"Guns Germs and Steel" and his latest book, "Catastrophe." Both have interesting treatment of concepts and topics [or off-topics] that make SI Biotechnology such an interesting environment.
On Topic: WSJ has a book review today on "Science Business: The Promise, the Reality, and the Future of Biotech" by Gary Pisano. They claim it is fact not science fiction. He starts with Bayer in 1897 and works up to a current discussion of risk and vertical structuring differences between big pharma and biotech firms.
The reviewer is of interest also, Andy Kessler is the author of, "The End of Medicine." Haven't read that one either. Fortunately, I already read all of Wouk, Diamond and most of Stephenson...
online.wsj.com
Why Biotech's Promise Is So Great
By ANDY KESSLER
January 3, 2007; Page D9
It was 30 years ago that Genentech ushered in the era of biotechnology, forming a company to create new drugs based on genetic engineering. Since then, hundreds of new companies chasing the dream of blockbuster drugs have lost billions of dollars of investors' capital. It reminds me of Warren Buffett's crack about the notoriously unprofitable airline industry, suggesting that any right-minded capitalist would have shot down the Wright brothers at Kitty Hawk. Cumulative profits for the entire biotech industry are meager. The whole lot of them probably drip red ink if you take out Amgen, a 26-year-old company with $14 billion in annual sales and -- like Genentech and just a handful of others -- real profits.
Can science and business mix? Gary Pisano takes on this important question in "Science Business: The Promise, the Reality and the Future of Biotech." The problem, according to the Harvard Business School professor, is that today's corporate structures are allergic to the uncertainty and risk inherent in science.
"Science Business" provides a fascinating history of pharmaceuticals and biotechnology. It ranges from Bayer synthesizing an active extract of willow-tree bark in 1897, thus creating the acetylsalicylic acid commercially known as aspirin, to the cancer drugs of today. Somewhere in between, the science (or is it an art?) of drug discovery turned into a huge business. So-called Big Pharma, with roots in the first half of the 20th century, typically means companies that process naturally occurring compounds with organic chemistry, while a wave of new biotech companies synthesize and genetically engineer drugs in an attempt to fight disease. There is less of a distinction today. Both the pharmaceutical and biotech industries operate with enormous costs for research and development, outlays that seem rational but end up being crapshoots.
Mr. Pisano notes that "drug R&D is a highly complex process; it is expensive, time consuming, and fraught with risk. In these respects, drug R&D is not too different from, say, the development of a new airliner, a new microprocessor, or even an epic movie." The key word is risk. While an Airbus plane, Intel's Core Duo or "Apocalypto" may have market risk, their development is undertaken with confidence that the products will at least make it to market; drug companies begin work on a new product with no idea whether it will even make it out of the lab, much less progress through clinical trials and onto drugstore shelves. A new drug might have the potential to be a blockbuster, but, then again, only one drug out of 6,000 newly developed compounds actually goes on sale. "Productivity" is not a word used often in the drug business.
Drug development is a gamble in itself simply because of the hit-or-miss nature of the science -- or the "profound and persistent uncertainty," as Mr. Pisano calls it, "rooted in our current limited knowledge of human biological systems." But it becomes a staggeringly expensive gamble -- like playing blackjack at a table with a billion-dollar minimum -- because of the facilities required and the legions of experts in chemistry, biology, genomics and other fields who pour their time and energy into research. The "nature of this process is integral," Mr. Pisano points out. "It cannot be broken neatly into different pieces."
And therein lies the rub. Most other science-based businesses nowadays have made the transition from vertical to horizontal integration. Vertically integrated IBM ruled the computer industry, for instance, until the market showed that it was more efficient for Microsoft and Intel and Dell and Best Buy each to own a horizontal layer of the business.
But in drug development, attempts by companies to stake out a horizontal layer -- by providing just the compounds or the processes or the genomic databases -- have failed to take hold. The conventional wisdom remains, though, that it's much harder, if not impossible, to take risks inside large corporations, where managers pay more attention to career risks than market risks. Given that venture capitalists exist to fund smart entrepreneurs with new potential blockbuster drug ideas, biotech companies continue to sprout up, ready to chase new ideas.
So we have vertically integrated Big Pharma plodding along with its risk-averse corporate structure operating in a terrifyingly risky business, and the more nimble biotech companies hoping to catch lightning in a bottle even as they bleed fortunes. Mr. Pisano, in his conclusion, calls for structural change in both businesses: Big Pharma should take more biotech-like risk, and biotech should vertically integrate like Big Pharma. In addition, the entire drug industry should embrace more university research and use the grants process to push R&D at the basic-science level.
I'm not so sure. The biotech industry exists because Wall Street provides access to capital. The stock market, in its inimitable way, looks at the industry, strips away the high R&D spending and then models what a company's profits might look like on a normalized basis, considering today's losses in the light of future profits. Failure is punished quickly.
Even Big Pharma is not immune. Pfizer's stock dropped 11% in December on news that the company's new cholesterol treatment, torcetrapib -- developed by using a biotech technique known as RNA interference -- was dropped because of deaths and complications during clinical trials. Still, Pfizer's established cholesterol drug, Lipitor, is a $12-billion-a-year drug. When these things work, they work big. Mr. Pisano's proposals for structural change are unlikely to be embraced unless Wall Street demands them.
Investors may find "Science Business" particularly compelling. Mr. Pisano notes that "everyone from sophisticated VCs to Aunt Martha" invests in biotechnology companies: "They hope to catch the next Amgen [now valued at $80 billion]. Never mind that probabilities are very low and, on a risk adjusted basis, it may not be a good bet. The promise is there." So science and business will continue to mix. For the moment, they make a volatile cocktail.
Mr. Kessler is author of "The End of Medicine" (HarperCollins, 2006). |
