1990s, legislation on genetic engineering in effect ruled out the building of a German bio-industry. Since then, the more than 400 companies set up in Germany needed to raise at least $496 million from venture capitalists over 2004 to refinance their hunt for new medicines, according to Ernst & Young. Most were far from having profitable products and, with stock markets in effect closed to biotechnology companies followin the bursting of the bubble in 2000, they were left to seek fourth or even fifth rounds of

private financing (Firn, 2003).

US biotechnology and bio-industry

According to Frost & Sullivan Chemicals Group, Oxford, United Kingdom, nearly 4,400 biotechnology companies were active globally in 2003: 1,850 (43%) in North America; 1,875 (43%) in Europe; 380 (9%) in Asia; and 200 (5%) in Australia. These companies cover the gamut from pure R&D participants to integrated manufacturers to contract manufacturing organizations (CMOs) The USA leads with the largest number of registered biotechnology companies in the world (318) , followed by Europe (102).

Annual turnover (2002) of these companies has been $33 billion in the USA and only $12.8 billion in Europe. Some $20.5 billion had been allocated to research in the USA, compared with $7.6 billion in Europe (Adhikari, 2004). Ernst & Young – a consultancy firm – makes a difference between US companies which have medicines and the others. The former include pioneers such as Amgen, Inc., Genentech, Inc., Genzyme Corporation, Chiron Corp., Biogen, Inc. These five

companies have an annual turnover representing one-third of the sector’s total, i.e. $11.6 billion out of $33 billion; in addition, their product portfolio enables them, with respect to their turnover and stock value, to compete with the big pharmaceutical groups. For instance, Amgen, Inc., with a $75-billion market capitalization, is more important than Eli Lilly & Co., while Genentech, Inc.’s market capitalization is twice as big as that of Bayer AG (Mamou, 2004e).

In 2002, Amgen, Inc., had six products on the market with global revenues amounting to $4,991 million. With 11 products on the market and revenues worth $2,164 million,

Genentech, Inc., followed in second place. The remaining places in the top five were filled out by Serono SA (six products, $1,423 million), Biogen, Inc. (two products, $1,034 million) and Genzyme Corporation (five products, $858 million) [Adhikari, 2004].

Over the last decade, a clutch of companies has amassed significant profits from a relatively limited portfolio of drugs. There is, today, heightened recognition that lucrative opportunities await companies that can develop even a single live-saving biotechnology drug. For instance, Amgen, Inc.’s revenues increased by over 40% from 2001 to 2002 on the $2 billion Amgen made in 2002 from sales of Epogen and the $1.5 billion earned from the sales of Neupogen. Over $1 billion in sales of Rituxan – monoclonal antibody against cancer – in 2002 helped Genentech, Inc., record a 25% growth over its 2001 performance (Adhikari, 2004).