In 1972 Stanford University’s Paul Berg and Stanley Cohen, along with Herbert Boyer from the University of California at San Francisco, successfully spliced genes from viruses to create molecules of recombinant DNA for the first time. This genetic engineering technology was the genesis for the biotech industry. Genetic engineering was going to be the cure for almost every disease. Venture capital firms and an increased academic research focus led to an explosion of biotech companies trying to capitalize on this technology. What were the distinguishing characteristics between these emerging biotech companies and traditional pharmaceutical firms?
Method of Drug Production
Biotech – Manufactured in living organisms
Pharma – Manufactured through chemical synthesis
Biotech – Small, grew out of academic research or labs
Pharma – Large, traditional, big business model
Biotech – Reliant on pharma to market their drugs
Pharma – Strength from phase III to market
Biotech – Deep expertise in certain specialty areas
Pharma – Fully integrated from discovery and research to product testing and marketing
Biotech – Entrepreneurial, young, cutting edge
Pharma – Corporate, secure, traditional
Why are these lines of distinction blurring? With the average cost of bringing a drug to market at roughly $2.4 billion and with 90% of drug development programs doomed to fail, pharma realized it couldn’t do it all anymore. Pharma needed to think like a biotech and if they couldn’t establish their own nimble, flexible research function or partner with academic or biotech firms, then they realized they could just buy the biotech research or molecule, or even the entire firm.
Merck paid $20 million for a preclinical program in acute myeloid leukemia from Harvard’s Blavatnik Biomedical Accelerator program. BMS did a deal with Flexus Biociences in immune-oncology that included an $800 million upfront payment for preclinical compounds. Novartis found its CAR-T therapy inside the University of Pennsylvania.
The distinction between pharma and biotech is becoming less and less clear, and that is probably good for the industry and the patient. “The two collective industries, if you could even call them separate, can only succeed if they collaborate,” says Scott Morrison, who leads the U.S. Life Sciences division at Ernst & Young.