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Biotech has had a profound impact on the pharma industry by helping to develop new medicines that treat patients more effectively; however, despite its achievements, it hasn't made a significant difference to the number of new treatments reaching the market. According to PricewaterhouseCoopers' (PwC) research paper, Biotech reinvented, biotech hasn't met the industry's expectations and will need to change its business model if it is to survive. Crucially, biotech hasn't reduced the inherent risk in drug discovery and development; the overall success rate is still only 9.1% for biotech drugs compared with 6.7% for a smallmolecule drug.

Flawed business model

Unfortunately, biotech's situation worsens.

"The current business model on which biotech has relied is flawed," Simon Friend, Global Pharmaceuticals and Life Sciences Industry Leader at PwC, said in a statement. "Due to poor rates of return, investment has dried up and many of the external conditions that have allowed companies to thrive are vanishing."

In particular, the research base is shifting geographically, moving further East, and the emerging economies are competing more aggressively. Importantly, these new economies aren't just copying the West, but learning from past mistakes; they're doing away with the costly infrastructure and creating leaner business models.

An additional problem for biotech is the fact that financial investors are being more cautious in light of the recession. In 2008, for instance, biotech in Canada, Europe and the US raised 45% less funding compared with previous years. The situation did improve in 2009; however, 10 biotech firms still filed for bankruptcy in the US and a further 9 closed without being officially bankrupt.

The benefits of collaboration

All of these issues mean it's time for the industry to change. According to PwC, the boundaries between biotech and pharma are already blurring with the emergence of biopharmaceutical companies, but all companies — whether biotechnological or pharmaceutical — need to adopt a new business model. In particular, there is great potential in a more united front that makes use of collaborations.

"Efficiency is the name of the game," said Friend. "Working with others accelerates and facilitates innovation, discovery and development, which in turn can reduce costs and benefit both large and smaller companies."

Indeed, a number of precompetitive discovery federations — public–private partnerships where biopharm companies exchange knowledge, data and resources with each other, as well as other organisations — have already been formed. There is also potential for close collaborations in more competitive development, with rival biopharm companies joining forces with each other, as well as with CROs and platform technology providers. Although Big Pharma has traditionally shied away from such arrangements, AstraZeneca and Merck recently entered into a partnership to develop a combination therapy for cancer. Under the terms of the deal, the companies will share the decision rights and costs, as well as any intellectual property that is developed as a result.

One of the main issues regarding these collaborations, however, is that data aggregators will be needed that can collect and synthesise all the necessary data. At the moment, no such organisations exist, although solutions are beginning to emerge slowly; for instance, the Human Proteome Organisation's Proteomics Standards Initiative has released standards for representing and exchanging proteomic data.

Additionally, organisations will also have to learn to work with one another. "Biotech executives and academics sometimes complain of Big Pharma's 'arrogance', for example," says PwC. "But size isn't everything and the biggest pharma companies can't expect to have everything their own way. So they'll need to become more flexible."

At the same time, research institutes and biotech firms will need to have more "realistic" expectations as it's all too easy for a biotech company to over value a single platform technology or molecule.

"There are some considerable cultural, behavioural and practical hurdles, and some of them may be difficult to overcome," says PwC. "But we believe they're well worth resolving, given the rewards."

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