Healthcare biotech: a goldmine for investors?

THE SUCCESS stories in the information technology field, particularly with reference to the impact it has made internationally, have led to much euphoria among Indian policymakers, entrepreneurs and investors over the potential of yet another frontier technology to catapult India to the global centrestage. Often described as the biotechnology revolution in the West, it made slow and tedious progress. Very few healthcare and agricultural produces based on genetic engineering are now produced in this country.

After a slow start in the second half of the 1980s, and the first half of the 1990s, when emphasis was on awareness creation and human resources development, now there is an unparalleled euphoria and hope over this sunrise technology. Part of the reason for this is the new-found faith in biotechnology apparently triggered by the decoding of the human genome announced on June 26, 2000, which in turn has led to unprecedented new investments in the U.S. and to a lesser extent in Europe and Japan, exceeding even those in the IT sector.

Many players

In the second half of 1999, most biotech companies in the U.S. were begging for funds with many closing down and many others being delisted from the NASDAQ. But in the first half of 2000, biotech companies were worth over $80 billion with Celera Genomics alone raising over a billion dollars and Millenium Pharmaceuticals over $400 million. A peculiar feature of this boom was that even smaller players did well with their initial public offerings (IPOs). Thus, while the average amount raised by a company was $17 million in 1995, the figure was close to $100 million in 2000. Though there has been some speculative selling of the genomic era, the trust in the future of biotechnology goes much deeper into areas of regenerative medicine, Xenotransplantation, drugs for cancer, cardiac diseases, inflammatory diseases, autoimmune disorders and central nervous system disorders.

Human Genome Sciences, Millenium Pharmaceuticals, Celera Genomics, OSI Pharmaceuticals and Incyte Genomics have all gathered substantial funds from the market. U.S. biotech stocks more than doubled in their prices in 2000 in the U.S. market, while there was an overall reduction of over 40 per cent in the NASDAQ composite index during the same period.

Millenium Pharmaceuticals entered into an agreement with Bayer for supply of validated targets for drug discovery by Bayer for $465 million. In addition to such exclusive deals, many database suppliers sell their products at high premia to companies and researchers using the Internet as the primary vehicle. Such e- commerce products will thus be accessible to any one around the world, connected to the Internet and interested in procuring them for their own developmental projects.

Even though it was feared that the joint announcement by the former U.S. President, Mr. Bill Clinton, and the British Prime Minister, Mr. Tony Blair, that raw human genome sequence should be available in the public domain, will deflate the market sentiment, in practice it never happened, as Celera and others announced that they will deny free access to all competitors. Moreover the raw data which at the genome level itself has 60 tera bytes of information, need massive inputs in terms of time, money and skills to refine them to the desired levels of utility.

Fruitful alliances

Strategic alliances have been forged by database companies with drug development companies. For example, Human Genome Sciences has joined hands with Cambridge Anti-body Technology paying $67 million to develop a large number of anti-body based therapeutics and diagnostics. Millenium has tied up with Abgenix in a $100 million deal for development of human anti-bodies for newer applications.

Incyte Genomics involved in providing integrated genomic technologies to biotechnology and pharmaceutical companies had a revenue close to $200 million in 2000. The company also develops and markets genomic databases, data management software, microarray gene expression services, related reagents and services. An indication of the company's interest in drug development in addition to all the above is its tie-up with Oxagen, which established the Family Osteoporosis Samples (FAMOS) collection to delve deep into possibilities of molecular target identification, suitable development of candidate drugs for Osteoporosis.

Other areas of great interest to several start-up companies are Pharmacogenomics and Single Nucleotide Polymorphisms (SNPs), which can utilise population data bases like in the case of the FAMOS study to discover specific disease genes as starting points for drug discovery. Europe, while always behind the U.S. in investments in biotechnology, had also a boom year in 2000, with 27 biotech companies raising a record $2.2 billion.

Where does all this lead to?

When one prepares the balance sheet of such massive investments in biotechnology, what is the bottom-line likely to be? As far as the U.S., where major activities are centred, is concerned, the total healthcare expenditure is now placed at $1.2 trillion, of which only 10 per cent is on drugs, all of them combined, whether they be prophylactics, diagnostics or therapeutics. Bulk of these originate and will continue to originate from synthetic chemical and natural sources. The current healthcare biotech product sales in the U.S. are worth around $14 billion, against a market cap of U.S. companies of over $80 billion. The new biotech products that emerge out of all the current investments in biotechnology, therefore, have to guarantee adequate returns on the investments from their future sales revenue.

It is clear that under such compulsions, only drugs that have the potential to generate high revenues will be taken up for development by the western biotech companies and their affiliates. The new drugs also will have high price tags and substantial profit margins to ensure adequate returns on the investments made and for providing for future investments in R&D. Obviously, products needed by the developing countries are unlikely to be candidates for discovery and development of new products in the area. As a natural corollary, the products which come out of these efforts will be outside the reach of the majority in these countries.

During the last five years the biotechnology clinical pipeline has swelled, with over 800 products in clinical development with around 200 of them in late phase of development in 2000. The largest number belong to the cancer area, fully justified in view of the state of the medical need for this indication. It is also a fact that regulatory clearances for anti-cancer drugs are easier, thereby ensuring earlier returns on investments. The future is believed to move further from the relatively newer-DNA technologies to produce recombinant proteins, to newer areas involving more modern techniques of gene therapy, characterisation and classification of diseases and their prognosis based on genomic data, early detection of pre- disposition to diseases and personalised medicine. In the area of gene therapy, companies are deploying their efforts to develop drugs for pulmonary diseases, oncology and cardiovascular and neurological disorders.

Where does India stand vis-a-vis the global developments and investments in biotechnology? A very active Department of Biotechnology under the Government of India has been in the forefront of defining the strategies for taking India to a leadership position in this area. This is very much unlike the pharmaceutical and IT industries, both of which grew on their own steam and momentum in the last several years.

As of now, it is estimated that the total investment in biotechnology related projects in India is not more than Rs. 200 crores (less than $45 million) per year, of which at least half, and that too in R&D projects, come from government sources.

Apart from investments in the production of a few of the already marketed recombinant proteins, the only other areas of professed interest, by India industries, are bioinformatics, functional genomics and proteomics.

It is a moot point whether Indian genomics research groups and their customers, at present, the Indian pharmaceutical industry have the minimum critical mass and skills to survive and grow in the global genomic arena, let alone be leaders, on their own.

While integration of genomics and IT would be a logical core strength of Indian scientists and engineers, it is not obvious that such efforts are being seriously pursued. With the availability of a variety of ethnic groups, one would imagine that study of SNPs from population data banks for the discovery of genes responsible for genetic diseases would be a fertile area for detailed study.

The hype around biotechnology as the future panacea for many of our health problems and for ensuring economic benefits to the country, is obvious from the pronouncements of as many as nine States and Union Territories coming out with biotechnology policies and setting up high profile biotechnology parks.

The Indian "Think Tank" will do well to ponder all these issues and ensure that, even if India cannot match the multi-billion dollar investments in the West, it will optimally and effectively utilise the funds available. The key operative words should be focus and global collaboration, if success is to be guaranteed.

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