Biotechnology of Switzerland: no way without small
The biotechnology industry of one of the world's leading pharmaceutical companies – Switzerland – is based on small innovative companies. With the support of the state and venture investors, they take on the main risks of developing new drugs, and if successful, leading corporations come into play.
The total capitalization of companies in the global biotechnology sector exceeded half a trillion dollars by the end of 2006. During the year, the index of the American analytical company Burrill & Company, reflecting the development of this market segment – Burrill Biotech Select Index, increased by 14%. But perhaps the main indicator of the industry's success is the rapid emergence of new players: up to a hundred small companies are created every month in the world. Newcomers are attracted by the fact that if their innovative drug is successful, investments in its creation will pay off in two to three years.
However, success awaits one development out of ten: new biopharmaceuticals are based on synthesized proteins that have a complex molecular structure, which makes it extremely difficult to calculate numerous side effects in advance. Investments in one ingredient amount to several million dollars, and preclinical and clinical trials can last more than ten years. Therefore, every development is always a risk. And the main risks of creating new active ingredients are assumed by small startups, usually led by scientists who have decided to bring their ideas to a commercial product. In fact, these small scientific and production associations provide the main innovative processes in biopharmaceuticals. However, the laurels, as a rule, do not go to them.
From grants to a cluster incubatorSwitzerland is one of those countries where biotech is developing very successfully.
It has the highest density of biotech companies per number of inhabitants. The reason is that favorable conditions have been created for them here, which attract the most qualified specialists to the country and allow many startups to develop. The country has a system of auxiliary structures that unite universities and businesses into one whole, which contribute to the development of small innovative companies.
It all starts at universities. Usually the idea of creating a new active substance originates precisely at university departments. Funding is provided by the Commission for Technology and Innovation (CTI), which promotes applied scientific research that is interesting from an economic point of view, and helps universities and commercial structures to organize joint work on the project. According to Bede Stadler, a professor at the University of Bern, the commission provides financial support to projects through a grant system, distributing up to 100 million Swiss francs a year (approximately 700 grants). From 2001 to 2005, about 1,500 projects were supported, which led to the release of various intermediate biotechnological products worth 930 million francs.
The most successful academic developments continue to develop in business incubators. This is the name of service companies that, on the basis of outsourcing, provide startups with all the necessary material infrastructure (laboratories, office space) and even the opportunity to conduct external expertise and clinical trials, as well as closely interact with university scientists. Incubators provide financing based on a percentage of future profits.
"Our goal is to combine the academic university environment with the market environment. In their combination lies the success of the bioindustry. Developers – often this group comes out of the academic environment – get into our business incubator at the project development stage. Of course, if the incubator's advisory board, seven to eight people and two directors, considers it commercially successful. This means that we want to get a ready–made market product from him by 2009-2010," Benoit Dubuis, director of the Eclosion incubator, told the Expert.
The Eclosion incubator rents space from the leading biopharmaceutical company Serono (since autumn it has become part of the Merck pharmaceutical concern) in the Geneva Technopark. Financing of the incubator consists of state investments aimed at maintaining the operation of the technopark, and private investments that go to the creation of new companies. For five years, each startup receives one and a half million Swiss francs annually, and the total venture capital is 15 million. Particularly effective projects under development (one or two out of ten or eleven) receive additional funding.
Technoparks form four bioclusters that accumulate pharmaceutical companies by geographical principle (Bioalps-Lake Geneva BioCluster near Geneva, Biovalley-The Life Science Network near Basel, Greater Zurich Area near Zurich and Biopol Ticino in Ticino). Startups working in clusters pay taxes at a reduced rate for the first ten years, and the most promising enterprises can receive a full tax exemption.
Bioalps is the largest of these clusters, it unites about ten research institutes, dozens of startups and several technology parks. The Swiss cluster consists of rows of unpresentable houses, similar to construction cabins: no one really cares about the issue of image here. Inside the "cabins" there are no strict spatial distinctions between individual companies, and the relations between them look very friendly.
b2b−biotechnologyWhen a small innovative enterprise of the cluster achieves certain success, it is bought by some large pharmaceutical concern.
The division of spheres of activity led to the fact that the biotechnology industry was divided into two parts – startups, on the one hand, and multinational pharmaceutical corporations, on the other. The main volume of the market is formed so far on b2b transactions between these two groups. Actually, the biotech market mainly consists of such transactions today. The sale of ingredients and medicines under development is a forced strategy not only for newcomers to the pharmaceutical market, but also for quite successful small companies. Only large corporations that can afford huge expenses on marketing and popularization of their brand have sufficient organizational and financial capabilities to bring the drug to the market. The rest of the players simply can't afford it.
Even one of the leaders in the development of direct renin inhibitors for the treatment of cardiovascular diseases, Speedel, has faced difficulties. Despite a fairly solid income of 59 million Swiss francs, it is mainly forced to sell finished products to larger corporations. As Speedel's director of medicine, Dr. Jessica Mann, explained to the "Expert", setting up a distribution system and conducting marketing research are very expensive, the company does not have such resources. Therefore, after the new active substance passes the second phase of clinical trials, the production patent is sold to a major market player, such as Pfizer or Novartis. It is much easier for them to sell ready–made medicines - thanks to a wide distribution network and a well-known brand.
How Leaders surviveBuying patents or shares in startups is the most popular way for pharmaceutical corporations to replenish their "drug portfolio".
At the same time, it often turns out that the company that developed the drug and received a patent for it is repeatedly resold (itself or only the patent) then one, then another corporation, and the medicine gets into retail sale under a completely different brand.
One of these stories was told to the "Expert" by the head of global research at Roche, Jonathan Knowles. "The active ingredient for the bestseller – MABTER, a monoclonal antibody to fight one of the types of blood cancer, effective for seventy to eighty percent of patients - was developed in the laboratories of the American company IDEC Pharmaceuticals. Then Genentech, part of the Roche group of companies, bought a license for its production and together with Roche conducted clinical trials and brought the drug to mind," says Mr. Knowles. As a result, Roche was awarded the annual Galen Innovation Award (the main award in pharmaceuticals) for the creation of the mabTera.
In general, over the past decade, Roche has concluded about seventy alliances and licensing agreements that facilitate and reduce the cost of the process of creating innovative drugs. "Biotechnology is such a labor-intensive and expensive industry that today no company can independently conduct research and bring a product to market. Ten years ago, one out of two or three developments turned out to be successful in biotech. Today, this area has become even more complex and risky. One development out of ten is now successful. Therefore, cooperation in this industry is absolutely necessary, it brings good results – we receive more than fifty percent of the profit from the sale of biopharmaceuticals. However, our own costs for biotechnological research are large, they amount to more than 2.5 billion francs, half of the total research budget of the Roche group," William Burns, head of the pharmaceutical division of the concern, told the Expert.
According to a similar scheme – combining its own developments and the acquisition of startups and patents – another largest Swiss pharmaceutical company, Novartis, also operates in Basel. Carrying out its own research (the total budget of the corporation for research and development in 2006 amounted to $ 5.36 billion, of which more than 4 billion is accounted for by the Pharma division dealing with innovative drugs), the corporation actively buys specialized biopharmaceutical companies. The largest acquisition of 2006 was the American Chiron, for which Novartis paid 5.4 billion dollars. If we talk about the most successful drugs of the corporation in recent years, then an example of its own development can be glivek (on the market since 2001) – the first anticancer agent that fights a specific molecular defect in the cell and gives patients with chronic myeloid leukemia a chance. Many other drugs have been released by Novartis in conjunction with other biotech companies. Together with Genentech and Tanox, xolar was developed (on the market since 2006), containing monoclonal antibodies to immunoglobulin G and radically changing the course of severe bronchial asthma. And this year, among others, it is planned to launch razilez for the treatment of hypertension – a joint development with Speedel.
Niche success of startupsIn the current market situation, it is not surprising that the budget of leading corporations for their own developments is less than the funds spent on acquiring partners: large players prefer not to take risks, betting on the release of already completed and proven medicines.
Patents for innovative biotechnological developments are bought only after a relative guarantee of success appears. Startups are willing to take risks for the sake of the possible success of an innovative drug and spend years on research – today is their time.
"The biopharmaceutical market is now in a favorable competitive situation for small companies. They occupy narrow niches – a potential target group of twenty to forty thousand patients. And big corporations can't afford it, you can't earn billions there. For example, our specialization is neuromuscular diseases that are severe and at the same time genetically embedded. There are few approved drugs in this area yet, which explains the high demand and high prices. Patients are willing to pay thousands of dollars to prolong their lives for at least six months," says Dr. Klaus Stolmeyer, CEO of another Swiss biopharmaceutical company Santhera.
Such new drugs are not widely advertised and are known only in relatively narrow professional circles – in the scientific community and among the attending physicians of a specific group of patients. According to the scientific director of Santhera Thomas Mayer, the main tool for informing patients is "word of mouth". It is enough to post all the details about the methods of treatment on the Santhera website, and patients will quickly exchange this information among themselves. Santhera plans to independently launch drugs on the local and American markets. This is not typical for such a small company. The budget for organizing a sales network and marketing may be too large, even though the Swiss government strongly encourages local companies to enter the American market and largely compensates for their expenses.
Basel-based mondoBiotech also feels great in a narrow market niche. Paolo Bassanini, head of marketing, explains the success of the company by the fact that the market for rare diseases (in particular, some specific lung diseases in which they specialize) is not interested in large companies due to the lack of billion-dollar profits. Therefore, having occupied a narrow niche, you can feel quite calm. mondoBiotech has no laboratories, no office space, no equity – it is financed by family funds from Switzerland, Northern Europe and America. The development of active ingredients is outsourced to large laboratories, and the finished product is sold to industry leaders. In fact, the main task of mondoBiotech is to predict what kind of idea a bright future awaits.
One way or another, the "division of labor" that exists in the Swiss biotechnology market is still demonstrating viability. Innovators, with the support of the state and various investment funds, carry out modern developments, and large corporations ensure their implementation and promotion – and not only within the country.
Anastasia Alekseeva, http://www.expert.ru /