Box 31 The Birth Of A Dedicated Biotechnology Company [1

It has now been more than fifteen years since Robert Swanson, a young man who understood both finance and science, invited Herbert Boyer, a shy molecular biologist at the University of California, San Francisco, out for a beer. Swanson described his vision to Boyer: that the techniques and ideas that Boyer had devised for manipulating DNA could be translated into products at a private company yet to be established. As a result of that meeting, Genentech, the first well-known biotechnology corporation, was founded; Swanson and Boyer made their fortunes; and profound changes ensued in academic biomedical research.

pioneering work (Box 3.1) has given birth to biopharmaceuticals that are now on the market to improve human health. In more recent years, these technologies have been gradually adopted and integrated into the research and development processes of most of the major pharmaceutical companies. Today, major established pharmaceutical companies and dedicated biotechnology companies alike are using these advanced tools and resources to stay competitive in accelerating the discovery and development of pharmaceuticals.

The development process for biotechnology products is a lengthy and expensive one that carries unforeseeable risks and encounters setbacks during preclinical and clinical testing as a drug candidate is being developed. According to a study by the US Office of Technology Assessment (1991), regulatory approval and marketing of a new biopharmaceutical can cost $200 to $350 million and take from 7 to 12 years [2]. A recent study suggests that costs may run as high as $800 million. On average, the FDA approves only about one of five new molecular entities (NMEs) evaluated in human clinical trials. Furthermore as many as 5000 NMEs would have been evaluated in preclinical research to come up with the five leading candidates.

Traditionally drug discovery and development in the pharmaceutical industry relied on chemistry. Drug discovery and much of development was carried out by medicinal chemists focusing on chemical structures and corresponding functional activities of NMEs. Only limited biochemical and pharmacological information was available regarding the therapeutic target and the drug candidate. This approach was especially characteristic of drugs developed in the two or three decades following World War II. Many of these drugs and NMEs were selected based on crude biologic screening of chemical compounds. Those engaged in drug discovery were said to be playing molecular roulette. Many compounds were screened, from which one or two agents were eventually approved for human use [3].

This strategy, however, was about to change. The advent of integrated biological sciences—physiology, molecular biology, biochemistry, genetics, pharmaceutical sciences, and biotechnology—provided, for the first time, intricate details at the cellular and molecular levels and allowed insightful characterization of chemical structure-biological function relationships. Among other impacts, these advances greatly increased the efficiency of screening of chemical compounds to identify lead NMEs for preclinical testing. But bear in mind that even today the development of small molecular weight drugs begins with synthesis of a series of chemical compounds provided by medicinal and organic chemists.

In contrast with the postwar strategies of the established drug industry, dedicated biotechnology companies were created to exploit the commercial potential of technological innovation and ideas. Therefore many of the early biotechnology companies were founded with emphasis on science and technology, and were modeled after research organizations and institutions. According to one report, the US government provided over $3 billion for biotechnology research through various federal agencies in 1990 alone [2] (Table 3.1). In 2001 NIH allocated $19.7 billion to biomedical research, and the amount is expected to increase to $22.4 billions in 2002 [4].

Despite the government's largesse, the pioneering biotechnology firms survived by commercially exploiting technologic innovations and developing diagnostic tools, rather than by developing novel therapeutic entities. This was so because the transformation of recombinant proteins and peptides into biopharmaceuti-cals had never been charted, and venture capital to fund new therapeutic agents has not yet started to flow freely.

Today funding for a start-up biotechnology company is provided by a combination of federal grants, private parties, and venture capital. As the company matures, public stock offerings are common, and relationships may be established with large pharmaceutical companies. Frequently biotechnology firms raise cash for drug development and clinical studies by licensing key first-generation products and vital market segments to established drug companies in exchange for financial viability.

Those biotechnology companies successful in raising cash for initial start-up operation in the early 1980s still needed second and third rounds of financing to perform clinical studies to develop their basic research discoveries into marketable products. By the late 1980s, as many startup companies were ready to initiate clinical trials, the need for capital exceeded available sources. Many companies raised the needed cash for the later phases of clinical testing through public stock offerings. The tightened funding for biotechnology companies during this time was

■TABLE 3.1. US federal funding for biotechnology for fiscal year 1990


(in millions



National Institutes of Health


National Science Foundation


Department of Agriculture


Department of Defense


Department of Energy


Agency for International Development


Food and Drug Administration


Environmental Protection Agency


Veterans Administration


National Institute of Standards and



National Aeronautics and Space



National Oceanic and Atmospheric





Data source: US Office of Technology Assessment [12].

Data source: US Office of Technology Assessment [12].

compounded by (1) the 1987 stock market crash in the United States, (2) slower than anticipated product development due to unforeseen technical problems in bringing biotechnology products to market, (3) poor investment returns, and (4) increased competition because recombinant DNA technology had become routine and the art of gene cloning was now widely available to pharmaceutical companies around the world. Nevertheless, some biotechnology companies—through creative financing, strategic alliances, and other arrangements—survived the challenges and began to launch their products by the early 1990s; many of these companies were able to post profits by the mid 1990s. Today several biotechnology-based pharmaceutical companies realize more than one billion dollars in annual profit (Table 1.1).

For the past few years, the number of biotechnology companies in the United States has hovered around 300, about 25% lower than the 403 extant 10 years ago

[2,5]. Financial viability of biotechnology compines has also remained pretty much constant over the past three years (Table 3.2).

Because the strength of most biotechnology companies is in discovery research focusing on new technologies and new molecular entities—proteins, peptides, and genes—the industry has been successful and innovative in identifying novel therapeutic agents. Often, to improve the odds of success in further developing these new molecular entities into drugs,biotechnology companies with limited financial resources must choose a target indication with the highest potential of clinical success, in terms of clinical significance and efficiency in clinical testing (refer to Box 3.2 for discussion of therapeutic indications). Sometimes the therapeutic target is obvious and indeed the point of development, but often it is not because many molecules exhibit therapeutic potential in multiple disease targets. For example, interferons, produced by lympho-

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