While biotechs aggressively fight to find cures for cancer, heart disease, and other common conditions afflicting people in the Western world, some of the world’s most devastating diseases — tuberculosis, malaria, and dengue fever, which run at epidemic levels in developing regions — are generally less of a focus among biotech research and development teams. Nonetheless, the industry has tremendous potential to contribute to the eradication of many global health problems.
According to Global Forum for Health Research, only about 10 percent of research resources from wealthy nations is devoted to targeting diseases that account for 90 percent of global health problems. Among biotechnology companies, such issues are neglected not because of a lack of desire to tackle them, but because biotechs are traditionally financed through venture capital — which has concluded that the value proposition in devoting resources to the treatment of diseases that kill millions of people in the world’s poorest countries is just not there.
BIO Ventures for Global Health, created by the Biotechnology Industry Organization and funded by the Bill & Melinda Gates Foundation and the Rockefeller Foundation, plans to bridge the gap — uncovering or building market opportunities for global health product development. This summer, the Gates Foundation strengthened its commitment to BIO Ventures with a four-year, $5.4 million grant to help achieve that goal.
“A lot of companies are trying to develop drugs for developing world diseases, but they face significant market barriers,” says BIO Ventures Executive Director Wendy Taylor. “Many have technologies with potential applicability in these areas, but have chosen not to engage because they don’t see a clear market opportunity.” The result was the creation of BIO Ventures, an effort to find those opportunities.
TWO-PRONGED STRATEGY
The organization’s mission is bold. Biotechs need to be convinced that markets exist for neglected global health issues while donors must be wooed. BIO Ventures’ two-pronged strategy is to break down the barriers that have traditionally prevented biotechs from playing a more significant role in the global arena. The first prong, according to Taylor, is to see where BIO Ventures can build or uncover market opportunities for global health issues. “A company might look at the developed world market or a travelers’ market or a military market, but when it comes to developing world markets, they simply don’t see a viable opportunity,” Taylor says.
Through a series of business cases, BIO Ventures plans to examine potential market opportunities for specific diseases; the first step will be to evaluate the global market opportunity for tuberculosis vaccines. “These business cases will provide the information a company needs to evaluate whether to move its own technology forward and build a case for its boards and investors,” says Taylor.
There are two potential audiences for these studies. First, if a viable market is found, BIO Ventures will aggressively promote that to biotechs with relevant technologies. “If we don’t find a market that is viable, then the audience for these becomes the public sector — which we can approach and say, ‘If we expect industry to invest in product development in these areas, then we have to enhance the underlying market conditions first.’”
The second prong in the BIO Ventures strategy is to look at ways to improve insufficient market opportunities through market incentives. One of the most promising approaches is to create advance market commitments, which, Taylor explains, have the potential to create a viable market where one does not exist and “pull” new industry investment. BIO Ventures has been working with the World Bank and the finance ministers of the G8 countries to design advance market commitments, which Taylor calls exciting. “This could be a tremendous catalyst in spurring new product development,” she says.
Orphan Drugs: Biotechs Take Lead
The generous government incentives associated with the Orphan Drug Act — tax credits amounting to half of R&D costs and waived FDA filing fees that can cost hundreds of thousands of dollars — has made orphan drug development one of the fastest-growing segments of the biotech market. In fact, the number of biotech products in development for orphan conditions has virtually doubled in the past two years.
The government has officially labeled more than 6,000 rare diseases orphans. Because they treat otherwise unmet needs, orphan drugs historically have had better prospects of commercialization — 18 percent of developmental compounds actually hit the market, compared to an overall rate of 8 percent for all new drugs. These drugs are often very expensive — $300,000 a year for Genzyme’s treatment for Gaucher disease, for example — meaning that they don’t have to fit the blockbuster model of mass-market drugs to be considered a success.
Also, third-party payers often cover most orphan drugs — making them an attractive incentive for biotechs at a time when reimbursement is not always a given.
Rule Puts Kibosh on SBA Start-up Funds
A new interpretation of a Small Business Association rule requiring companies to be owned by “individuals” has shut down funding for most biotechs through SBA’s Small Business Innovation Research (SBIR) program. Venture capital firms provide the bulk of start-up capital for emerging biotechs, and often account for more than 51 percent of a biotech’s ownership. The SBA does not consider VCs to be an individual, thus excluding those biotechs from SBA grants.
Specialty drugs continue to grow at rapid pace
The Segal Company’s annual Health Cost Trend Survey projects that while the rate of increase in overall prescription drug-coverage expenditures is expected to decline next year, the tab for biotech drugs is expected to increase by more than one fifth — about 8 percentage points higher than overall drug-spending increases.
SOURCE: SEGAL CO. ANNUAL HEALTH COST TREND SURVEY, 2005
Before 2003, biotechs eligible for SBIR awards did not need to meet the 51 percent criteria. The SBA contends that the reason for the change is that by allowing VCs to hold majority ownership, the focus will shift from companies involved in early-stage development toward those engaged in later-stage technologies — which usually can acquire capital more easily.
BIO Chairman Jim Greenwood asked SBA to reconsider its decision. BIO also is lobbying Congress, arguing that biotechs need more startup capital than any other industry.
Copayments Hit $100 in Georgia
State workers in Georgia will begin paying $100 for certain brand-name drugs — the highest known copayment in the nation.
Although the $100 copayment applies to third-tier nonpreferred drugs, it is not uncommon for health plans to institute a fourth tier for biologics that carries a copayment or co-insurance equivalent of $100 or more.
Chit-chat
Big pharma acquired 16 biotechs in the first half of 2005, compared with only three in the first half of 2004.... Medicare has begun to cover Genentech’s clot-busting drug t-PA. Without reimbursement, hospitals had been reluctant to use t-PA, which costs $2,000 per dose…. Express Scripts is acquiring Priority Healthcare in a $1.3 billion agreement.... OSI is buying biopharm Eyetech, maker of Macugen, for $935 million.... AstraZeneca has struck two deals to boost its pipeline. It signed an agreement with Astex, which is developing an anticancer agent that blocks protein kinase B, and another with Schering, splitting rights to indications for a new class of anti-inflammatory agents.