Friday, May 30, 2008

Biomed Notebook

Biotech toots own horn about nearing profitability

By Ryan McBride

Unlike their counterparts in biotechnology, executives in banking, real estate and IT expect their industries to be profitable. Imagine the reaction to a research report in real estate or banking, for example, that said that the industy had almost turned a profit. Angst, anger, laughter perhaps. 

But in biotech, which has never been a profitable industry as a whole, the “almost profitable” tag line could be construed as good news. Indeed, accounting giant Ernst & Young highlights in its annual report on biotech — which it released last week — that the U.S. biotech industry came closer to profitability in 2007 than any previous year. I wasn’t sure how to interpret this news, so I called Mark Leuchtenberger, the new chairman of the Massachusetts Biotechnology Council, whose day job is CEO of Cambridge biotech firm Targanta Therapeutics Inc. Leuchtenberger said he hadn’t seen the report, but he shared his views on the financial realities of the industry.

“I’m not surprised at all,” said Leuchtenberger. “Maybe the industry is starting to mature because of consolidation in the industry.”
He added that investors in biotech firms are more careful now about where they place their bets than they were during the era of exuberance eight years ago.

The E&Y report, titled “Beyond Borders: Global Biotechnology Report 2008,” said that the net loss of the industry worldwide fell from $7.4 million in 2006 to $2.7 million in 2007. In the United States, the total net loss last year was a record low $300 million.

For sure, several biotech companies are already well into the black. Take biotech giant Genzyme Corp., headquartered in Cambridge, which reported 2007 net income of $480.2 million on revenue of $3.8 billion. Big biotech firm Biogen Idec Inc., also based in Cambridge, was also profitable last year with net income of $638.2 million on revenue of nearly $3.2 billion.

Still, Genzyme and Biogen, and a handful of other profitable biotech companies, are certainly the exception rather than the norm in the industry, which is populated mostly by smaller ventures that are without products on the market and are perennially in the red. Some have compared biotech investors to gamblers entering a casino, where the house always wins and few players become richer.

(However, victories are counted in different ways in the biotech sector, and the incredible impact of new treatments on sick patients brings altruistic rewards to workers in the industry. Leuchtenberger reminisced about his days as an executive at Biogen, where a top scientist told him that the drugs developed in their industry completely change how certain patients are treated for diseases.)

Apart from the E&Y study, the lack of profit in biotech is thoroughly analyzed and explained in “Science Business: The Promise, the Truth, and the Future of Biotech,” by Harvard Business School professor Gary Pisano. (In full disclosure, Harvard Business School Press mailed me a free copy of the book last year.) Without endorsing the book, but having read it, I’ll say that Pisano knows way more about the financial dynamics of biotech than I do.

No surprises there.

Clinical Data clarifies its vilazodone options
On the drug development front, Drew Fromkin, CEO of Newton-based Clinical Data Inc., e-mailed to clarify his commercialization strategy for antidepressant drug vilazodone. The drug was noted in my last column as an example of a local life sciences company developing a treatment for a neurological condition as pharmaceutical companies face patent expirations on blockbuster products in this category.

In the column, it was noted that Clinical Data hoped to find a pharmaceutical partner to help market the drug if approved by the U.S. Food and Drug Administration. Fromkin wrote that, in addition to that potential strategy, there are many ways the company could bring the drug to market, including on its own or through co-promotion with another life sciences company.