Blurring the lines

January 1, 2001
George Hradecky

George Hradecky is a former editor in chief of Pharmaceutical Representative magazine.

Pharmaceutical Representative

Though the borders seperating the pharmaceutical and biotech industries may be increasingly foggy, the two groups still remain deliberately distinct.

In the view of the public, the biotech industry and the pharmaceutical industry might look the same: They both produce life-saving medications, both have their products approved through the Food and Drug Administration, both spend unprecedented amounts of money on research and development, and both take similar positions on issues such as Medicare and patent integrity. But the different sizes of the two industries and the fact that the biotech industry wishes to remain independant demonstrate that, though the lines are becoming blurred, there is still a ways to go before the two industries merge completely.

Differences and similarities

In their approach to political issues, the two industries remain virtually indistinguishable. "As I look at the whole issue of prices, access and coverage, certainly they are as adamantly opposed to price controls as we are," said Jeff Trewhitt, spokesman for the Washington-based Pharmaceutical Research and Manufacturers of America. "In terms of access for senior citizens, they agree that Medicare should be reformed - that there should be expanded coverage under an improved Medicare program. They may not take the precise approach we've recommended, but it will be a variation of wanting expanded private marketplace competition and choice. I would be shocked if the [Biotechnology Industry Organization] came down for a massive, government-controlled program."

Despite these similar political positions, the Washington-based Biotechnology Industry Organization - the biotech equivalent of PhRMA - has taken great pains to maintain the industry's independence in the minds of legislators. "The small biotech companies very much want to retain their identity as emerging, entrepreneurial and high-tech," said Carl Feldbaum, president of BIO. "Politically, they do not want to necessarily be aligned in the minds of legislators or the White House with a group that has unfortunately, and largely unfairly, been maligned as the villains of the peace."

A lot of this concern comes from the fact that biotech companies are, as a whole, much smaller than conventional pharmaceutical companies and, therefore, much more beholden to investors. "Most biotech companies aren't making money yet," said Jennifer Van Brunt, editor of Signals Magazine, an online biotech industry publication. "So especially for those that aren't profitable, they are very dependent on the market's sentiments, which can change so radically in the blink of an eye."

This size difference is one of the reasons there is not simply one industry association. Though Feldbaum estimates that roughly 35 BIO members are also members of PhRMA, BIO members expect services from their organization that PhRMA doesn't provide. "The types of things [biotech companies] want from a trade association, for example, are different," said Feldbaum. "They want us to participate in their capital formation activities. They want BIO to take them on partnering missions to Europe and Asia to meet investors. BIO holds investor conferences. We just don't do their politics; we have an economic umbilical to our member companies. So there's a basic difference in the services that we provide, and they ask us to provide independent political services as well. On many of those issues, we're closely aligned with the PhRMA agenda; on other issues, our priorities are somewhat different."

But even though the two industries differ in size, numerous partnerships and alliances between the two groups have otherwise made them economically similar.

Merger mania?

It didn't take long for the pharmaceutical industry to recognize that there is great discovery engine in the biotech industry and act accordingly. But the complete acquisition of biotech companies by pharmaceutical companies is not as frequent as the public imagines. "The number of biotech companies that have actually been bought outright by major pharmaceutical companies is pretty small," said Van Brunt. "There are lots of biotech-biotech mergers and acquisitions going on, but the acquisition of a biotech company by a pharmaceutical company is not such a common occurrence."

More commonly, pharmaceutical companies partner with biotech companies in ways that allow the biotech companies to remain independent. "Buying is not the right word; buying an interest [is more accurate]," said Feldbaum. "The model is not to buy the company and absorb it into the pharmaceutical company. The model has been much like when Roche bought into Genentech - to buy a considerable part of the company, but allow it to remain relatively autonomous."

This autonomy preserves the corporate cultural differences that have been a primary reason for biotech's success. "Biotech companies are relatively small compared with pharmaceutical companies, they're kind of free-wheeling and they don't have as much structure in terms of nine-to-five," said Van Brunt. "The communication between the guy on the lab bench and the guy in the CEO chair is relatively immediate [at a biotech company], as compared with a pharmaceutical company, where there are all these chains of command. Pharmaceutical companies, because of their structures, are not so quick to act and react to new developments." Van Brunt likened the phenomenon to trying to turn an ocean liner as opposed to a speedboat.

According to Jim Shrine, the managing editor of the biotechnology newsmagazine BioWorld, the completion of the Human Genome Project, combined with skittishness over the Internet sector, has caused renewed investor interest in the biotechnology industry. "Biotech has raised a whole lot of money this year," Shrine said. "Better than any year."

This renewed in-vestor interest could help the biotech industry maintain some of the independence it desires from the pharmaceutical industry. The increase in capital could be especially valuable for biotech companies who want to market their own products in an area where they have traditionally had to turn to the pharmaceutical industry for help.

Still friends

Even though the biotech industry has a desire to remain distinctly separate from the pharmaceutical industry, the two groups still try to remain on friendly terms. When republican representative Bill Thomas of California suggested that BIO not only distance itself from the pharmaceutical industry, but also attackit on a prominent issue (a position Feldbaum describes as "ludicrous"), BIO refused.

According to Feldbaum, the fact that the biotech industry is favored politically is more a matter of circumstance than virtue, and once the biotech industry becomes a bigger fish, the issues the pharmaceutical industry are attacked on could easily be transferred. Said Feldbaum, "The fact that we're independent and seek to maintain that independence does not in any way mean we're adversarial." PR